The WA2 department of the Federal Financial Supervisory Authority is of considerable importance for the functioning of the German financial center. In Bafin’s organizational chart, it can be found in the securities supervision area under the heading “Market surveillance, market infrastructure”. Among other things, the department takes care of tracking down market manipulation, insider surveillance and compliance with ad hoc disclosure requirements. A unit is responsible for trading suspensions, the monitoring of short sales and the control of the stock transactions of boards of directors of listed companies. In short: the employees in department WA2 also ensure that the German financial market is clean.
In the case of the payment service provider Wirecard, too, there were numerous topics that are within the responsibility of this department. In February 2019, Bafin imposed a ban on the short sale of Wirecard shares – for the first time ever for a single Dax stock. In addition, the supervisors investigated market manipulation against short sellers and journalists of the “Financial Times” as well as against Wirecard managers.
At the beginning of June 2020, the authority then filed a criminal complaint with the Munich I public prosecutor on suspicion of market manipulation through misleading ad hoc communications from the payment group in connection with a special audit by KPMG. The Bafin was alarmed much earlier: The KPMG report presented at the end of April, said head of the authorities Felix Hufeld at a special meeting of the Bundestag finance committee at the beginning of September, was for him the “last component” that “the hut was on fire “. On May 19, Bafin received all the secret attachments to the KPMG report: These paint an even more dramatic picture of the situation than the report that Wirecard had published.
77 derivative deals in six months
But while things were already burning at Wirecard, it was, of all people, employees of the Bafin WA2 department who were increasingly privately trading in securities of the payment company – which raises the question of whether there was speculation with insider knowledge. As early as 2019 – the year in which the Wirecard rate repeatedly hit capers because of numerous “FT” revelations as well as the short sale ban and Bafin investigations – some officials from the Bafin department responsible for market surveillance reported 28 transactions, according to the Federal Ministry of Finance with Wirecard securities. That corresponded to almost a quarter of all 102 deals with Wirecard-related that were approved across the Bafin in 2019. In the crisis year 2020, which ended with the group’s insolvency at the end of June, Bafin employees then processed 153 transactions with Wirecard papers. Here too, department WA2 was in second place with 41 purchases and sales – directly behind department VA5 from insurance supervision. Wirecard was the most traded individual title among all employees in 2019 and 2020.
A particularly explosive picture emerges when one looks at the transactions of Bafin employees with speculative derivatives on Wirecard shares. As a new list from the Federal Ministry of Finance shows, in 2019 seven employees of the authority processed a total of 22 transactions with certificates and other Wirecard derivatives – including 13 purchases and nine sales. With six stores, the WA2 department was also in second place here. The front runner with seven deals (four purchases, three sales) was another department, which, in view of what was going on at Wirecard at the time, made a lot of noise: the “Integrity of the Financial System” department, which is responsible for fighting the black capital market. For the prosecution of unauthorized financial services or banking transactions, in which the IF department is in charge, the Bafin not only has its own investigative powers. She also works closely with investigative authorities at home and abroad, for example with the Federal Criminal Police Office.
In the first half of 2020, the private transactions of Bafin employees with speculative financial instruments on the price of Wirecard shares even increased massively. A total of 77 transactions with derivatives were carried out, as shown by a list of the Finance Ministry for the FDP Bundestag member Bettina Stark-Watzinger, which Personal-Financial.com has. There were 45 purchases and 32 sales. The VA5 division accounted for most of the deals with 42 purchases and sales. The WA2 department, which is responsible for numerous Wirecard topics, followed immediately with 24 purchases and sales of certificates and other derivatives. In the “Integrity of the Financial System” department – still particularly active in 2019 – there was not a single deal in 2020.
In its answer to Stark-Watzinger, the Ministry of Finance stated that in the first six months of this year eight Bafin employees across all departments had reported transactions with Wirecard derivatives. According to earlier information from Minister Olaf Scholz’s (SPD) department, the officials traded 27 different, in some cases highly speculative derivatives such as warrants, knock-out papers and turbo certificates in 2020. In addition, there was an undisclosed number of so-called contracts for difference (CFDs) – extremely risky leverage products, the trading of which the Bafin has restricted for private investors because it rates it as a gamble.
If all reports from the financial supervisory authority to the ministry are correct and eight officials have processed 77 transactions with 27 different papers and CFDs within six months, there must have been some of them who have been active in the style of a professional trader and various securities within a short time has sold back and forth. Also noteworthy: The department heads or, in some cases, department heads who have to approve the business of the employees, apparently saw no problems in approving each and every one of them – including the CFDs, which in the event of a loss often lose more than the capital invested.
Of course, everyone is basically free to speculate on the financial market, said finance politician Stark-Watzinger. “But if the department for market surveillance within Bafin deals particularly often with speculative derivatives in connection with Wirecard, then that is not to be accepted,” said the parliamentary manager of the FDP parliamentary group. Insider trading is prohibited. “But who can rule out that relevant information is not shared with colleagues at the coffee machine?” However, that is exactly what has to be ruled out, since the financial supervisory authority, as a supervisory authority, must be above all doubt.
Internal audit checks business
At the request of Personal-Financial.com, a Bafin spokeswoman said that the authority had a “rule-compliant and effective compliance system” for employee transactions and a “detailed audit routine”. The obligation to report stock transactions already applies from the first euro. At the same time, the supervisor must confirm that the employee “had no proper knowledge of inside information on the financial instrument being traded”. The spokeswoman also referred to a review of the compliance rules for employee transactions by more than 30 supervisory authorities by the European Central Bank. Accordingly, the provisions of the Bafin did not represent “a particularly liberal or lax regulation” in comparison, she said.
The spokeswoman wanted to answer specific questions about the increased trading activity in the market surveillance department and the question of how Bafin ensures that information about ongoing investigations and price-relevant developments among Bafin employees is not informally exchanged in the canteen or over an after-work beer do not express. She pointed out that “all employee transactions related to Wirecard” are currently being checked again by the Central Compliance and Internal Audit departments. So far, “no abnormalities” have been found in the shops examined. However, the investigation is still ongoing.
Bafin President Hufeld, on the other hand, recently made it clear in the Bundestag that the Wirecard transactions of his officials would have to lead to changes in the internal security systems in his view. “We would very much like to see a tightening here,” he said at a special non-public meeting of the finance committee earlier this month. For Hufeld himself and his colleagues on the board of directors of Bafin, stricter rules already apply, because in their role they have considerable inside knowledge of numerous companies: They are fundamentally prohibited from trading individual shares in financial companies.
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