Payments firm Wirecard has filed for insolvency days after disclosing a €1.9bn (£1.7bn) hole in its accounts.
The German company’s former boss Markus Braun has since been arrested and “accused of inflating Wirecard’s finances to make them appear healthier to investors and customers”, the BBC reports.
So what is Wirecard - and what went wrong?
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The growth years
Wirecard was “founded in a Munich suburb” in 1999 and “backed by venture capital in the late stages of the dotcom boom”, the Financial Times says. The company is a payment processor, meaning it helps sites collect credit card payments from customers.
According to the newspaper, former KPMG consultant Braun took over as chief executive in 2002 after the company almost went bust, and then led a merger with a rival firm. Three years later, Wirecard joined the Frankfurt stock market, known as the Dax.
By 2006, the company had 323 employees, with most of its business revolving around “managing payments for online gambling and pornography”, says the FT.
Over the next decade, the company went on a “shopping spree”, buying payment companies in Asia in a series of “oddly structured deals”.
By 2018, the company was recording revenues of over €2bn (£1.82bn), “more than four times the figure from 2013”, according to CNN. But then things began to go wrong.
Success turns sour
In 2015, the FT began publishing a series of stories about Wirecard that raised “questions about inconsistencies in the group’s accounts”. The paper went on to report that there appeared to be “a €250m hole in the group’s balance sheet”, prompting legal threats from the company.
But the FT was right about the company’s accounting.
Last week, auditors EY refused to sign off on the company’s accounts after being unable to locate a missing €1.9bn (£1.7bn). Initially, the firm claimed the cash was held in two banks in the Philippines, but on Monday admitted that “the money may simply not exist”, the BBC says.
Wirecard has filed for insolvency citing “over-indebtedness” and Braun, who resigned last Friday, has been arrested on suspicion of inflating the company’s finances.
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What happens next?
Braun has been freed on bail of €5m (£4.5m) and remains a suspect in what German tabloid Bild has labelled “one of the biggest accounting fraud scandals in Germany’s economic history”.
The Munich Public Prosecutor’s Office has expanded its investigation to look at other Wirecard bosses, including ex-chief operating officer Jan Marsalek, who was fired at the start of this week.
The collapse is also “raising questions over how the company’s regulators and auditors could have missed accounting irregularities that are already drawing comparisons to Enron”, the US energy giant that collapsed in 2001, CNN says.
