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Accounting Fraud Watch: Ex-Wirecard CEO’s Trial, Cronos Gets Smoked, Bad PR for Ex-PR Firm CFO

The Fall of Wirecard, a Tech Scandal That Rocked Germany, Reaches a Courtroom [New York Times]
The fraud trial of former Wirecard CEO Markus Braun began in Munich on Dec. 8. Braun and two other former executives face charges of defrauding creditors of $3.7 billion, through false accounting from 2015 until Wirecard collapsed in June 2020.

The electric payments company rocketed to fame in the 2010s, rising to become the country’s most valuable financial firm. But two years ago its auditor, EY, declared it could not find nearly 1.9 billion euros (about $2 billion) listed on Wirecard’s books, setting off a chain of events that would wipe out more than 20 billion euros, generate arrest warrants for its top executive, and damage the reputation of Germany’s financial regulators thr for more than a decade overlooked questions about the company’s dealings.

Prosecutors said Braun, the entrepreneur who founded the firm and would become a billionaire, misrepresented Wirecard’s earnings by inflating its sales with falsified income. Braun’s lawyers said the charges against his client are “seriously flawed” and “assumed a false picture of the facts.” They said that Braun acted in good faith and was unaware of machinations by others in the company, especially concerning its business in Asia.

The two others charged in the case are Oliver Bellenhaus, who headed a Wirecard subsidiary in Dubai, and Stephan von Erffa, the company’s chief accountant. All three face the same charges, which carry jail terms of up to 15 years if convicted. The trial is expected to take at least a year.

Lawyer of former Wirecard chief Markus Braun seeks suspension of trial [Financial Times]
Alfred Dierlamm, the lawyer for Markus Braun, has filed a motion to suspend the criminal trial of the former chief executive of disgraced German payments group Wirecard just days after the case began.

Dierlamm told a Munich court on Dec. 12 that prosecutors had failed to properly investigate the case and ignored key evidence. The court heard opening statements from the lawyers of the two other defendants on Monday and will decide on the motion in the next weeks as the trial continues. If it is successful, Braun might be released from police custody.

In a two-hour statement on the second day of the trial of Braun and two other former Wirecard managers at a Munich court, Dierlamm argued that the company’s outsourced operations in Asia did exist but that its proceeds were siphoned off without Braun’s knowledge.

He accused prosecutors of ignoring evidence supporting that view, adding that law enforcement authorities “decided to artificially and against the facts stick to the old narrative.” Dierlamm also accused prosecutors of sharing reams of additional data with the defense only shortly before the trial, making it impossible to take the additional information into account.

Steinhoff Ex-CEO’s Insider Trading Fine Is Cut to $1.2 Million [Bloomberg]
A fine against former Steinhoff International Holdings NV CEO Markus Jooste for insider trading has been cut by almost 90% after a local tribunal set aside the original penalty.

The Financial Sector Conduct Authority has issued a revised penalty of 20 million rand ($1.2 million) against Jooste, down from the 162 million rand announced in October 2020, it said in a statement last Wednesday. The new fine is payable by Jan. 6, 2023.

The first amount was set aside by a tribunal a year ago after it determined that while Jooste disclosed inside information to others, the warning he messaged to four people to encourage them to sell their Steinhoff shares ahead of a 2017 collapse was vague and imprecise. As a result, it said he only breached one section of the Financial Markets Act, not two.

Jooste is among four people who will go on trial in Germany next year on charges of accounting fraud related to Steinhoff, which came close to collapse after its auditors, Deloitte, refused to sign off on company financials five years ago.

Toronto cannabis company Cronos settles with SEC, OCS over accounting fraud [CBC]
Cronos Group Inc. and one of its former executives signed settlements on Oct. 24 with U.S. and Canadian regulators that accused them of filing inaccurate financial statements.

The Toronto cannabis company said the settlements ended a pair of investigations being carried out by the Ontario Securities Commission (OSC) and the Securities and Exchange Commission (SEC) into financial statements Cronos made around the first three quarters of 2019 and the second quarter of 2021.

The first set of settlements came from the Capital Markets Tribunal in Ontario, where Cronos agreed to pay an administrative penalty of $1.3 million, cover costs totaling $40,000, and submit to a review analyzing its compliance around financial reporting. Former CFO and chief commercial officer William Hilson agreed to make a voluntary payment of $50,000 to the OSC, pay costs of $20,000, and not serve as a director or officer of any reporting issuer for one year.

As the tribunals hearing was underway, the SEC announced it charged Cronos with improperly accounting for millions of dollars of revenue and for other accounting misconduct in multiple reporting periods. Hilson was charged with fraud and aiding and abetting the companys violations. The SEC said Cronos and Hilson offered to settle the matter by agreeing to cease and desist from future violations, but neither the company nor the former executive were made to admit any guilt.

Cronos agreed to retain an independent compliance consultant to review, assess, and make recommendations with respect to the firms financial reporting and accounting controls. Hilson agreed to a three-year officer and director ban and a suspension from practicing as an accountant for at least three years. The SEC said the company should not face a financial penalty because of its timely self-reporting, significant co-operation, and remediation and Hilson shouldnt be fined either because he volunteered to pay the OSC.

Ex-Weber Shandwick CFO Frank Okunak Gets Four Years In Prison For Embezzlement [PRovoke Media]
Former Weber Shandwick CFO Frank Okunak has been sentenced to more than four years in prison for embezzling $16 million from the PR agency over nearly a decade.

The U.S. District Court for the Southern District of New York last week also sentenced Okunak to three years of supervised released and ordered him to pay roughly $26 million—$16 in restitution and a $10.8 million forfeiture.

Okunak, who also served as Weber Shandwick’s COO, pled guilty in July to one count of wire fraud and one count of falsification of the books and records of a public corporation, Weber Shandwick parent Interpublic Group.

According to the court, Okunak from 2011 through 2020 stole the money through false accounting and record keeping to fund his personal lifestyle and business ventures. Okunak used the money to cover startup costs of his own business, luxury boxes at sporting events, and donations to his alma mater. He hid the expenditures by preparing or having others prepare invoices and other documentation indicating the funds were used for legitimate purposes, the court said.

Amethystum Storage faces delisting after US$5 million fine for accounting fraud, raising questions over rash of tech listings [South China Morning Post]
Chinese optical storage firm Amethystum Storage faces a delisting from Shanghai’s Nasdaq-like tech board amid a fraud investigation.

The China Securities Regulatory Commission (CSRC), the country’s securities watchdog, has fined Amethystum Storage 36.7 million yuan ($5.1 million) for fabricating sales and profit figures in its prospectus and failing to disclose its external guarantees to investors, according to a recent company filing.

CSRC notified the company of the penalty on Nov. 18 and warned that it may be forced to delist from Shanghai’s Star market, the company said in its filing. The company has not received a formal decision yet on delisting and will fully cooperate with the CSRC, it added.

Back in 2020, Amethystum Storage was the first optical storage firm to list on the Shanghai Star market, the exchange board dedicated to technology and innovation companies, and its stock price rose nearly threefold on its debut. However, the company is down 94% from a peak on the first day of trading.

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