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The fraud trial of the former head of Wirecard, the German electronic payments company that went from being the darling of Europe’s start-up scene to a spectacular fall that led to changes in Germany’s financial oversight, began on Thursday in Munich.
The electric payments company rocketed to fame in the 2010s, rising to become the country’s most valuable financial firm. But two years ago its auditor declared it could not find nearly 1.9 billion euros (about $2 billion) listed on Wirecard’s books, setting off a chain of events that would wipe out more than 20 billion euros, generate arrest warrants for its top executive, and damage the reputation of Germany’s financial regulators who for more than a decade overlooked questions about the company’s dealings.
Markus Braun, the former chief executive, and two other former executives face charges of defrauding creditors of $3.7 billion, through false accounting from 2015 until Wirecard collapsed in June 2020.
Prosecutors said Mr. Braun, the entrepreneur who founded the firm and would become a billionaire, misrepresented Wirecard’s earnings by inflating its sales with falsified income.
Plaintiffs in Germany do not enter pleas, but ahead of the trial, Mr. Braun’s lawyers said the charges against his client are “seriously flawed” and “assumed a false picture of the facts.” They said that Mr. Braun acted in good faith and was unaware of machinations by others in the company, especially concerning its business in Asia.
The two others charged in the case are Oliver Bellenhaus, who headed a Wirecard subsidiary in Dubai, and Stephan von Erffa, the company’s chief accountant. All three face the same charges, which carry jail terms of up to 15 years if convicted.
The trial is expected to take at least a year, given the complexity of the charges and need to comb back through transactions in detail,.
In the height of his company’s success — in 2018, Wirecard was the most valuable financial company listed on the DAX blue-chip stock index — Mr. Braun was considered a tech icon in Germany, credited with creating a modern financial technology company that could keep up with the more traditional heavyweights of Germany’s business world as well as hold its own against U.S. rivals such as PayPal.
Founded in 1999 and based in the Munich suburb of Aschheim, Wirecard provided the invisible financial plumbing that allowed customers to make transactions happen by waving a plastic card over a reader almost anywhere in the world. Hedge funds and global investors scrambled to buy shares.
Prosecutors said that Mr. Braun signed off on financial reports knowing that they were false. The company created the illusion of having more money than it did, they said, by booking nonexistent revenue attributed to multiple partnerships in countries abroad.
Central to these partnerships were escrow accounts that Wirecard said were held in two Philippine banks. The money was needed for the company to secure online card payments by third-party partners.
Without this guarantee, and the alleged income that could be generated from the third-party business, Wirecard would have been in the red, and would have failed to attract the faith of investors and banks.
But the two banks said they had never dealt with Wirecard. And prosecutors and the administrator tapped with handling the company’s insolvency, Michael Jaffé, now believe the money never existed.
One of the biggest challenges facing prosecutors is what another executive, Jan Marsalek, the chief operating officer, knew and what role he played.
Mr. Marsalek was responsible for the business with third parties. But he was last seen in Western Europe in June 2020, when he boarded a private plane in Vienna and took off for Minsk. He is wanted on an international arrest warrant, and German media have reported that he is believed to now be living in Russia.
Mr. Braun turned himself in to authorities in Munich the after he resigned as chief executive. He has been held in pretrial custody ever since. The company filed for insolvency in June 2020.
The collapse of the company led to a parliamentary inquiry and an overhaul of Germany’s financial regulator, BaFin. The regulator had responded to reports in The Financial Times about questionable transactions at Wirecard by investigating the reporters, instead of the company.
Last year, lawmakers expanded BaFin’s financial supervision capabilities, granting it more competencies and powers of intervention.
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