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WHAT HAS HAPPENED?

On 18 June 2020, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (EY) announced that it found no sufficient proof of the existence of bank balances held in escrow account amounting to 1.9 billion Euro while acting as the auditor of Wirecard AG (Wirecard). Subsequently, it emerged that Wirecard has been manipulating its balance sheets for years and the company is in the middle of a fraud case of spectacular proportion.

Many years before the accounting scandal became known to the public, Wirecard has regularly been accused of a variety of accounting problems, including not properly disclosing and even falsifying its balance sheets. New and serious allegations were made from the beginning of 2019 especially by the British newspaper Financial Times. Fictitious revenues (third party acquiring), inflated purchase prices of companies to enrich managers, incorrectly booked merchant cash advance loans, as well as round-tripping by its companies in the United Arab Emirates, in the Philippines, and in Singapore make up only one part of the accusations leveled against Wirecard.

As a result of these public accusations of irregularities and questionable transactions, Wirecard shares repeatedly suffered substantial losses. Wirecard denied these accusations frequently. The Federal Financial Supervisory Authority (BaFin) had temporarily imposed a ban on short selling Wirecard shares.

Because of the persistent criticisms, the payment service provider tasked KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG) to produce an additional special financial audit. This special audit, according to Wirecard, was supposed to definitively and independently dispel all accusations leveled against the company by the Financial Times. The publication of this special audit was delayed repeatedly though.

When the special audit was made public at the end of April 2020, Wirecard’s share price fell sharply by around 40%. In contrast to the expectations of the financial market, it emerged that the accusations could not be dispelled completely. On the contrary, the independent auditor claimed in the report that it did not have access to all the necessary files and was obstructed in its investigations. Many questions remained.

For example, KPMG could not confirm the existence of revenues from the so-called third party acquiring business relationships. Payments amounting to one billion Euro allegedly held in escrow accounts could also not be traced.

In the end, EY, which has acted as the auditing firm for Wirecard for many years, refused to confirm an auditing opinion for the first time on 18 June 2020. According to EY, there was no sufficient proof for a credit balance amounting to 1.9 billion Euro held in escrow accounts. On 22 June 2020, Wirecard announced that these accounts probably do not exist. This supposition was proven correct a short time afterwards. The Chief Operating Officer Jan Marsalek was then dismissed by the company. On 25 June 2020, Wirecard filed for insolvency. On 25 August 2020 the District Court in Munich opened insolvency proceedings for Wirecard and six of its subsidiaries. Shareholders suffered substantial losses.

Even though many indicators of wrongdoing by Wirecard were present, BaFin nevertheless did not undertake to do anything for a long time. The auditing firm EY, despite bringing to public the accusations of balance sheet manipulation, had certified the balance sheets of Wirecard for years. The prosecutor is now investigating and some members of the executive board are on the run or are remanded into custody.


WHAT DOES THIS MEAN FOR YOU AS AN INVESTOR?

It is our firm conviction that several parties are liable to pay compensation in the Wirecard case. Aggrieved investors therefore have several possibilities to pursue their claims.

In our opinion, the accounting firm EY, who has audited the annual financial statements for Wirecard since 2009 and has issued unreserved audit opinions despite obviously falsified balance sheets, is liable to pay compensation. We are also convinced that the accountants from EY completed their tasks in an inadequate and negligent manner without sufficiently investigating and finding out the facts beforehand. The unreserved audit opinions stretching back years against the backdrop of the accusations in the public sphere prove, in our view, the action of EY to be unconscionable. We are therefore of the firm conviction that EY is liable to pay compensation to investors. The corresponding action has been filed on 30 June 2020 at the District Court in Munich I. An application to initiate a model case proceeding has also been filed so as to pave the way for investors to participate in a model case proceeding pursuant to the Capital Market Model Case Act (KapMuG).

Furthermore, we accuse BaFin of disregarding its obligations by not investigating Wirecard for market manipulation despite numerous indicators of wrongdoing throughout the years. Instead, it acted against critical journalists who reported on this and against short sellers. Furthermore, we accuse BaFin of communicating to the capital market in an incomplete and misleading manner. BaFin is, in our opinion, liable with regards to investors on account of its abuse of authority.

In our firm conviction, Wirecard itself is also liable. The lack of compliance in Wirecard and the balance sheet manipulation are, in our view, inside information that has a significant relevance to the share price. Wirecard had had to inform the capital market promptly and in full. Substantial parts of the communication to the capital market from Wirecard are, according to the pertinent capital market regulations, therefore incomplete and untrue. However, against the backdrop of the insolvency proceeding against the company, it is inadvisable to file an action against Wirecard. We believe that it is much more sensible to register our claims within the framework of the insolvency proceedings.

