The BaFin employee allegedly sold structured securities just a day before a massive fraud scandal engulfed "fintech" star Wirecard.
Germany's financial regulator BaFin reported one of its employees to state prosecutors on Thursday over suspicions of insider trading linked to Wirecard's collapse last year.
The employee, who works in BaFin's securities supervision department, "sold structured products" based on Wirecard's shares on June 17 last year, the regulator said in a statement.
The next day, Wirecard admitted that it was unable to account for €1.9 billion ($2.3 billion) in assets.
A week after that, the payment firm filed for insolvency.
BaFin said it uncovered the alleged case of insider trading while reviewing the private stock market activities of its workers where Wirecard's share value may have had an impact.
Workers were also barred from speculative financial transactions, including short-term trading in shares.
"We had a compliance system which adhered to the legal requirements but that is no longer appropriate and was therefore rightfully changed," BaFin president Felix Hufeld said.
The regulator said it has suspended the employee, who was not named, and launched disciplinary proceedings.
Munich-based Wirecard started out processing payments for pornography and gambling, before rising to become a financial technology (or "fintech") star and market darling.
Preliminary investigations found that the Wirecard may have been padding its books as early as 2015.
Wirecard's sudden fall from grace has not only gotten the company in trouble — but has damaged the credibility of BaFin, which failed to detect the fraud, and called into question the actions of German Chancellor Angela Merkel's government.
Wirecard stands accused of fraud, accounting fraud, market manipulation and money laundering.
Former Wirecard CEO Markus Braun has denied any wrongdoing or knowledge of the missing assets.
In testimony before a parliamentary inquiry looking into the scandal, Braun pointed the finger at the company's former chief operating officer, Jan Marsalek, whose whereabouts have been unknown since the scandal erupted.
The parliamentary inquiry has been tasked with finding out who knew what and when — with Chancellor Angela Merkel and Finance Minister Olaf Scholz set to be grilled by lawmakers as part of the process.
rs/msh (dpa, Reuters)