German Court OKs Ernst & Young Class Action Case

A German court has opened class-action style legal proceedings against accounting firm Ernest & Young LLP (EY) to hear cases from investors in defunct payment company Wirecard AG.

As Bloomberg News reported Tuesday (March 15), those investors say EY failed in its duties when auditing the now bankrupt Wirecard, which collapsed in 2020 amid a scandal involving $2.1 billion in funds that likely never existed, leading to a series of investigations into what was one of the largest corporate scandals in German’s history.

German law firm TILP told Bloomberg the ruling had come down Monday. The firm had filed individual lawsuits soon after the start of the scandal and had hoped to combine all of them in a mass case. The plaintiffs are shareholders and bondholders who had invested in Wirecard.

Read more: Wirecard Ex-Boss Markus Braun Charged with Fraud by German Prosecutors

This news comes one day after former Wirecard CEO Markus Braun was charged with fraud, breach of trust and accounting manipulation following a criminal investigation of the company.

Prosecutors in Germany say that between 2015 and 2018, Braun signed off on financial statements knowing they were incorrect.

Also charged were Oliver Bellenhaus, a former managing director of a Wirecard subsidiary based in Dubai, and Stephan von Erffa, chief accountant and deputy chief financial officer. According to media reports, Bellenhaus admitted his participation in the company’s wrongdoing and is cooperating with prosecutors, while Braun and von Erffa have denied all charges.

“By the end of 2015 at the latest, it was clear to everyone accused that Wirecard AG was only making losses with the actual, real business, which would ultimately lead to insolvency,” prosecutors said. “With the publication of the significantly embellished numbers, those involved wanted to give investors the impression that Wirecard AG was a commercially successful and solvent company.”

Read more: Ernst & Young Faces Backlash Over Whistleblower Report On Wirecard

EY said it is weighing an appeal, as judges from the same tribunal had rejected past attempts at class actions because the class action procedure doesn’t cover audit reports.

The accounting firm adds that the same court already ruled that investor cases aren’t likely to succeed as the plaintiffs must prove intent, while EY says its auditors conducted their work “to the best of their knowledge and conviction.”