WIRECARD: MUNICH REGIONAL COURT INITIATES MODEL PROCEEDINGS
The decision of the Munich I Regional Court was published in the Federal Gazette on March 16, 2022.
After the Munich I Public Prosecutor’s Office filed charges against former Wirecard CEO Markus Braun and two other former managers, the Munich Regional Court has now initiated KapMuG proceedings (Kapitalanleger-Musterverfahren). In this type of proceeding, all claims against EY for damages in connection with the Wirecard insolvency are to be bundled. The Bavarian Supreme Court is responsible. This court is now to examine whether EY committed breaches of duty in auditing Wirecard’s financial statements that could give rise to claims for damages by investors and institutional investors.
The order for reference, which initiates the test case, is directed not only at declaratory targets against EY but also against Wirecard AG and its responsible persons, including Markus Braun. Specifically, Wirecard AG is accused of a breach of disclosure obligations, in which EY is alleged to have been guilty of aiding and abetting. The test case is to decide on the following facts:
- Incorrectness of Wirecard AG’s annual reports.Wirecard AG was aware by 2015 at the latest that the trust accounts did not show the published bank balances
- Markus Braun, as a member of the Management Board, misrepresented or concealed the company’s financial circumstances
- By publishing false annual reports, both Wirecard AG and Markus Braun acted immorally
- EY’s liability for damages, in particular clarification of intent with regard to aiding and abetting Wirecard AG’s breach of its disclosure obligations
- The price difference damage is compensable without concrete proof of causality
- The question whether EY has committed its own breach of duty arising from intentional immoral damage is unfortunately not the subject of the test case and, in our opinion, not eligible for KapMuG.
WHAT HAPPENS IN KAPMUG PROCEEDINGS?
The initiation of KapMuG proceedings means that all actions currently pending against EY and Markus Braun will probably be suspended for the time being. After the court has clarified the above-mentioned central questions, which affect all investors equally (such as the question of whether EY had condoned false balance sheets), a model decision will be issued. The initially suspended lawsuits will then be resumed. Although the findings from the model decision are binding, they would not yet be sufficient for a conviction of EY. If the court were to find, for example, that EY breached its duty of care, then a decision would still have to be made in the individual lawsuits on further claim requirements, such as proof of the amount of damage based on the purchase receipts. Since the test case unfortunately does not deal with the legal issue of intentional immoral damage, we fear that the test case will bring disadvantages rather than advantages for the plaintiffs due to the length of time involved and because not all relevant issues can be conclusively determined in the test case. However, the Munich judges have pushed for such a procedure in order to ease the organizational burden from the court’s point of view.
To raise a complaint also despite the sample procedure for each damaged one is necessary, since the court does not examine explicitly whether an investor has a requirement, but as represented, only certain general aspects, which concern each procedure, examines and determines. All those who file claims to the model proceedings without filing their own lawsuit can thus inhibit the running of the statute of limitations. But the filing of an individual lawsuit is still required after the conclusion of the model procedure. However, anyone who does not file a claim until after the conclusion of the model procedure loses valuable time.
We continue to take a critical view of the model proceedings in this case. First of all, the very long duration of such proceedings must be emphasized. The most recent example is model proceedings relating to Deutsche Telekom AG, which could only be concluded by a settlement after almost 20 years. If the EY proceedings were to take just as long, we fear that EY would systematically shift its business activities and assets so that, in the end, only a liability body without substance would remain. Investor claims could then no longer be serviced. We have also expressly pointed this out to the Munich courts on several occasions.
WHAT SHOULD INVESTORS DO NOW?
If not already done, investors should continue to consider filing suit for damages against EY, whether at their own expense or covered by legal expenses insurance. If not yet done: You too can join the plaintiffs’ association, for more information click here.
Any investor who is currently refraining from filing a lawsuit and would like to wait until after the conclusion of the test case should at least file his claims in the test case to prevent the statute of limitations from running. The costs for this are by law a so-called 0.8 attorney fee and a 0.5 court fee. HERE you will find an exemplary calculation and which documents we need from you.
In addition: We are in promising talks with a renowned Anglo-Saxon litigation financier and hope to be able to make a financing offer in the coming weeks to all those investors who cannot bear the necessary costs themselves. In any case, you can already register with us free of charge HERE.