Frankfurt June 22, 2020 was a black day for Wirecard investors. At that time it became known that there was a 1.9 billion euro hole in the payment service provider’s balance sheet. Within hours, the share price was pulverized just like the values of the bonds and certificates. Wirecard had to file for bankruptcy.
Private investors sometimes lost thousands of euros. In order to receive compensation now, they have to take action themselves, because the claims will become statute-barred at the end of 2023. Because creditors are already queuing up at Wirecard, the investor lawyers are concentrating on the auditor EY, who had been testing the wrong numbers for years.
There are several strategies for aggrieved investors – but they have to decide on one way. Because time is pressing. You can only join the foundation solution until the end of May, you can take legal action with a litigation financier until mid-June and register for the model case until mid-September. Some opportunities are free, others are not. Which way makes the most sense therefore also depends on the extent of the damage.
Test case: Long duration of proceedings
Due to the large number of lawsuits already filed against EY, the Bavarian Higher Regional Court in Munich has initiated test case proceedings against EY Germany, some EY auditors and Wirecard board members (Az. 101 Kap 1/22). As a result, all ongoing proceedings were suspended.
The procedure clarifies whether Wirecard investors are entitled to compensation and how this is calculated. Afterwards, each investor must claim their individual damage based on this judgment. It is also possible that EY offers a comparison. Each investor can decide for himself whether he accepts this or whether he continues to sue at his own expense. Registration for the model procedure is possible until September 18, 2023.
>> Read here: Wirecard scandal: Supervisor Apas sanctions EY with historically high penalties
Opportunities: The chances of success are greater than with individual lawsuits, because plaintiff lawyers join forces and pool their knowledge and expertise.
Risks: Model procedures often take a long time. The claims are likely to add up to over one billion euros. It is unclear whether EY can pay for this in full or whether investors will only be compensated proportionately.
Costs: In comparison to the individual lawsuit, the test case is significantly cheaper. But here, too, the application must be made by a lawyer. With a claim for damages of 500 euros, the fee is a good 400 euros, with 10,000 euros it is almost 750 euros. Due to the expected length of the procedure, it makes sense to apply for a so-called notice of default at the same time. As a result, investors are entitled to interest of five percent plus the base rate per year until the possible compensation claim. The notice of default costs an additional 100 euros.
Litigation financier: High profit sharing
British law firm Pinsent Masons has teamed up with litigation financier Litfin to offer free lawsuits against EY, with minimum damages of €20,000. The investor association SdK advertises the model. Litfin only collects 18 to 21 percent success commission of the compensation if it is successful, regardless of whether it is determined in court or out of court. Registration is still possible until June 15, 2023.
>> Read here: Wirecard process: Management board torpedoed special audit – attempt to influence
Opportunities: See model procedure.
Risks: Investors are making a bet here. If you think that EY doesn’t pay or only pays very little, Litfin is worth it. A calculation example: The regular registration for the model procedure costs 20,000 euros and a registration fee of 1000 euros. If EY pays the entire damage, Litfin collects 4,000 euros. EY would therefore have to pay less than 5000 euros in compensation for the Litfin plaintiffs to make a better cut than those who have registered themselves in the model case.
Costs: No.
Foundation: new legal territory
The “Stichting Wirecard Investors Claim” is aiming for an out-of-court settlement. At the same time, lawsuits are being filed against EY to suspend the statute of limitations. The foundation bears all the costs and, if successful, receives 25 percent. The investor association DSW recommends the foundation. Registration is possible until May 31, 2023.
Opportunities: Foundation solutions have already been successful in the past, such as at Fortis Bank, Unilever or Shell. The Foundation would also like to include other EY companies in a comparison. There is a theoretical chance that investors will be awarded more damages than in the test case. In addition, a settlement could be concluded more quickly than in the test case.
Risks: Unlike in the model case, investors cannot reject a settlement. If they do so, they must subsequently bear their share of the Foundation’s costs. If there is no comparison, the foundation wants to pursue legal action, so it could find itself in the model case.
Costs: No
More: Test case against EY starts