WHAT SPECIFIC STEPS CAN YOU TAKE NEXT?

You can find out from TILP, free of charge, if you as an investor can claim compensation.

TILP is happy to prepare an individual assessment for you. For this purpose, we ask that you submit to us security statements for your transactions in Wirecard shares (WKN: 747206 / ISIN: DE0007472060) or derivatives. Please do so only for transactions from 10 July 2012 to 25 June 2020 inclusive. Note that claims for “out-of-pocket” damage can still be made even if you have sold your shares. The claim for “out-of-pocket” damage can be made regardless of whether the shares are still held or have been sold.

After seeing your documents and evaluating its content, we will be able to recommend a course of action for you and show you possible alternative actions that you can take.

For this purpose, we kindly ask you to enter your name, your email address, and your telephone number in order to register with us.


Marc Schiefer,
LL.M. (Miami)


Geschäftsführer | Rechtsanwalt | Bankkaufmann Attorney at Law NY | Fachanwalt für Bank- und Kapitalmarktrecht



Maximilian Weiss,
LL.M. (Northwestern)


Rechtsanwalt



Christian Herrmann


Rechtsanwalt



Marvin Kewe


Geschäftsführer | Rechtsanwalt | Bankkaufmann
Fachanwalt für Bank- und Kapitalmarktrecht



Axel Wegner


Rechtsanwalt


FAQ

Answers to frequently asked questions


1Which investors are entitled to compensation?
We are of the firm conviction that investors who purchased securities (shares and bonds of the Wirecard AG as well as derivatives of Wirecard shares) between 24 February 2016 and 18 June 2020 (inclusive) are entitled to compensation. For reasons of simplification, we will refer only to shares below, our statement, however, applies to all the aforementioned financial instruments.
2How can I claim compensation and what are the costs?
Aggrieved investors have many options to pursue their claims for compensation. The choice of which option is the most appropriate, depends on the individual case, for example, it depends on when and which of the Wirecard financial instruments were acquired. You will receive more information after you register with us.
3Is there a possibility of litigation financing based on contingency fee?
Yes, TILP is working exclusively with Therium (https://www.therium.com/) as a litigation funder in the Wirecard case. For suitable cases, Therium is offering those aggrieved investors who register with TILP litigation funding on the basis of contingency fee. Aggrieved investors hence do not need to pay for taking legal action. However, the investor would have to pay a percentage of the compensation to the funder. If you wish, we would be happy to let you know how this could work in your particular case.
4What is the compensation based on?
Investors who acquired Wirecard financial instruments, including Wirecard shares and bonds or derivatives on Wirecard shares, between 24 February 2016 and 18 June 2020 (inclusive) are, in our firm belief, entitled to receive compensation against several liable parties. The parties are differentiated in the following ways:

a) Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

TILP has initiated an action against Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (EY) at the District Court I in Munich and has made an application for the case to initiate a model case (Az. 3 O 5875/20). We allege the accounting firm EY of inadequate investigation and thereby completing its tasks negligently for years. The unreserved audit opinions going back years, when seen with the backdrop of the public accusations against Wirecard, are in our opinion untenable.

In many media reports, the sum of 4 million Euro in conjunction with the liability of the accounting firm has been mentioned (§ 323 HGB). This information is often misunderstood. This liability limit is only valid for the relationship between the accounting firm (EY) and its auditing client (Wirecard) as well as its related companies. The liability of the accounting firm towards aggrieved investors is unlimited.

b) The Federal Financial Supervisory Authority

In our firm opinion, investors can claim compensation for financial instruments acquired between 18 February 2019 and 18 June 2020 from the Federal Financial Supervisory Authority (BaFin). This time span for the acquisition for claims that can be made against BaFin is considerably shorter than the period of acquisition for claims against other parties. We accuse BaFin of disregarding its obligations by not investigating Wirecard for market manipulation despite numerous indications of wrongdoing throughout the years. Instead, it acted against critical journalists who reported on this and against short sellers. Furthermore, we accuse BaFin of communicating to the capital market in an incomplete and misleading manner. BaFin is, in our opinion, liable with regards to investors on account of its abuse of authority.

c) Wirecard AG

Since the insolvency proceeding for Wirecard was opened, in our view, an action against the company would not be expedient. The insolvency proceeding automatically suspends all actions against Wirecard. Instead of a court case, though, it is possible to be included in the insolvency table to preserve the chance that at least a part of the damage will be compensated for.

