Former CEO of Wirecard arrested on suspicion of forging the company’s financial reports

In a statement on Tuesday, German prosecutors revealed that the former CEO of Wirecard AG (ETR: WDI), Markus Braun, has been taken into custody on suspicion of forging the payments firm’s financial reports to expand its investors base. Reporting stronger than actual revenue, the former CEO attempted to make Wirecard more attractive for potential customers and investors.

Despite the rising challenges, Wirecard has still rebounded 30% on Tuesday. At £16.72 per share, the financial services company is currently 85% down year to date in the stock market. The scandal has wiped more than £10 billion off Wirecard’s market value since last week. The company now has a market capitalisation of £2.18 billion and a price to earnings ratio of 4.71.  

Braun turned himself in late on Monday

Wirecard acknowledged on Monday that a discrepancy of £1.7 billion in its account that represents roughly 25% of its balance sheet may have never existed. The accounting scandal is now threatening the future of the company that was once lauded as Germany’s success story in the financial technology sector.

As per the Munich prosecutors, Braun turned himself in late on Monday and his hearing in court is scheduled for Tuesday that will decide if the suspect has to remain in custody. Braun is accused of market manipulation through misrepresentation of the company’s income from transactions and falsifying its accounts at large. His lawyer is yet to make an official statement on the news.

Board member Jan Marsalek of Wirecard may also be arrested

Things went downhill for Wirecard last week as its internal auditor, Ernst & Young, refused to approve its 2019 accounts due to the massive discrepancy. The central bank of the Philippines confirmed on Sunday that the German company’s missing money never entered the country after BDO and BPI banks alleged Wirecard of falsifying documents that claim it to be their client.

The missing money resulted in terminating £1.80 billion worth of loans on Friday. Consequently, Wirecard is now scrambling to strike a deal with its banks to avoid an imminent cash crunch. It hired the U.S. investment bank, Houlihan Lokey on Friday to devise its new financial strategy.

Sources also suggested on Tuesday that German prosecutors are seeking an arrest warrant for the payments processor’s board member, Jan Marsalek, who was fired on Monday. Marsalek’s lawyer has so far not responded to a request for comment.