The collapse of the wire card reveals cracks in the heart of Germany, Inc.

In the end, the collapse lasted only seven days. Wirecard admitted last week that about a quarter of its assets – 1.9 billion euros ($ 2.1 billion) in cash – probably never existed. CEO Markus Brown resigned and was quickly arrested on suspicion of artificially inflating the balance sheet and selling the company to fraudulent transactions. Wirecard filed for insolvency on Thursday.

Brown, who was released on bail, consistently denies the wrongdoing, suggesting that Wirecard was the victim of a very sophisticated scam. But a picture emerges of a esteemed technology company cheered by the authorities instead of a carefully scrutinized one, and a supervisory board that did not act as a check by the CEO whom many considered a visionary. Accounting firm EY spurred the decline of Wirecard by refusing to cancel its final results for 2019, after more than a decade of auditing the company.

“You have a wealth of evidence about sinners, overlookers, about different kinds of wrongdoings,” said Christian Strenger, academic director of the Center for Corporate Governance at HHL Leipzig Graduate School of Management.

Wirecard is the first member of the elite Frankfurt DAX stock index in Frankfurt to file for insolvency. But its implosion follows a series of scandals over the past five years that have embarrassed the German government, regulators and the business community, raising the question of the power of corporate governance and financial regulation in the world’s fourth-largest economy.

Immediately at the factory in Tönnies, poor working and living conditions faced by foreign workers in the industry were highlighted, and the German government responded by promising to ban the use of subcontractors and double the fines for violating working time rules.

The companies operate in a variety of industries, but with the exception of the Tönnies Group, they are publicly listed and managed by a board of directors responsible for day-to-day operations, and overseen by a supervisory board that includes employee representatives. Critics say oversight crumbles when boards become too comfortable, which can happen when top executives are moved to supervisory positions. Investors complain that their interests are too often subject to other considerations, such as policy or internal corporate dynamics.

Strenger said German corporate governance has improved significantly in recent decades, but that the shortcomings of executives and directors are still too common. Additional safeguards would be relatively easy to install, such as changing stock market rules to prevent companies from delaying their financial results, as Wirecard did.

The German government is now paying close attention. Finance Minister Olaf Scholz described the wirecard scandal as “extremely worrying”, saying the country must take action quickly to improve oversight. “Critical questions are being asked about the company’s supervision, especially with regard to accounting and balance sheet control. Auditors and supervisory bodies do not seem to be effective here,” Scholz said in a statement.

The German Federal Financial Supervisory Authority or BaFin is actively investigating whether Wirecard violated anti-market manipulation rules. But the regulator is now under great scrutiny, with critics arguing it should have been a better deal to oversee Wirecard’s banking unit, even if it didn’t have direct control over the larger firm.

Observers also want to know why BaFin issued a temporary ban in 2019 preventing investors from borrowing Wirecard shares to sell them in anticipation of falling prices and why it filed a criminal complaint against a Financial Times reporter who published a series of articles exposing irregularities in accounting and management in the company. BaFin chief Felix Hufeld described the scandal earlier this week as a “complete disaster”.

The European Commission has asked its top market supervisor to conduct a preliminary investigation into BaFin. Valdis Dombrovskis, the EU’s financial services policy officer, told the Financial Times that the bloc should be ready to launch a formal investigation if necessary.

“We need to clarify what went wrong,” he said.

EY, which is already facing criminal charges from the German shareholders’ association SdK, said on Friday that Wirecard’s collapse was the result of “a complex and sophisticated fraud involving several parties around the world in various institutions, with the deliberate aim of deception”.

“Agreed frauds intended to deceive investors and the public often involve great efforts to create a false documentary clue,” the auditor added in a statement. “Professional standards recognize that even the most powerful and longest audit procedures cannot reveal a secret fraud.”

– Chris Liakos, Eoin McSweeney and Stephanie Halasz contributed to the reporting.