Munich prosecutors have launched an investigation into the Ernst & Young (EY) audit of Wirecard AG, compounding the firm’s troubles associated with $2.3 billion that went missing at the payment company.
APAS, an independent government body overseeing Germany’s auditing industry, sent a letter to prosecutors before a formal investigation was opened, prosecutors told Bloomberg on Friday (Dec. 4).
“EY Germany continues to respect the strict confidentiality disclosure rules of our profession, and is actively working towards a legally effective release from its confidentiality obligations, in December if possible,” the company said in an email.
EY’s Wirecard fiasco triggered a 90 percent freefall in its share price in June, while critics have come down on the accounting firm for not noticing billions were missing. However, EY maintains that the fraud was so “elaborate” anyone could have overlooked it.
APAS wrote to prosecutors in September asking for an investigation into EY’s work with Wirecard, just a few days after the Big Four firm turned over a mountain of requested documents. EY has accused the watchdog of acting too fast after receiving the paperwork.
Auditors being investigated include Andreas Loetscher, an EY veteran for 20 years who is now the managing director at Deutsche Bank. Martin Dahmen, who took over as the chief auditor of Wirecard from Loetscher, is also being investigated. Last week he was asked to appear at a Wirecard inquiry in front of a German parliamentary committee. Both Dahmen and Loetscher told the committee that they are unable to testify because they are being investigated by APAS.
“Their behavior before the parliamentary investigative committee has shown that they are unwilling to cooperate,” Wolfgang Schirp, a lawyer representing Wirecard shareholders in a lawsuit against EY, told Bloomberg. “It is about time that they feel the heat.”
Regarding Loetscher, Deutsche Bank said it can’t comment on employment details but a spokesperson told Bloomberg that “the presumption of innocence applies as a matter of principle … We have full faith in his qualification and ability to fulfill his role.”
The Wirecard issue was brought to light following the public release in September of a whistleblower’s report about possible fraudulent activity at the German payments firm. EY has been approving Wirecard’s financial accounts for over 10 years.
Loetscher’s Wirecard role has now put Deutsche Bank under the investigation microscope. The Wirecard scandal pushed the company to insolvency this year after it was discovered that EUR1.9 billion supposedly in a Philippines bank might have never existed.
Although EY was granted approval by Wirecard to testify and was freed from client confidentiality rules. The firm wants no part of testifying, however, arguing that the auditors could be exposed to potential criminal penalties related to secrecy breaches.