The payments processing company soon became a unicorn, eventually surpassing Deutsche

Bank, Germany's biggest bank, in value and attracting notable investors such as Softbank.

Despite allegations of accounting irregularities over the years, Wirecard grew to become Europe's

largest financial technology company worth $28 billion at its peak.

“The former CEO of Wirecard has been arrested on suspicion of falsifying accounts.

This after the German payments firm disclosed a $2.1 billion hole in its balance sheet.”

Then in June 2020, it filed for insolvency, finding itself at the centre of one of the

biggest financial scandals in history.

In the autumn of 2018, Munich-based Wirecard was added to a stock index of the 30 leading

German companies, also known as the Dax index,

displacing the country's second largest bank in the process.

It was a huge moment for the fintech industry to see a European company with the means to

compete against the tech-titans of Silicon Valley.

It was in 2008 that the first allegation of accounting irregularities was lobbed at Wirecard.

In the wake of the attack, Wirecard appointed EY, one of the world's biggest accounting

firms, to conduct a special audit.

It soon became Wirecard's chief auditor and would sign off the company's accounts

for more than a decade.

Following the first allegations, German authorities prosecuted two men who stood to benefit from

Wirecard's stock performance.

As more allegations of financial misconduct surfaced over the next few years,

a pattern began to emerge.

First, Wirecard would aggressively deny any accusations of malpractice.

When the German regulators investigated, those officials sometimes focused their sights on

the accusers instead of looking into the claims against Wirecard.

As a result, some financial analysts and investors continued to heap glowing praise

onto the tech darling.

While Germany's financial regulator denied that it was protecting Wirecard, the company

continued to emerge unscathed after each attack and it became emboldened.

Some critics of Wirecard were harassed and threatened with legal action claiming that

they, in collusion with short sellers, had published damning stories

to manipulate its share price.

Undeterred by the negative coverage, Wirecard's share price doubled in 2017 after reporting

significantly improved revenue streams.

By the summer of 2018, Wirecard's share price hit a peak of €191, valuing the company

at more than $28 billion.

It claimed to have 5,000 employees and process payments for 250,000 merchants, and its clients

included major European supermarket chains and airlines.

Despite Wirecard's meteoric rise, troubling reports that its books couldn't be trusted

continued to stalk it.

An independent research company said its Asia operations were far smaller than claimed.

In an attempt to quell suspicions of financial impropriety, Wirecard orchestrated a tour

of its Asia offices to impress the investment bank analysts.

As allegations of accounting fraud mounted, why did BaFin, the German financial regulator,

not investigate the claims against Wirecard?

Many analysts believe that Wirecard was seen as a rare homegrown tech champion that needed

to be protected and that any attack was an affront to Germany and its finance sector.

In February of 2019, BaFin even announced an unprecedented two month ban on investors

betting against Wirecard as its share price fell below €100, citing Wirecard's “importance

for the economy” and the “serious threat to market confidence”.

Some also point to Germany's corporate culture which tends to be wary of foreign speculators

and the fact that many of these allegations were made outside Germany, like British newspaper

the Financial Times, accusations which BaFin have denied.

Critics have argued that the country's regulatory system is not equipped

to deal with a payments company like Wirecard.

Unlike regulators in other countries, BaFin doesn't have the power to bring criminal

charges or the oversight to investigate potential accounting malpractice.

BaFin, along with the European and German central banks, also considered Wirecard a

technology company even though it owned a bank.

German politicians have questioned that decision as BaFin, the local government, Munich prosecutors

and the country's accountancy watchdog FREP have tried to shift blame for the fallout.

“Huge questions. I mean is it an Enron type situation?

Well yeah because Europe has got massive egg on its face.

They wanted a big tech giant, they ignored a lot of the facts.

What about the regulators? What about the auditors?”

Wirecard is a payment processor that facilitates debit and credit card transactions.

Its payment systems collect money from the consumer's bank that issues the card and

then delivers that money to the merchant so that it arrives in their account.

Wirecard makes money by taking a percentage of every transaction they process.

There are hundreds of payment processors doing the same thing,

so how did Wirecard become so successful?

Well, it marketed itself as the leader in payment processing systems and claimed it

used a superior technology.

As more of the world started to shift towards a cashless society, Wirecard seemed well positioned

to capitalize on this trend.

However, it was its rapid expansion, particularly in Asia, that caught the attention of investors.

According to hedge funds and independent analysts such as J Capital Research and Zatarra Research,

Wirecard bought shell companies that acted as third party payment processors, which could

handle transactions in territories its licenses didn't cover.

In return for Wirecard bringing them business, these companies paid commission into escrow

accounts, which was claimed to total more than $2 billion.

But in reality, these third-party businesses, which accounted for all of Wirecard's operating

profits, were allegedly much smaller, and in some cases, weren't real.

“The relationships there are all authentic, have been checked

and we can 100% reject these allegations.”

Following more accusations of fraudulent practices, Wirecard hired KPMG to conduct a special audit.

However, it couldn't verify whether these escrow accounts were genuine.

Then when EY went to complete its 2019 audit it found that the escrow accounts that held

all of the company's operating profits were fake, and the $2 billion didn't exist.

CNBC reached Wirecard, which declined to comment on the accusations or the investigation itself.

One of Germany's biggest accounting scandals has only created more questions than answers.

Regulators are under the spotlight as investigators worldwide try to work out how Wirecard was

able to portray itself as a highly profitable business for so long.

Wirecard's auditor EY is also facing scrutiny

for failing to check Wirecard's bank statements for three years.

The fallout has also impacted Softbank, who's reputation as an astute tech investor

has taken another hit following the failed IPO of WeWork.

But it's likely that German business will be hit hardest as trust in the country's

authorities has been eroded, dealing a heavy blow to its reputation as a financial centre.

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