The auditing company EY received a judicial document on Thursday that caused little joy. It was a provisional, 17-page decision of the Higher Regional Court (OLG) Munich in the Wirecard case. This gives a boost to those investors who have lost a lot of money at Wirecard and who are now demanding compensation from the balance sheet inspectors. The accusation of the shareholders who are suing EY: their auditors, who had found Wirecard’s figures to be in order for almost a decade, did not look closely enough. EY rejects that.
So far, the German offshoot of the global testing company EY has successfully defended itself against hundreds of claims for damages. Also at the Munich regional court. But now the eighth civil senate of the OLG Munich is complaining that the regional court in the first instance dealt with the Wirecard scandal too superficially in several cases. The district court should have examined much more closely whether EY could ultimately have acted deliberately immorally.
That doesn’t say anything about how things will turn out. But that’s at least a small bang. This increases the pressure on the testing company EY, for which a lot of money is at stake in addition to the reputation it has already lost. Shareholders and banks have lost a total of more than 20 billion euros at the scandalous company Wirecard; numerous investors are suing for damages.
The case pending at the OLG concerns four shareholders who are represented by a Munich law firm. The law firm and EY have until the end of February to comment on the decision of the higher regional court. The OLG will then negotiate on March 31; A decision will therefore be made in spring 2022 at the earliest.
If the OLG stayed with its provisional line, then the regional court would have to deal with the matter again. And probably clarify with an appraiser what effect it had on the stock exchange when EY audited, i.e. recognized, Wirecard’s balance sheets. Was that the reason for buying stocks?
If the experts and the judiciary would say yes, it would go to the next round. With the next questions: Have Wirecard’s balance sheets been incorrect since 2015? At least that’s what the Munich I Public Prosecutor’s Office, which is investigating for falsification of accounts and other alleged crimes against former Wirecard managers, believes. If the balance sheets were wrong, it would have to be clarified whether EY had insufficiently checked the figures of the scandal group. And if so, whether it would have been sloppiness or willful immoral harm to shareholders.
A lot would have, a lot would be: Investors who want to fight this through need staying power. The testing company EY is not even thinking of giving in at any point. “Our audit teams carried out their audit procedures to the best of their knowledge and belief,” said EY about the OLG decision. According to EY, this also refers to the “high hurdles” for proving deliberately false balance sheet attestations.
According to the German Press Agency (dpa), the OLG complains that the Munich Regional Court lacks “own expertise” in order to assess the allegations made against EY in an opinion by the auditing company KPMG. According to the OLG, an expert opinion would have been appropriate for this.
In addition, the OLG accuses the regional court of having ignored a report by the Wirecard investigative committee of the Bundestag. That happened “against hearing” to the detriment of the plaintiff investors. The district court had dismissed lawsuits against EY without taking any further evidence. The OLG recommended the regional court to open a model case. As an option, however, the OLG is also considering referring the proceedings back to the regional court in order to catch up on the extensive evidence that has so far been missing.
The district court has so far seen no causal connection between the balance sheet attestations by EY and the losses of the investors, or no breach of duty by the auditors. However, the OLG has major reservations about this point of view. According to the OLG, an earlier refusal of the balance sheet attestation by EY would also have resulted in an earlier application for insolvency by Wirecard. On the basis of this, “general life experience” would suggest that the investors had not made the stock purchases that are at issue in court.
EY must also expect a lawsuit from Wirecard’s insolvency administrator Michael Jaffé. He had recently also increased the pressure on the testing company. Jaffé complained in a status report submitted to the Munich district court. The insolvency administrator is suing EY at the Stuttgart Regional Court for the release of the audit files in order to be able to investigate whether the audit company has adequately investigated Wirecard’s balance sheets. Or whether EY failed.
EY escaped a quick action for damages by Jaffé only because the testing company has already twice declared that it would not enforce a statute of limitations. Otherwise the insolvency administrator would have had to ask for money from EY in court so that no claims would expire. The starting position is better for Jaffé than for the shareholders.
The insolvency administrator could claim that EY has not fulfilled the contract based on the inspection contract between Wirecard and EY. The shareholders, on the other hand, would have to prove far more in order to get money from the auditing company. They would have to prove that EY deliberately recognized or accepted false balance sheets. At least the many investors who are suing EY can now hope for a turnaround after many defeats.