Wirecard : Former CEO Markus Braun Is Arrested -- 2nd Update

By Paul J. Davies and Ruth Bender

Wirecard AG's recently departed chief executive, Markus Braun, was arrested by police, days after the German payments company revealed a $2 billion hole in its books.

Munich city prosecutors said he was arrested late Monday on suspicion of presenting false information. It was a swift turn of events for Mr. Braun, who was Wirecard's largest shareholder and served as CEO for nearly two decades until resigning last Friday.

The arrest is the latest rapid-fire blow for the company at the center of what appears to be Europe's largest fraud in years. The company began to unravel last week when its auditors said that they couldn't verify the money existed.

Mr. Braun's lawyers didn't immediately respond to a request for comment.

Mr. Braun, who turned himself in to police late Monday, is accused of "inflating Wirecard AG's sales volume with fake income," according to the prosecutor. The probe centers on Wirecard's use of so-called third-party acquirers, which supposedly processed payments on behalf of Wirecard, to present a false picture of the company's health.

Prosecutors said he was also under suspicion of making the company more attractive to investors and customers than it actually was, and possibly cooperating with other perpetrators.

The company dismissed Mr. Braun's longtime right-hand man, Chief Operating Officer Jan Marsalek, on Monday, after suspending him last week. Mr. Marsalek hasn't responded to requests for comment.

Mr. Braun, a 50-year-old Austrian native, will go before an investigating judge Tuesday. The judge will decide on whether or how long the executive should be detained, the prosecutor's office said.

Wirecard's shares have lost about 90% of their value over the previous three days, though bounced back slightly Tuesday morning. The company has been a target for hedge funds that bet against it for years due to allegations over its accounting practices and concerns that much of its business could be fake.

The Munich prosecutor's action comes after Germany's financial regulator, BaFin, said it had made mistakes in monitoring the business and called the episode a disaster.

When Wirecard appointed KPMG AG as a special auditor last October, the third-party acquirers were a main focus. Third-party acquirers worked to drum up payments business for Wirecard in countries where it didn't have full licenses to operate. In partnership with Wirecard, they would help merchants process customer payments, connecting them to the wider credit-card and banking system.

However, after six months' work, KPMG said it wasn't able to answer key questions about the relationship between Wirecard and the outside companies.

The problems with Wirecard's books may stretch back years. The company withdrew its financial results for 2019 and the first quarter of 2020 and warned that those for previous years could also be affected. The likely fictitious $2 billion is equivalent to all the net income Wirecard has reported over more than a decade.

Three of the third-party acquirer companies were hugely important for Wirecard's business, providing the vast majority of its profits during 2016-18, the period that KPMG was hired to examine.

Mr. Braun had been the figurehead for Wirecard since 2002, building it from a tiny online-payments company into a member of the DAX 30, Germany's blue-chip stock index. It peaked in 2018 with a EUR24 billion ($27 billion) market capitalization.

The stern and intensely spoken computer scientist from Vienna became a regular on the fintech conference circuit, adopting the black-turtle-neck look of Steve Jobs, Apple's famous founder. He was educated at the University of Vienna, and before Wirecard he worked as a consultant.

Mr. Braun consistently denied any wrongdoing at the company, attacking allegations about its accounting practices as false and misleading. In March and April, the company told its investors that no substantial findings had been made in KPMG's special examination.

Munich's prosecutor searched Wirecard's offices in early June as part of an investigation into Mr. Braun and other members of his executive team. The investigation was related to statements made ahead of the publication of KPMG's special report.

In November last year, just after the examination had begun, Mr. Braun told investors that nothing would be found. "We can totally confirm today that all of these allegations are unfounded."

Write to Paul J. Davies at [e-mail] and Ruth Bender at [e-mail]