d) The executive and supervisory board of Wirecard AG

In our opinion, aggrieved investors have a claim against former members of the executive board of Wirecard, especially but not limited to Dr. Markus Braun and Jan Marsalek. In addition, claims against the supervisory board also come into question. According to our cost-benefit-analysis, we discourage investors from making a claim against these parties at this time.

e) Other liable parties

We are continuously investigating further potentially liable parties. If we determine that one of more of these parties are potentially liable and that a legal action is expedient and appropriate, we will take action against them.
5What does the compensation amount to?
One must distinguish between different ways of calculating compensation. Firstly, the law identifies a compensation based on “out-of-pocket” damages. The German Securities Trading Act stipulates that this compensation is especially simple to claim, since the burden of proof for fault does not lie with the shareholder, rather, the issuer has to prove that it was not at fault when the willed conduct took place. We have calculated the “out-of-pocket” damage for different periods of time. We will be glad to send you a specific calculation of your compensation if you inform us of the relevant securities transactions. We have calculated the “out-of-pocket” damage within the period of disinformation. The uninflated price of the shares represents a 13% to 85% reduction of the actual price of acquisition, depending on when during this period the shares were acquired. We will be glad to calculate this for you free of charge. Compensation for “out-of-pocket” damage can be claimed independent of whether the shares were sold above the acquisition price and whether a loss exists. The only deciding factor is that shares were held at a specific point in time. It is not necessary for you to be holding shares at present. As an alternative to the “out-of-pocket” damage, the so-called rescission damage can also be pertinent. If the shares have been sold, then the amount between the acquisition and selling price is to be compensated for. If the shares are still held, then the compensation amounts to the difference between the acquisition price and the price of the shares at present. Either option requires a “book” loss for the shareholder. In order to claim rescission compensation, it is irrelevant if or when the shares were sold. The only decisive factor is that the shares were bought between 24 February 2016 and 18 June 2020.
6Can I sell my shares if I want to take part in the model case proceeding?
Yes, your investment behavior is not limited by the model case proceeding. If you decide to take part, please inform us when and how many of the shares you sold. It is sufficient to send us the transaction receipt.
7I purchased Wirecard shares after the KPMG report on 27 April 2020. Could I also claim compensation?
Yes, in our firm belief, shareholders who made transactions after 27 April 2020 are eligible for compensation. This is true for transactions up to and including 18 June 2020.
8I purchased shares before 24 Februar 2016. Could I also claim compensation?
At present, we see little prospect of success for those who purchased shares before 24 February 2016. However, we cannot exclude the possibility that this could change. In this context, we are happy to accept receipts for transactions starting from 10 July 2012 since such transactions are, in our opinion, not time-barred.
9What is the process of the model case proceeding like?
The purpose of the Capital Markets Model Case Act (KapMuG) is to enable shareholders who have suffered damage to jointly pursue their claims in a cost-effective manner. A model case proceeding bindingly settles the factual and legal issues common to all parties. The economy of procedure raises the chances of success for the plaintiffs and also cuts litigation costs. A model case proceeding contains three stages. A person who would like to take part must bring an action (either as an individual plaintiff or together with other aggrieved investors) in the responsible regional court. If a model case application, as has been made by TILP, is filed at the responsible Regional Court, the court has to publicly announce the application for the model case proceeding. Based on the model case proceeding application, an order of reference is subsequently issued. This order of reference contains the object of determination, which is in this case to establish the factual and legal issues in the Wirecard case. This order of reference constitutes a sort of “working programme” for the model case proceedings, which will then be conducted in the Bavarian Highest Regional Court in Munich (Bayerisches Oberstes Landesgericht München). The actions of all the aggrieved investors are then suspended in favour of the model case proceeding. In this way, each claimant becomes a party in the model case proceeding. The investors then contest their claims together against the model defendants. A model claimant is then chosen from the group of investors. It is customary that an institutional investor is chosen for this purpose. Against this backdrop, small investors and institutional investors stand shoulder to shoulder in a model case.The model case proceeding then draws to a close with a model decision, which can be reviewed by the Federal Court of Justice, as long as the parties do not mutually decide to end the proceedings with a settlement. The declarations made in the model decision are binding for the model defendants as well as for investors who took part in the model case proceedings as claimants. In short, the substantial factual and legal questions will be decided on at once for all the parties involved.
10How many model cases are there?
TILP has initiated model case proceedings according to the Capital Markets Model Case Act in Munich and in Frankfurt. The model case in Munich, after the opening of the insolvency proceedings, is no longer about the liability of Wirecard. However, the liability of the Ex-governing bodies of Wirecard and the accounting firm EY continues. We use the concise “EY model case” to designate this case. In addition, TILP initiated a model case in Frankfurt against BaFin. We call this the “BaFin model case”. There is a reason why we separate these two model cases: legally, the case against BaFin cannot be based on the same legal grounding as the ones in the model case in Munich. For this reason, we initiated a second model case in Frankfurt against BaFin alone. The model case in Munich will in our opinion be declared as such, while the model case against BaFin is the first of its kind; it is therefore unclear whether the court will accommodate our request and issue an order of reference. We will take decision action to work towards the approval of the BaFin model case, since model cases entail a significant reduction in costs for investors. In order to make sure that all investors are able to take part in a cost-efficient way, we are starting model cases against these liable parties.
11Who are the defendants in the model case proceedings?
We must differentiate between two different model cases. On one hand, we have expanded the initial pilot proceeding to include not only Wirecard but also the accounting firm EY and (former) board members of Wirecard. With the opening of the insolvency proceeding, the action against Wirecard has been stopped; EY and the former board members of Wirecard remain to be defendents. We believe that EY has greatly violated its auditing duty, so that it is liable to compensate investors. The action for compensation against the former board members is based on tortious accounting fraud. The order of reference has been issued by the District Court I in Munich. We are now expecting the start of the model case before the Bavarian Highest Regional Court. In addition, we have brought an action against the Federal Financial Supervisory Authority (BaFin) at the Regional Court in Frankfurt am Main. The allegation is that there is longstanding abuse of authority by BaFin with regards to Wirecard. This abuse of authority is based on BaFin at least negligently breaching its legal duties to resolve, prevent, and report market manipulation by Wirecard as well as to disclose correct and complete information to the public and capital market. In our opinion, these violations substantiate a cause for action according to Section 839 of the German Civil Code. TILP has also submitted an application to a model case proceeding for this case. Because of reasons of legal jurisdiction, the claim against BaFin had to be made in Frankfurt.
12At what point will I incur costs and what services are free?
Costs are incurred if and when you engage us to represent you to take an action against the defendants in writing. We will, as a matter of course, let you know of the costs in advance so that you can decide whether you would like to assert a claim. Our assessment of your claims and the calculation of the amount of damage will be done by us free of charge.

