BERLIN (BLOOMBERG) - German Finance Minister Olaf Scholz was aware of potential market manipulation at Wirecard almost a year and a half before the company collapsed, putting pressure on a key figure in Chancellor Angela Merkel's government.

Financial watchdog BaFin informed Mr Scholz in February 2019 about the case "because of the suspicion of a violation against the prohibition of market manipulation", according to a report by the Finance Ministry seen by Bloomberg.

His early knowledge of the allegations swirling around Wirecard increases scrutiny on the highest-ranking Social Democrat in Dr Merkel's coalition and lays bare the delicate dynamics just over a year before the next election.

Presented to the heads of the parliamentary finance committee on Thursday evening (July 16), the report creates a new opening for critics who accuse the German authorities of being too lax by failing to pursue fraud allegations of a company that aspired to be a leading light in Europe's tech industry.

The minister was told that BaFin would "investigate in all directions", said the document, which was reported earlier by German media.

While Mr Scholz has denied any direct involvement in the Wirecard scandal, he has struggled to insulate himself from the issue.

His deputy, Mr Joerg Kukies, confirmed on Wednesday that he met the digital payments company's then chief executive officer Markus Braun twice at the end of last year, including once on the manager's birthday.

SCHOLZ'S PROBLEM

Dr Merkel kept the scandal at arm's length, saying the responsibility to clear up the issue lies with Mr Scholz.

"What information the Finance Ministry possessed at what time will be disclosed by the ministry to the public, and the chancellor sees that as good and correct," Ms Martina Fietz, Dr Merkel's deputy spokesman, said on Friday during a regular government press conference.

She stopped short of stating that Mr Scholz has the German leader's full support.

"The Chancellor works faithfully with all members of the Cabinet,"Ms Fietz said.

Despite the mounting pressure, Dr Merkel would be hard pressed to take action against her vice-chancellor without bringing down the coalition, an unlikely scenario in the midst of a global pandemic and during Germany's six-month presidency of the European Union.

POLITICAL SUPPORT

Wirecard, a member of Germany's benchmark DAX index, became a national disgrace when it said last month that a quarter of its balance sheet probably doesn't exist.

That set off a blame game between banks, auditors and public authorities and revealed large gaps in the country's oversight of non-financial companies.

"Politically it's highly problematic that the finance minister got involved with the case at such an early stage," Mr Danyal Bayaz, a lawmaker with the Green party, said in a phone interview on Friday.

"Scholz had Wirecard on his radar, he had an interest, but this interest apparently never became big enough to prompt him to take action," he said, adding that the Finance Ministry has failed to clear up its role and that he wouldn't rule out seeking a parliamentary investigation.

Any decision over Mr Scholz's fate would rather lie with the Social Democratic Party (SPD), whose members last year rejected his bid to lead the party in favour of a duo who voiced more support for policies such as a wealth tax, a higher minimum wage and public spending.

Still, voter backing of the SPD remains mired at historic lows, and the party has begun to maneuver in support of Mr Scholz's bid to run for the chancellorship.

That fragile balance would be upended if the politician's standing was challenged.

REFORM PUSH

The Finance Ministry waved off suggestions that Mr Scholz didn't act appropriately.

German regulators pursued various accusations against Wirecard over the years and the ministry was regularly informed about the state of the various probes, Finance Ministry spokesman Dennis Kolberg said at the government briefing.

The ministry is "actively" looking to overhaul accounting oversight in the aftermath of Wirecard's collapse and will present a plan "as quickly as possible".

"We're looking intensively at whether improvements are necessary," Mr Kolberg said.

BaFin, which is overseen by the Finance Ministry, has come under criticism for appearing to focus more on targeting investors who alleged irregularities at Wirecard and made bets against the stock, rather than the company itself.

The regulator said in March last year that it was investigating both sides.

BaFin president Felix Hufeld said last month that his institution is among those parties responsible for the failure to catch what he has called "massive fraud" at the company.

Still, he defended BaFin's actions against so-called short sellers as being a legal obligation.

Despite outrage over the shortcomings, political opponents have stopped short of calling for Mr Scholz to step down.

"The sloppiness when it comes to controlling billion-dollar companies is simply inconceivable," Mr Bernd Riexinger, head of the Left party, said in an e-mailed statement.

"Scholz urgently needs to explain why suspicions of irregularities at Wirecard - but also the problems with the oversight regime - were ignored in his ministry for so long."