A number of more or less well-known German class action lawyers havefiled lawsuits against Wirecard AG, its Management Board members and its auditors. Lawsuits against the German Federal Financial Supervisory Authority (Bafin) have been announced. It is apparently part of the business model of these firms to position themselves in the media at an early stage in order to acquire clients. However, the prospects of these lawsuits are either doubtful, or it is unclear whether the defendants will be able to pay at all. In most cases, there is no immediate risk of claims becoming time-barred. Investors should therefore not rush into expensive mandates. Mandates that have already been granted can in some cases even be revoked without adverse cost consequences.
Suing Wirecard AG
A lawsuit against Wirecard AG itself appears fairly promising, albeit only from a purely legal point of view. It would appear that balance sheets from previous years were in fact incorrect and ad hoc notifications were incorrect or delayed. However, Wirecard AG has lost (or has never had) almost its entire equity capital after the uncovering of fake trust accounts. This does not even take into account write-downs on the value of subsidiaries that have been acquired under dubious circumstances. Income from current operations is obviously not sufficient to repay existing debt. This is why Wirecard AG has filed for insolvency.
In an insolvency, investor claims for damages are ordinary unsecured claims. Investors cannot count on receiving any meaningful payout. Claims that have already been filed will be barred for the time being as soon as insolvency proceedings are opened. It would therefore be nonsensical to file a lawsuit now, and investors who have already filed a lawsuit should consider withdrawing their lawsuit in order to at least save some legal costs. However, aggrieved investors should file their claims with the trustee if insolvency proceedings are opened.
Suing members of the Board of Management
Lawsuits against individual members of the Board of Management, in particular against the CEO, Mr. Braun, or the CFO, Mr. Marsalek, also appear to be reasonably promising, albeit again only in purely legal terms. At least according to what has been reported in the press so far. However, here again, the question arises whether these debtors have sufficiently large assets. In the case of Mr. Marsalek, the fact that he is currently on the run makes recovering money even more difficult. Whether officers of Wirecard AG have insurance cover under a D&O policy for breach of duty giving rise to liability will depend on whether they knowingly breached their duties. The content and scope of any insurance policies are not yet known. However, it is likely that their insurance cover will not apply in this case, as they have likely acted knowingly. In any case, the facts are not clear. Therefore, a lawsuit is not necessarily appropriate in this case either. Consequently, investors are better advised to wait until more details become known.
The statute of limitations should not yet be a problem in most cases. Claims for damages will become time-barred three years after the end of the year in which the claim arose and in which the creditor becomes aware of the circumstances giving rise to the claim and the identity of the debtor, or should have become aware of them without gross negligence. Without such knowledge of the creditor, they will become statute-barred after ten years. For most claims there is therefore no reason to act in order due to a statutory a limitation period.
Suing the auditors (Ernst & Young)
There are speculations in the press about negligent or grossly negligent conduct by the auditors of Wirecard AG. However, claims by the company against the auditors of a stock corporation are limited to four million euros in the event of negligent conduct. This includes grossly negligent conduct. In principle, an auditor is not liable to third parties (i.e. also to shareholders) in the case of negligent conduct alone. The situation may be different if there is a contract with protective effect for third parties. However, this is only the case in exceptional cases. There is no reason for this here.
Knowledge or Intent
The situation is different in the case of willful or intentional action. In this case, liability towards third parties arising from the violation of various statutory duties (§ 823 para. 2 of the German Civil Code (BGB) and due to inflicting intentional harm in bad faith (§ 826 BGB) comes into play. The limits on liability will not apply either. However, it will be difficult to prove wilfulness or intent. It can be assumed that Ernst & Young will do everything possible to refute the accusation of intentional conduct. Even if this does not succeed, only the acting auditors and the GmbH, which has a share capital of approximately ten million euros, will be liable. This will hardly be enough to satisfy all the claims of investors.
