With decision of January 10, 2024 III Zr 57/23 the German Federal Supreme Court finally rejected a claim brought by a Wirecard shareholder for damages against BaFin (BGB § 839 para. 1 sentence 1 Ca; WpHG § 106 ff (F: until December 31, 2021). The Federal Supreme Court found that the measures taken by BaFin in the context of market abuse monitoring and balance sheet control regarding to Wirecard AG in the period from April 2015 to June 2020 were justifiable.
The Plaintiff´s fail Wirecard investment
On January 27, 2020, the plaintiff and his wife acquired a total of 500 bearer shares in Wirecard AG at a price of € 132.97 for a total of € 66.475 . On June 25, 2020, they sold the shares at a price of
€ 3.3105 each resulting in a total of € 1,648.25.
The Wirecard Scandal
Wirecard AG was founded in 1999 and was included in the German German share index (DAX) in September 2018. As an issuer of shares, Wirecard AG was subject to financial market supervision and balance sheet control (Supervision of compliance with the provisions of the German Securities Trading Act (WpHG)) by the German financial supervisory authority (Bundesaufsichtsbehörde für Finanzmarketaufsicht: BaFin).
The annual and consolidated financial statements and management reports of Wirecard AG were audited by one of the five big audit companies: E & Y up to and including the 2018 fiscal year each with an unqualified opinion.
The publication of Wirecard AG’s annual and consolidated financial statements for 2019 experienced multiple delays. Finally, on June 18, 2020, the company issued an ad hoc announcement. It revealed that the auditor had not yet thoroughly audited bank balances meant for consolidation in the financial statements, which amounted to €1.9 billion (approximately a quarter of the total consolidated balance sheet). Furthermore, the announcement indicated suspicions that fraudulent activities were involved, as the auditor received potentially falsified balance confirmations
On June 22, 2020, the Management Board of Wirecard AG announced in a further ad hoc announcement that alleged bank balances in the amount of € 1.9 billion at two banks in the Philippines were highly unlikely to exist. Three days later Wirecard AG filed for insolvency proceedings, which were opened by the Munich Local Court on August 25, 2020.
In previous years, there had already been repeated media reports, particularly in the “Financial Times”, about (accounting) irregularities in the Wirecard group.
BaFin`s statutory obligations
The plaintiff asserted that BaFin – despite evident indications – had for years failed to fulfill its statutory obligations to clarify, investigate, prevent and report market manipulation by Wirecard AG and to provide accurate and complete information to the public and the capital market. In specific the plaintiff claimed that BaFin should have exercised balance sheet control itself.
The plaintiff has also raised fundamental legal questions regarding the conformity of the relevant provisions of the German WpHG ( § 108(1) sentence 2 no. 2 WpHG aF (from January 3, 2018 to
December 31, 2021 valid versions of §§ 106 ff WpHG; hereinafter only: aF) and Art. 24 (1) subpara. 1, (4) sentence 2 lit. h) of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2011/34/EC (Transparency Directive). OJ L 390, 98) and Art. 22, 23 (2), (3) subpara. 1 of Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014 on market abuse (Market Abuse Regulation, OJ L 173/1).
The decision
The German Federal Supreme Court concluded that the raised fundamental questions are not relevant to their decision. The measures taken by BaFin in the context of market abuse monitoring and balance sheet control regarding Wirecard AG in the period from April 2015 to June 2020 do not violate § 6 or §§ 106 ff WpHG as well as the Transparency Directive or the Market Abuse Regulation and were in any case justifiable. A referral to the Court of Justice of the European Union pursuant to Art. 267 (1), (3) TFEU is therefore not necessary.
Ref: The audit should be directly conducted by BaFin.
The Court found that the claimaint missed to provide factual submissions that the conditions for an audit of the balance sheet by the defendant under its own responsibility, as neither “significant doubts” within the meaning of § 108 (1) sentence 2 no. 2 WpHG nor “simple doubts”, as considered sufficient by the plaintiff by way of an interpretation, were given at the beginning of 2019.
