Wirecard says it cannot rule out 'fraud of considerable proportions'

(Reuters) - German payments company Wirecard AG WDIG.DE said on Friday it may be the victim of "fraud of considerable proportions", after its auditor refused to sign off its 2019 accounts over a missing $2.1 billion.

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Wirecard shares dropped by about 60% on Thursday as the company said the delay could cause billions in loans to be called in as soon as Friday.

Auditor EY was unable to confirm the existence of 1.9 billion euros ($2.1 billion) in cash balances on trust accounts, representing about a quarter of Wirecard’s balance sheet, the payments company said on Thursday.

There was evidence of “spurious balance confirmations”, it added.

“At present it cannot be ruled out that Wirecard AG has become the aggrieved party in a case of fraud of considerable proportions,” Wirecard Chief Executive Markus Braun said in a video statement released on Friday.

He said two banks with an investment grade rating from Moodys or S&P had taken over the management of the trust accounts in 2019.

“It is currently unclear why the two banks have stated to the auditor that the confirmations are spurious. The trustee has announced to Wirecard AG that he will clarify the facts of the matter with the two banks managing the trust accounts at short notice,” Braun said.

In-house auditor EY had regularly approved Wirecard’s accounts in recent years, and its refusal to sign off for 2019 confirms failings found in an external probe by KPMG in April.

The CEO said on Thursday the company was urgently seeking to clarify the balances in question.

Thursday’s twist was a stark reversal of fortune for the Munich-based fintech, which was lauded as a homegrown success and entered Germany’s blue-chip DAX index in 2018.

Wirecard has long been a target of short sellers who have questioned its financials.

Reporting by Kanishka Singh and Shubham Kalia in Bengaluru and Michelle Martin in Berlin; Editing by Stephen Coates