ABOUT US:

THE TILP GROUP

Trailblazers for investor rights


The affiliated law firms TILP Rechtsanwaltsgesellschaft mbH and TILP Litigation Rechtsanwaltsgesellschaft in Tübingen form together TILP Group (hereinafter "TILP") and stand for more than 25 years of experience and expertise in the field of banking and capital markets law. TILP is one of the leading and most experienced German law firms, since 1994 consistently, effectively and exclusively serving the interests of investors and shareholders. In many major commercial disputes TILP represents private and institutional investors, family offices and also public institutions. The media and competitors alike agree: For many years TILP has consistently been ranked among the absolute market leaders in banking and capital markets law. The Nomos Verlag names TILP in the Handbook of Law Firms in Germany 2014 ”the leading capital markets law firm-" According to publications of JUVE, the German legal industry’s news magazine, TILP is "one of the leading law firms representing both, institutional and private investors in banking and capital market law matters ... which ranks among the top tier addresses for years now and ... which decisively has shaped this field of law". Moreover, competitors attest TILP an “archetype function and high professional competence". In its annual handbook 2016/2017 the legal market journal JUVE has ranked TILP as the nation's only boutique law firm for financial disputes and securities litigation in the absolute top-tier for the category "Commercial Litigation and Liability". In its 2018/2019 annual handbook, JUVE names TILP as “strongly recommended law firm for financial disputes (investors)”.

TILP has effectuated more than 200 decisions of the Federal Court of Justice (Bundesgerichtshof) and the Federal Constitutional Court (Bundesverfassungsgericht) which were of fundamental importance for investor rights in Germany. The German newsprint FOCUS referred to the German Federal Court of Justice's decision on hidden commissions charged to investors (the so called "kickback decision"), which was argued by TILP in December 2006, as a "sensational decision" (edition 11/2007). For consumer advocates this decision constituted a landmark judgment and "major milestone in consumer protection".

TILP is a partner of the law firms TILP PLLC, New York and TILP Litigation Lda & Comandita (ZFDM), Funchal / Madeira, which specialize in the international representation of institutional investors and companies on the field of capital market and antitrust law.

TILP has designated expertise in the area of national and international collective redress mechanisms. At the national level this applies in particular to the so-called KapMuG proceedings under the German Capital Markets Model Case Act (KapMuG). In preparation of the 2012 reform Act to the KapMuG, Andreas Tilp was one of the nine experts invited by the Committee on Legal Affairs of the German Federal Parliament.