Insurance cover
A possible liability insurance will likely not pay in case of intent or willful misconduct. This is because professional liability insurance usually does not apply where the insured knowingly defaults on a duty. This will most likely be the case if liability can be based on willful misconduct or intent.
Liability of other companies in the Ernst & Young network
It is very doubtful whether and to what extent there is a basis for going after any of the numerous legally independent companies of the Ernst & Young Group in the rest of the world. A number of law firms have apparently filed criminal charges against individual employees of Ernst & Young GmbH on behalf of aggrieved investors. This certainly makes sense in view of the facts known so far, especially since the (Germn) taxpayer is paying for the investigation .
However, once again it is still too early to file costly lawsuits. And once again, aggrieved investors should wait until the facts become clearer.
Suing Bafin or the review panel commissioned by it
At least Bafin is certainly solvent. According to press reports, Bafin saw reason to investigate allegations at Wirecard as early as February 2019 within the scope of its securities monitoring remit. It commissioned the German Financial Reporting Review Panel (FREP) to do so. However, it appears that only a single auditor was active there. A report has not yet been issued. Indeed, pursuant to Section 106 of the German Securities Trading Act (WpHG), it is the task of the Federal Financial Supervisory Authority (Bafin) to audit the annual financial statements of listed companies if there are specific indications of irregularities. The most recent financial statements can also be audited without any particular reason. For this purpose, it may make use of external review bodies, and the FREP is one such body. It is therefore quite possible that Bafin or FREP may be charged with a breach of duty. But this cannot be deduced with certainty from the facts known to date.
Suing Bafin
Suing BaFin in connection with false or misleading ad hoc announcements will most probably fail because the relevant Art. 17 of the Market Abuse Ordinance (MAR) is not considered be for the protection of third parties. In addition, any liability of Bafin to individual investors (at least according to the current legal position) is also excluded because the activities of Bafin are deemed to be carried out solely in the public interest, according to § 4 para. 4 of the Financial Services Supervision Act (FinDAG). This means that there are no official duties towards investors from which any liability could be derived.
It is unclear whether it is possible to extend the official duties of Bafin at least partially to individual investors by invoking EU directives or regulations, and what actual consequences this would have. In February 2020, the Frankfurt Higher Regional Court (OLG), which is the competent appeals court for actions against Bafin, rejected any third-party protection for surveillance obligations in the context of banking supervision. In doing so, it referred to earlier decisions of the European court of justice. Of course, this gives only very limited guidance on questions of capital market supervision. Whether and to what extent there is third-party protection imposed by capital market law directives or regulations in EU law that can have an impact on German law, I will discuss in a further article. This is the central issue with respect to any liability of Bafin to investors.
Suing the review panel
Under Section 342b (7) of the German Commercial Code (HGB), FREP is liable for damages resulting from its auditing activities only in case if intent or willful misconduct. Neither is apparent from the facts known to date. In addition, it is unclear to what extent FREP would be able to pay substantial amounts of damages at all.
Conclusion
To conclude, for all possible Wirecard lawsuits it is either unclear whether they can be successfully enforced in case of a win or there are considerable doubts about their legal merits. Or both apply. In most cases there is no immediate threat of claims becoming time-barred. Aggrieved investors should therefore not take legal action prematurely, but rather wait and see how the Wirecard saga continues, in order to be able to better balance the prospects of economic success and the cost risk.
If a law firm has already been mandated (in particular one who systematically solicits clients via the Internet), a revocation of the mandate may still be possible under the provisions of the German Civil Code on distance contracts (§§ 312 c ff. BGB). If a contract for legal services is concluded without personal contact through distance selling (telephone, e‑mail, Internet), the client, if she is a consumer, can revoke the contract if he has not been properly informed of his right of revocation. A revocation is always possible within the two-week revocation period. Without express consent, the lawyer may also not act before the end of the revocation period. In the event of an valid revocation, the obligation to pay a fee does not apply. However, most iclass action lawyers are aware of this and have addressed it in their mandate agreements.
