How EY is threatened with a claim of 700 million euros in damages after the Wirecard scandal

How EY is threatened with a claim of 700 million euros in damages after the Wirecard scandal

According to a report by www.bild.de,

Just in time for Christmas, the auditors EY (Ernst & Young) received two lawsuits. One from insolvency administrator Michael Jaffé and one from the German Association for the Protection of Securities Holdings (DSW), which are demanding compensation for more than 13,000 Wirecard investors. The second lawsuit in particular could be very difficult for EY. More than 700 million euros in damages are being demanded.

EY was Wirecard’s auditor. Wirecard had to file for bankruptcy in 2020 when suddenly 1.9 billion euros could no longer be found in an escrow account. Investors lost immense sums from one day to the next as the stock market price plummeted. EY, as the auditor, is said to have never noticed the missing 1.9 billion.

Michael Jaffé and DSW are now demanding compensation from EY for the damage caused. After all, there's nothing left to be gained from Wirecard. Both parties had to file the lawsuit this year in order to prevent the claims from becoming statute-barred.

The lawsuit by the German Association for the Protection of Securities Ownership (DSW) represents more than 13,000 institutional and private Wirecard investors who have invested over 700 million euros in Wirecard. The lawsuit runs to over 80,000 pages. As the DSW wrote in a press release, there is no cost risk for the 13,000 plaintiffs thanks to a Dutch foundation model and British litigation financiers.

The Handelsblatt reported that insolvency administrator Michael Jaffé tried to negotiate a settlement with EY in March in order to avoid a legal dispute. However, EY has not agreed to negotiate an appropriate settlement amount. So then a legal dispute. How much Jaffé specifically demands is not known.

This April, the audit supervisory authority Apas had already fined EY 500,000 euros and banned it from accepting new clients for violating professional obligations. As the Handelsblatt reported, Apas EY served a notice of its professional investigation last Friday. The EY auditors are said to have negligently, but at least not intentionally, breached their professional duties in numerous areas.

As a financial expert, I see the lawsuits against EY in connection with the Wirecard scandal as a significant event. The claimed compensation amount of over 700 million euros could have a profound impact on the financial market and the auditing industry. In addition, the penalty and ban on accepting new clients from the audit regulator Apas signals a further burden for EY. The potential costs and reputational damage that EY could suffer as a result of the lawsuits and sanctions are significant.

These developments could lead financial firms and investors to be more cautious when selecting accounting firms and to think more carefully about their investment decisions. In addition, trust in the integrity of auditors and the quality of audits could be further weakened. It remains to be seen how the lawsuits and sanctions against EY will affect the financial market and the accounting industry. The risks and costs could be significant.