Therefore the BaFin’s decision to (initially) leave the audit of the financial statements to the German accounting audit authority DPR (Deutsche Prüfstelle für Rechnungslegung) was in any case justifiable.
Pursuant to § 108 (1) sentence 2 in conjunction with. § 107 (1) sentence 1 WpHG (old version) BaFin orders an audit of the accounting under its own responsibility if
a. there were concrete indications of a breach of accounting regulations
b. and DPR reported that a company had refused to cooperate in an audit or did not agree with the result of the audit (§ 108 (1) sentence 2 no. 1 WpHG aF).
Alternativily significant doubts as to the accuracy of the DPR´s findings or on the proper conduct of the audit by DPR (aaO No. 2) could result in BaFin doing an audit under its own responsibility.
The court argues that even in case Bafin should have been legally required to excercise balance sheet control itself (in case of “serious doubts”) the defendant would have been allowed to outsource the audit to any auditing company including the DPR.
The Supreme Court rejected the plaintiff argument that the DPR was unsuitable from the outset to carry out the audit.
The Supreme Court confirmed that BaFin also complied with the general rule of § 6 WPHG aF as it took appropriate actions reg. Wirecard´s potential market manipulation also in the period from April 2015 to June 2020 so its conduct was justifiable and proportionate.
On February 1, 2019, BaFin opened investigations into market manipulation by both market participants (short attack) and Wirecard AG (incorrect financial reporting, failure to publish the allegations publication of the allegations made by the Financial Times as insider information). It submitted requests for administrative assistance to the supervisory authority in Singapore and requested Wirecard AG on February 8, 2019 and March 28, 2019 to comment on the allegations. On February 15, 2019 Bafin requested DPR to audit the condensed consolidated financial statements of Wirecard AG including the management report as of June 30, 2018. On March 29, 2019, it requested Wirecard AG to submit the final report of the lawyers. report of the law firm R. & T. Singapore LLP, which was submitted to it on July 29, 2019.
Bafin also responded to the article published on October 15, 2019 and instructed DPR to also take these allegations made by the Financial Times into account in the ongoing audit.
The fact that the defendant did not use the article of April 24, 2019 as a reason for immediate further investigative measures (e.g. search of the business premises of Wirecard premises of Wirecard AG) was not in breach of duty against the background that EY issued a clean audit opinion on April 25, 2019.
After the Financial Times published articles on October 15, 2019, and evidenced their allegations with reference to internal documents of Wirecard AG, BaFin informed the Munich I public prosecutor’s office in accordance with Section 11 sentence 1 WpHG and received notification from there that the matter was being investigated. This meant that the defendant had to ensure in its further course of action that its investigations did not jeopardize the purpose of investigations by the criminal prosecution authorities (cf.(see § 11 sentence 4 WpHG). In addition, BaFin learned in October 2019 through a Wirecard press release that KPMG had been commissioned by Wirecard AG to conduct an independent special investigation into the allegations made by the Financial Times. So BaFin – understandable – decided to wait for the result.
After considering the entirety of the circumstances, the German Supreme Court determined that the defendant unequivocally initiated inquiries into Wirecard AG, addressing potential market manipulation through misinformation in financial reports. The court found that the defendant thoroughly investigated the claims presented in the Financial Times articles.
The Wirecard scandal continues:
The judgment entirely overlooks that BaFin had been facing substantial allegations of money laundering related to Wirecard AG for many years (compare the Wirecard complaint filed by us) . Given this history, the emergence of new accusations regarding balance sheet manipulation should have significantly heightened BaFin’s vigilance, compelling it to implement far more stringent measures.
The wirecard scandal has massively damaged the shareholder culture in Germany. Small shareholders have lost billions of euros as a result of the Wirecard insolvency. In his latest report to the creditors’ committee, the Munich-based lawyer Michael Jaffé reports that 44,700 retail shareholders alone have registered almost € 7.72 bn in claims with the insolvency administrator.
This ruling, implying that BaFin denies any responsibility, does not improve the situation at all – it does quite the opposite.
