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Wirecard was once the model of tech start-ups in Germany, last year they were listed on the German equivalent of the dow jones among the top 30 companies. Wirecard wasn’t just big there were also innovators, the company had been dubbed among the top 100 most innovative growth companies by Forbes. the company’s promotional material wanted you to know that buzzwords like reimagining, reinventing and innovation were often used so how in the space of just nine days did Wirecard share price go from 100 euros a share to less than two euros a share? and how did the company end up in a place? where they’re filing for insolvency and owe creditors 4 billion us dollars?
The answer lies in the fact that 2 billion us dollars are missing! the equivalent of the entire company’s operating profit. Wirecard hid the fraud from financial and regulatory institutions auditors and the government this was a tale of lies accounting manipulation hacking attacks on journalists an arrested former CEO and a missing executive.
But first, let’s learn about Wirecard and Marcus Braun
Wirecard was founded in 1999 in a suburban Munich Germany. The firm provided online payment services acting, as an intermediary between consumers and producers online. the money transfers were fast safe and convenient. riding off the back of the e-commerce boom the company became a giant in the space of five years they saw its share price increased tenfold. Ceo at the time Marcus Braun became a billionaire by earning seven per cent of the shares. By 2005 they had developed a core business in managing the payments of online gambling and adult content. despite shady beginnings through a series of acquisitions they moved into banking and were even issuing their own credit cards. after taking over the reigns in 2002 only three years after the company was founded Marcus Braun had global ambitions for the company. in a company Christmas party in 2009, he stated that English would now become the company’s official language this was to reflect its global ambitions. however, according to a former staff member, this drew awkward reactions as only half of the staff at the time spoke English and many of them couldn’t understand what Braun was even saying…
As the company became more successful Braun edged billionaire status he appeared to exhibit the image of what a tech leader should look like. Speaking at tech conferences he began sporting the classic black turtleneck. He even tried and imitate steve jobs. He made the company grow at a top 30 stock in Germany. It made Wirecard a rare European tech success story. however, Braun himself seemed to be somewhat disjointed from the rest of the company. he created a barrier between himself and most of the company. he worked on a floor only accessible by senior members leaving work meant getting on an elevator directly to a car park where a chauffeur waited for him in a Mercedes. he’ll be driven away to a building where he owned two apartments and had on occasion told his neighbours about his plans to buy their apartments too. by 2015 Wirecard now owned a bank in Munich and was transacting millions of online credit card payments. Braun was the face of the company while speaking with investors. Investors truly believed that this was a newfound german fintech version of steve jobs. they praised him as the innovative spirit of Wirecard and a mastermind.
However, not everyone was believing the hype. In 2017 Braun had told investors that the latest artificial intelligence was being used to process and analyze data in Wirecard systems. however, it’s been reported by the financial times that behind the scenes Wirecard staff were merely using excel spreadsheets to organize the information. Shocking…
Another sceptic Henrik Lieber had met Braun at an event. upon asking about the strategy and technology of his company Lieber received what to be considered abstract and evasive answers almost as if they were being pre-written or being read out by a machine. Hendrick knew that this was a bad sign and his fund sold all of their wi-card shares several weeks after the payment from time to time.
Braun liked to remind people of his power all coming from his seven per cent share in his company it’s reported that Braun often checked the share price on his phone. And would give verbal blasts to senior management if the price fell, demanding that they fix. It he would even take out large loans using the seven per cent share as collateral…so you can imagine how Braun felt when KPMG released a scathing report on Wirecard’s financials in April of 2020. at a recorded town hall meeting Braun can be seen fuming with rage but before we get to this moment let’s figure out how the company got there.
The first time that Wirecard faced scrutiny was back in 2008. financial auditors from the firm were called to review allegations in the company’s balance sheets. however strangely on this occasion, the two men that had blown the whistle were prosecuted by German authorities due to undisclosed stock position.
