Wirecard files for insolvency after ex-CEO arrested in $2 billion scandal

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Wirecard has filed for insolvency, just days after a $2 billion accounting scandal at the company burst into the open, crashing its stock and leading to the arrest of its former chief executive. (FILE PHOTO)

(CNN) — Wirecard has filed for insolvency, just days after a $2 billion accounting scandal at the company burst into the open, crashing its stock and leading to the arrest of its former chief executive.

The digital payments company said in a statement Thursday it had opened legal proceedings in Munich "due to impending insolvency and over-indebtedness." Shares in the company, which have lost 90% of their value in less than a week, were suspended on the Frankfurt stock exchange.

Markus Braun, the Austrian tech CEO who built Wirecard into one of Germany's biggest companies, was arrested earlier this week on suspicion of having artificially inflated the company's balance sheet and sales through fake transactions. Prosecutors said that Braun may have acted in cooperation with other perpetrators.

Wirecard acknowledged on Monday that €1.9 billion ($2.1 billion) in cash included in financial statements — or roughly a quarter of its assets — probably never existed in the first place. The company withdrew its preliminary results for 2019, the first quarter of 2020 and its profit forecast for 2020.

The scandal erupted last week when Wirecard said that its auditor, EY, could not locate the funds in trust accounts and refused to sign off on the company's financial results. The fallout is raising questions over how the company's regulators and auditors could have missed accounting irregularities that are already drawing comparisons to Enron, the American energy giant that filed for bankruptcy in 2001.

Braun has suggested that Wirecard may itself be the victim of fraud. Braun's lawyer has not responded to requests for comment.

— Stephanie Halasz contributed reporting.

This story was first published on CNN.com "Wirecard files for insolvency after ex-CEO arrested in $2 billion scandal"