EY could have stopped Wirecard fraud earlier, says judge

The Wirecard trial’s presiding judge criticised EY on Thursday for allegedly failing to act on clear evidence of fraud at the German payments group.

The comments came after the prosecutors’ chief witness Oliver Bellenhaus described how an internal investigation had in 2019 found that a contract for a software sale was fake.

The finding triggered a €12mn writedown and was shared with the group’s auditor EY, according to Bellenhaus, a former Dubai-based manager for Wirecard, who is facing charges of fraud, embezzlement, accounting and market manipulation alongside former chief executive Markus Braun and the former head of accounting Stephan von Erffa.

“So EY at this time knew that Wirecard was forging contracts? What were the consequences?” judge Markus Födisch asked Bellenhaus. After hearing that there were no consequences, Födisch said in apparent disbelief: “I am just puzzled . . . [EY] could have handled it differently, and then the whole issue would have been uncovered more than a year earlier.”

Wirecard collapsed into insolvency in June 2020 after disclosing that €1.9bn in corporate cash and half its revenue were a sham. In the 12 months before the collapse, Wirecard raised more than €1.4bn in fresh debt. EY had been the auditor of the disgraced German payments company and for more than a decade gave its annual accounts a clean bill of health.

EY is still under investigation by Germany’s audit watchdog Apas over its work for Wirecard. The body, which in 2020 filed a criminal complaint against several EY audit partners, flagged potential violations of professional duties.

One year later, an investigation on behalf of the German parliament concluded that the auditor’s work suffered from serious shortcomings over a period of years. The Big Four firm is facing an avalanche of lawsuits by Wirecard investors and creditors who suffered billions of losses in the crash.

Bellenhaus told the court in Munich that he managed to reduce the required writedown to €2mn by fabricating two new contracts, inventing new software sales of €10mn. The €2mn writedown was considered insignificant by EY, according to Bellenhaus.

EY did not immediately respond to a Financial Times request for comment.