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Wirecard shareholders are now questioning the regulators and third-party watchdogs about their role in policing corporations such as ‘Wirecard’ effectively and uncover the truth behind the transfer company’s immense growth over recent years. Shareholders are asking if regulators were simply grossly incompetent, or were there ulterior motives.

Legal action is now being sought after auditor Ernst & Young was accused of failing shareholders in as much as the accounting scandal would not have grown so overwhelming if the auditors were doing their job and caught the financial time bomb in time before it grew to what it is now – Germany’s largest accounting scandal.

These are the same auditors who refused to sign off the FinTech’s 2019 Financial Report after discovering that it could not account for about 1.9 Billion Euros (or $2.1 Bn Dollars) – which eventually led to the arrest of Wirecard CEO Markus Braun. Now, Braun is being charged with conspiring to inflate the company assets and misrepresented what amounted to over 32% of Wirecard assets – US$2.1 Billion of a claimed US$6.5 Billion.

Ernst & Young has said on June 26 that there are “very clear indications that this was elaborate and sophisticated fraud involving multiple parties around the world in different locations and different institutions.” It is now the job of German and European regulators to uncover the characters involved in this scandal. As its first move, A German shareholders association already filed criminal charges against three Ernst & Young auditors – two current and one former – for their alleged role in this accounting scandal.

Remember that a bank and investors extend loans and infuse money into ventures based on these financial reports. About fifteen banks had made loans of about US$4 billion to Wirecard, and Softbank introduced nearly US$1 billion at the start of the year. This discovery puts Wirecard as “rotten to the core” enterprise with two-thirds of its supposed sales having been faked from fake accounts overseas.”

Lenders and investors are pointing the finger at regulators and third-party auditors saying that “the Wirecard scandal just did not come out of the blue and it remains a mystery why the finance minister and the German Federal Financial Supervisory Authority (BaFin) did not uncover the matter much sooner.”

To lenders and investors, it's the regulators and auditors who are at fault as well for having allowed something like this to happen—either its complacency or incompetence or even complicity and collaboration.

Obviously, someone has to pay. Especially if you have defrauded the world’s biggest lenders and financial institutions. European lenders extended about US$4Bn in loans to Wirecard. We now know that these funds can never be retrieved. The most these lenders and investors can do is make sure that whoever is involved has to pay with long custodial sentences. And they mean everybody, including the regulators who did not do their jobs. Exciting days ahead to see who gets handcuffs.

Meanwhile, the two main suspects in the fraud, Chief Operating Officer Jan Marsalek was fired on June the 18th one week before the collapse and allegedly fled to China on June 23. Subsequently, it's been suggested his transit in the Philippines was a ruse and that he remains in the country as several immigration officials are now being investigated for collusion. Chief Executive Officer Mr. Marcus Braun was arrested in Munich on June 22nd and is currently free in Germany on a multimillion-euro bail.

Elsewhere, Members of the European Parliament have demanded a change in European auditing rules. It's been noted that a conflict of interest arises when companies being audited can freely dismiss and hire auditors. This gives an auditing company a perverse incentive to protect, obfuscate or indeed deliberately conceal what should be in the public domain and publicly disclosed to investors and lenders in a timely and responsible fashion. It is no excuse to please clients at the expense of proper scrutiny.