The former chief executive and two board members of Wirecard have been arrested by German police for “commercial fraud” after investigations found misconduct dating back to 2015.
The widening probe suggests that banks in Germany and Japan, as well as other investors, were conned into providing funds of up to €3.2bn (£2.9bn) to Wirecard, prosecutors said, adding that funds were now likely to have been lost after the company went bust.
Described by Germany’s finance minister as an “unparalleled scandal”, the June collapse of the payments provider shocked the nation and has since become into a political headache for Angela Merkel’s government.
Both Markus Braun, who had already been arrested before being freed on bail over market manipulation, and the board members were detained on Wednesday in Munich.
All three, plus another suspect who was identified only as the managing director of Cardsystems Middle East – a Dubai-based subsidiary of Wirecard – are suspected of “inflating the balance sheet and volume of revenues by falsifying the company’s intake”.
“The company was to be presented as financially strong and attractive to investors and clients, so that loans could be obtained from banks and other investors on a regular basis, as well as keep it generating its own income,” said Munich prosecutors.
“In reality, it was already clear to the accused by the end of 2015 at the latest, that Wirecard group was making losses with its actual businesses.”
Urging other participants in the massive fraud to come forward in exchange for leniency in sentencing for any convictions, prosecutors warned however that “the value of information” was diminishing as the investigations progress.
The huge scam had unravelled in June when auditors Ernst & Young said they were unable to find €1.9bn of cash in the company’s accounts – equivalent to a quarter of the balance sheet.
The sum was supposedly held to cover risks in trading carried out by third parties on Wirecard’s behalf and was meant to be held in two banks in the Philippines. The country’s central bank has said the cash never entered its monetary system.
The German-based group was finally forced to admit the sum likely did not exist.