The Munich prosecutor has dropped its investigation into two Financial Times journalists, who were accused by the German financial watchdog of potential market manipulation over their reports about accounting irregularities at payments processor Wirecard.

The criminal prosecution office in Munich said on Thursday it had “suspended the investigative proceedings” against the two FT journalists after they “did not reveal sufficient evidence to support the suspicious facts” raised by BaFin, the German watchdog.

BaFin said on Thursday that it had “no objection” to the prosecutor dropping its investigation into the FT journalists. It added that its parallel criminal complaint against short-sellers alleging market manipulation on Wirecard shares was still ongoing.

The move comes 10 weeks after Wirecard declared insolvency, having admitted that about €1.9bn in cash was missing from its accounts. Its collapse, which has turned into one of Germany’s biggest financial scandals, followed years of reports by the FT that Wirecard’s accounts were misleading.

The Munich prosecutor said its investigations found that the FT’s reports “are basically correct and at least from the point of view of the information available at the time, it was neither false nor misleading. There were no direct, concrete contacts with short-sellers.”

The criminal complaint against Dan McCrum and Stefania Palma was filed by BaFin in April 2019 after the FT published articles by the two earlier that year alleging that Wirecard had been inflating its revenues by using forged and backdated contracts that raised questions over the company’s accounting.

The FT reports triggered a sharp drop in Wirecard’s share price and the payments processor responded by filing a criminal complaint against unknown persons, alleging that it had been the victim of market manipulation by short-sellers in collusion with FT journalists. 

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The Munich prosecutor said: “There were no indications that the accused themselves consciously disclosed the content and time of their reports to third parties and thus passed on inside information.”

“Rather, the further results of the investigation indicate that other people who were in the vicinity of the accused or who knew about the appearance of the reports may have passed on the relevant information,” it added. “The investigations into possible short sellers are ongoing.”

Felix Hufeld, the head of BaFin, this week rebuffed calls for him to resign over the Wirecard affair. BaFin has been criticised for not investigating allegations properly and for the disclosure that its staff were trading Wirecard shares shortly before it declared insolvency, raising questions about potential conflicts of interest. 

Last year, BaFin banned investors from betting against Wirecard shares for two months, the first such restriction on an individual company in German stock market history. 

This week, the German parliament said it would hold a full inquiry into the collapse of Wirecard, in a move that will keep the affair at the top of the political agenda well into a critical election year.

Wirecard’s former chief executive Markus Braun, who denies allegations of fraud and embezzlement, and three other former top managers are in custody, accused of running a criminal racket that defrauded creditors of €3.2bn. Jan Marsalek, the former chief operating officer, is on the run.

The supervisory and management boards of Wirecard have resigned and the administrator is in the process of breaking the company up and selling it in pieces to recoup as much money as possible for creditors.

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In a statement, the FT said: “We welcome this decision. The unfounded criminal complaint should never have been made by BaFin and should have been dropped by Munich prosecutors far sooner. Our reporters acted courageously and responsibly in the public interest throughout.”

Via Financial Times