The reasoning was these two men would write bad about Wirecard and then bet on the price going down before the news breaks in order to make some money this is called short selling. it would be the same claims of short selling that Wirecard would use a decade later to defend itself against claims coming from investigative journalists at the financial times as Wirecard stock grew so did the questions reports of financial irregularities surfaced and there were claims that the company’s operations were far smaller than what they appeared on paper. it also seemed no matter how the economy was doing Wirecard was always thriving.
in 2015 it was reported that there was a 250 million euro gap in the company’s balance sheet the equivalent of three years of profit for the company. Wirecard dismissed this as short-seller backed propaganda and analysts agreed. merely a year later, in 2016 claims surfaced again that the company was involved in money laundering again Wirecard denied all the allegations. but this drew investigations from both the german financial watchdog and private agencies then something strange happened. over the next few years, journalists and short-sellers who had spoken negatively about Wirecard’s operations began to systematically receive fishing emails designed to compromise their computers however it hasn’t been completely verified that Wirecard was responsible.
In 2018 the company pushed into the DAX30 index this meant that Wirecard became an automatic stock in the portfolio of countless german pension funds. they were now partnering with german stores such as Audi and almost a hundred airline, sat their peak the company was worth 28billion dollars. but it was the start of 2019 when things started to escalate, there was an internal investigation at Wirecard Singapore office over fraud. money had supposedly been sent to India and back in order to falsely increase the number of transactions this was to make it look like the company was doing more business than it actually was.
In order to process payments in countries where Wirecard didn’t have a license, they would use third-party companies some of these were in Singapore Dubai but most importantly the Philippines. strangely the Philippines office was shared with a bus company perhaps a sign that things weren’t as they seemed.
Since Wirecard didn’t have an operating license in these regions the idea was that these foreign companies would do the payment processing for Wirecard. And Wirecard would receive a commission. this ended up being a huge part of Wirecard’s business pretty much all of its profit 1.9billion euros or 2 billion us dollars worth. Investigators found that there was no money coming into Wirecard’s Munich bank. it was curious but Wirecard explained it away to the auditors that there was actually a set of accounts managed at two banks in the Philippines. so the investigators went to the Philippines upon arriving to visit Wirecard’s partner company in the Philippines the financial times reported having found a retired man and his family who was surprised to find out that their home was supposedly a branch of a multinational company.
At this point, Wirecard was furious and sued the financial times for quote misuse of trade secrets a month later in a strange vote of confidence SoftBank invested a further 900 million euros into Wirecard. just seems like SoftBank can’t get a break. Later in 2019 among mounting investor pressure Wirecard appoints the accounting company KPMG to perform an audit. it was going to prove that all the allegations against Wirecard were groundless. six months later in early 2020 KPMG reports, it cannot verify quote the lion’s share of Wirecard’s profits over the last two years. Wirecard CEO Marcus Braunvigorously denied all claims of wrongdoing.
The Truth Came Out…
In early June German police raided the Munich headquarters. What Wirecard had claimed the whole time was that they were using third parties to process payments. These third parties would then give Wirecard a commission netting them two billion dollars and the majority of their profit.
The reality was it all appears to be an accounting sham. The two billion dollars wasn’t in the Philippines, the banks that were supposed to be holding the Wirecard money told investigators that they had no idea! what they were talking about. The bank stated that this money simply didn’t EXIST. None of Wirecard’s missing 2.1 billion ever entered into the Philippines. The two top Philippine banks had revealed that they did not have any relationship with Wirecard. the documents that indicate the presence of some funds in those banks were bogus over.
The next week Marcus Braun resigns and he’s arrested shortly after. the former CEO Wirecard then makes a statement they admit that the money probably never existed int he first place. after they filed for insolvency Wirecard’s former chief operating officer and Marcus’s right-hand man has vanished German newspapers report that he fled to Russia or Belarus. there have been ripple effects from the collapse German pensioners have lost money other payment companies owned by Wirecard were thrown into chaos, for example, the firm pocket has had to freeze funds for its UK clients. leaving some in danger of having no hot water or gas. and with that is the end of the Wirecard saga .it’s how a company went from a small startup to superstardom in the European tech world to losing 99 of its share price in just over a week.
when the financial times we’re starting to report about irregularities when it comes to their accounting and that was rebuffed violently by Wirecard but also the German regulator didn’t really look into the matter thoroughly and instead of it they actually looked into whether the financial times’ journalist has done its job right. There’s a huge discussion in Germany. whether or not everybody was far too lenient on the company because nobody apparently looked really into the business model neither there German regulator nor the analyst.
The story raises questions of the effectiveness of regulators auditors, rating agencies and financial watchdogs who all let it happen right under their noses was their corruption involved to have this go on for over a decade perhaps time will tell.