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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.

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