By John O’Donnell and Tom Sims

FRANKFURT (Reuters) – Germany’s financial watchdog has reported one of its employees to state prosecutors on suspicion of insider trading linked to Wirecard, shortly before the payment firm’s spectacular collapse.

BaFin’s admission is a fresh indictment of Germany’s supervision of a company that began by processing payments for gambling and pornography before becoming a star of ‘fintech’ – financial technology – and finally Germany’s biggest fraud case.

The European Union’s markets watchdog has criticised Germany for failing to avert the fraud, while lawmakers are scrutinising the role of politicians, including Chancellor Angela Merkel, who lobbied for Wirecard in China.

Olaf Scholz, Germany’s finance minister, who has also been criticised because he is responsible for BaFin, said he would announce the results of a review looking at a reorganisation of the agency in the coming days.

The suspect works in BaFin’s securities supervision department and sold structured securities based on Wirecard’s shares on June 17 last year, the regulator said.

That was just a day before news broke that Wirecard’s auditor, EY, had said it was unable to account for 1.9 billion euros ($2.3 billion) in the accounts, and a week before Wirecard filed for insolvency.

“This is another blow to BaFin’s reputation,” said Florian Toncar, one of the lawmakers leading the parliamentary inquiry, adding that it raised questions about whether such investments had influenced BaFin.

Allegations of fraud at Wirecard had swirled for years, though German prosecutors long focused their investigations on the investors and journalists who had highlighted irregularities.

As the company edged towards collapse, BaFin staff bought and sold its shares in ever higher volumes.

The regulator only banned such trades by its staff around four months ago, and it was not immediately clear why this employee alone had been reported to prosecutors.

BaFin said it had suspended the employee, whom it did not name, and opened disciplinary proceedings. The complaint was filed with state prosecutors in Stuttgart, where the trading took place.

“The finance ministry saw no need to take action on insider trading at the supervisory authorities at the outset of the Wirecard scandal,” said Fabio De Masi, one of the German lawmakers participating in the inquiry.

He called for stricter rules to apply to German authorities, including government ministries.

Wirecard’s former chief executive, Markus Braun, is being held in jail on suspicion of running a criminal racket that defrauded creditors of 3.2 billion euros. He denies any wrongdoing.

(Additional reporting by Patricia Uhlig in Frankfurt and Thomas Seythal and Christian Kraemer in Berlin; Editing by Kevin Liffey and Sonya Hepinstall)

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