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Former Wirecard boss Markus Braun and two other executives have been ordered to pay 140 million euros plus compensatory interest to the manager of the defunct payments group for breach of professional duties.
In a long-running civil suit brought by Wirecard administrator Michael Jaffé, Braun, former chief financial officer Alexander von Knoop and former chief product officer Susanne Steidl have been found personally liable for losses from unsecured loans to allegedly fraudulent business partners in Asia.
Wirecard went bankrupt in 2020 after disclosing that half of its revenues and €1.9 billion in cash did not exist. Braun has been in police custody for more than three years and faces a criminal trial that is still ongoing. Von Knoop and Steidl were charged last month with breach of trust, but were not remanded in custody.
The management decisions at the heart of the Munich civil trial underlie a small part of the alleged misconduct at Wirecard, once hailed as one of the country’s most successful fintechs and valued at more than 24 billion on the stock market at its peak euros.
The administrator’s claim for damages focuses on possibly fraudulent loans to suspicious business partners in Asia, which on paper generated a large part of Wirecard’s revenues and profits.
In March 2020, just months before the collapse of the German company, Wirecard provided €100 million in unsecured loans to one of its alleged outsourcing partners in Singapore, the Financial Times previously reported. That payment used most of Wirecard’s then remaining liquidity. About €35 million of the money was funneled back to Braun, who used it to repay a personal loan he took out from the Wirecard bank.
The court ruled that Wirecard’s board had breached its professional duties because it did not insist on any collateral for the €100 million, even though the recipient of the loan had previously been in arrears. The court ruled that the board’s decision was “unsustainable and contrary to the duty of care of a prudent businessman.”
According to the verdict, which is not yet legally binding under German law because it can still be appealed, the board of directors also breached its professional duties when it decided to buy securitized bonds from the same Asian business partner, which later turned out to be worthless. According to the verdict, the board had ignored internal advice to conduct proper due diligence before agreeing to the transaction.
The court ruled that the three former directors are personally liable for the financial consequences of these transactions, which it calculated at 140 million euros plus 5 percent interest per year. Since Wirecard’s bankruptcy more than four years ago, the compound interest has amounted to more than €30 million, according to FT calculations.
Before the bankruptcy, Braun’s shares in Wirecard were worth more than €1 billion. He also owned luxury real estate in Austria, Germany and France. But his personal wealth has been seized by prosecutors, and earlier this year his former lawyer Alfred Dierlamm resigned because Braun could not pay his legal fees after the money from his directors and officers liability insurance policy was depleted.
An attorney for Braun said they will evaluate the ruling and then decide whether to appeal.
The court in Munich ruled that Wirecard’s former deputy chairman Stefan Klestil, who was also sued by the administrator over the case, does not have to pay compensation for the decisions to the administrator.
“Today’s decision is an important step. It emphasizes that supervisory boards are ultimately powerless when, as in the case of Wirecard, executives choose not to follow the rules and deliberately circumvent the board,” said a Klestil spokesperson.
Spokespeople for Steidl and the manager declined to comment. An attorney for von Knoop did not immediately respond to requests for comment.