By Nithusa Sinnadurai, Staff Writer
How does a company go from being the “Investor’s darling” to being known as the “Enron of Germany”? The financial world was shocked to find Europe’s largest FinTech company under scrutiny for falsifying its financial reports. WireCard is a German company that provides online payment services and is known for its ability to safely and quickly transfer payments between consumers and merchants. By 2018, WireCard was added to the Dax Index; the stock index of the
Despite all the praise and glory, WireCard was not beloved by all. Journalists and other critics were extremely skeptical as to how a company could achieve their level of profits in such a short period of time. During its time in the spotlight, WireCard faced several allegations of fraud, most notably in 2008, when the public audit firm Ernst and Young (EY) Germany was called upon to investigate a whistleblower’s claims that there were accounting irregularities. However, no action took place as German authorities discredited the whistleblowers. The whistleblowers were writing negative reviews about WireCard to profit from short-selling WireCard stock. While WireCard continued to grow at an exponential rate, allegations of potential fraud followed in pursuit, but the company managed to dodge most of the accusations thrown their way.
However, their biggest skeptic, the Financial Times, a British newspaper, started to investigate the suspicious accounting irregularities. In order to process payments in countries they didn’t have the operating license for, WireCard used third-party companies in Singapore, Dubai and the Philippines. These companies had the task of processing payments between businesses and their consumers, in return for a commission given by WireCard. It should be noted that these companies did not really “exist” and were used as a way to bypass regulations in certain countries. These companies were owned by WireCard which made their activities more suspicious, and when visited it was obvious that the offices were empty and no operations were occurring.
Wirecard had claimed to receive nearly all of it’s 1.9 billion euro profit from the third-party “companies” , however, investigators found it strange that none of the profit was in their bank in Munich, Germany. When asked, WireCard simply stated that the money was held between two banks in the Philippines. As expected, the narrative did prove true when both banks denied WireCard’s claims and even stated that WireCard’s profit had never entered their system. Following this trail of information, Financial Times continued its investigation and publicized all the grimy details along the way.
In addition to denying all the claims brought to light by the Financial Times, on March 28th 2019, Wirecard sued the newspaper company and declared that it was trying to lower their stock prices. Once again, WireCard was bailed out by Germany’s Financial Regulatory authority, as they filed a complaint against Financial Times and placed a ban on the short-selling of WireCard stock. Unfortunately for WireCard, the immense pressure from stockholders forced WireCard to hire KPMG to conduct their own investigation into the allegations. The investigation took place from October 31st, 2019 until April 24th, 2020, when KPMG revealed that they could not verify the origin of the 1.9 billion euros of profit. Then, in early June of 2020, WireCard’s Munich headquarters was raided by German officials, which revealed that WireCard’s 1.9 billion euros never existed.
As of June 25th 2020, WireCard filed for insolvency as they were unable to pay their creditors the 3.3 billion euros they owed. Shortly thereafter, Markus Braun was arrested by German law enforcement. Now with the curtains fully drawn back, the illusion of WireCard’s success has finally disappeared.
According to Micheal Jaffe, Wirecard’s insolvency administrator, there continues to be interest shown towards the company from investors. With the share price currently at 0.59 euros, almost anyone can invest. The question is: who will?
Photo by Markus Winkler, Unsplash