German payments giant Wirecard has filed for insolvency in the midst of a major accounting scandal linked to a €1.9bn (£1.7bn) hole in its finances. The company, which processes tens of billions of euros in credit and debit transactions every year, said it failed to reach a deal with its lenders that could help it stay afloat following a turbulent week that involved the resignation and arrest of its chief executive. Following the announcement, its auditor EY, which discovered the missing funds a week ago, said there were clear indications of “an elaborate and sophisticated fraud involving multiple parties around the world”. It said during the 2019 audit it was given false information and reported this to the relevant authorities. It added: “Even the most robust and extended audit procedures may not uncover a collusive fraud”. Wirecard declined to comment following the EY statement. Earlier, announcing the insolvency move, Wirecard said: “In the absence of an agreement with the lenders, there was a likelihood of termination and expiry of loans with a volume of €800m on 30 June 30 and €500m on 1 July 1.” A regulatory statement released by the company on Thursday added: “The management board of Wirecard AG decided today to file an application for the opening of insolvency proceedings on behalf of Wirecard AG at the competent Munich local court due to the threat of insolvency and over-indebtedness.” The development comes just days after its former chief executive Markus Braun was arrested on suspicion of falsifying accounts at the company. He was arrested after presenting himself to police, according to German media. Braun, 51, was bailed from police custody after posting a deposit of €5m on Tuesday, according to public prosecutors in Munich. Wirecard said it was evaluating whether it would have to file insolvency applications for its subsidiaries, which include UK operations based in Newcastle. The company, founded in 1999, employs about 5,800 staff across its 26 locations and has more than 313,000 customers, according to its website. The company’s shares, which have lost more than 95% of their value within days, were temporarily suspended from trading in Frankfurt. The shares were trading hands at around €2.65 on Thursday, comparedwith €104 last Wednesday. The German tech company, which was one of the country’s fastest-growing blue-chip companies, was thrown into crisis last week when EY said it was unable to trace about €1.9bn of cash in the company’s accounts. That sum was worth about a quarter of its balance sheet. Wirecard initially said the money was supposed to be in trustee accounts in two banks in the Philippines. However, the country’s central bank said the cash had never entered its monetary systems, while two commercial banks – BDO Unibank and Bank of the Philippine Islands – said that despite the company’s insistence, they had no relationship with Wirecard. Braun resigned last Friday, the same day the company confirmed its headquarters were searched as part of a market manipulation investigation launched by Germany’s financial regulator BaFin. By Monday, the management board admitted that the funds in all likelihood “do not exist”. Braun presented himself to police and was arrested on Monday evening. German prosecutors have said they believe the former chief executive may have artificially inflated the company’s assets and income through fake transactions, to make the company seem financially stronger and more attractive to investors and customers. The arrest came nearly two months after a special six-month audit by KPMG was not able to verify some of Wirecard’s transactions with third parties. The scandal has thrown BaFin under the spotlight over the the way it has handled critics of Wirecard since 2018. The watchdog temporarily banned short selling of Wirecard shares, a step it had never taken for an individual company, saying there were signs of “manipulative behaviour” potentially including insider trading. It also launched an investigation into reporters at the Financial Times, who in October reported that Wirecard staff had potentially conspired to fraudulently inflate sales and profits for a decade. BaFin president Felix Hufeld admitted on Monday that the Wirecard scandal was a “complete disaster” and criticised his own organisation’s inaction. Meanwhile EY itself is facing a class action suit by Berlin-based law firm Schirp & Partner and attorney Marc Liebscher on behalf of “aggrieved” shareholder and bond investors. “It is frightening how long Wirecard AG was able to operate without being objected to by the auditors,” the law firm’s founding partner Wolfgang Schirp said in a statement. A spokesperson for Schirp said the claim could end up being worth more than €500m. EY said: “We don’t comment on pending litigation.”