Wirecard – This month’s top news in Germany

Wirecard is a company processing payments. The company works as an intermediary and guarantor between buyers and sellers and takes a commission on all transactions. They have about 5,000 employees and actually replaced Commerzbank (we will talk about them later) in DAX 30 (Germany’s equivalent of the Dow Jones Industrial Average 30). They are the first “fintech” to achieve this.

The big problem now is that there are accounts missing, which should hold 1.9 bn Euros in cash. So these 1.9 billion are in their balance sheets, but they probably basically don’t exist. Let’s back up a bit, though.

UPDATE AFTER RECORDING: The day after the recording, Wirecard filed for insolvency: https://edition.cnn.com/2020/06/25/tech/wirecard-insolvency/index.html 

Update 2 – After Recording:

 

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Background

We started writing about Wirecard and the coverage of the Financial Times in May here: https://www.startuprad.io/blog/wirecard-vs-financial-times-the-history-which-lead-to-a-special-audit/. The coverage started in January 2019 and was opened with a manager of Wirecard accused by the FT of money laundering and fraud. There have been other articles, but they lead to a special audit of Wirecard by KPMG. Wirecard is audited by EY (formerly Ernst and Young). 

KPMG’s report highlights:

  • Wirecard did not deliver all documents, some of them months too late
  • For the audit of transaction data of 2016 and 2017, assistance form TPA partners were required but failed to materialize.
  • Several documents have been obtained by KPMG only in copy, almost exclusively electronic copies, which could not be further verified
  • Third-party business: KPMG did not receive sufficient documents to make a forensic investigation in the transactions 2016-2018.
  • Escrow accounts worth 1 bn Euros had not “sufficiently proven” payments-in

Potential Fraud

This led to the auditor EY looking even more closely in the 2019 balance and demanding more documentation. This in turn unraveled a potential devastating accounting scandal for Wirecard, since the company could not produce sufficient proof that their 1.9 bn € cash, claimed to be with trustees on the Philippines, actually existed. The CEO (Markus Braun) had to step down immediately and the publication of the 2019 numbers had to be postponed again. You can read more here: https://www.startuprad.io/blog/wirecard-trouble-continues-19-bn-cash-missing-ceo-steps-down-immediately/ 

Note: The auditors have a very hard job and this incident proves that every human being can make mistakes. 

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Developing Story

In the latest developments, Wirecard had to admit that the 1.9 bn € (approx 2.2 bn US$) likely do not exist. The share price has been above 140 €, as recently as February crashed down to 13 €. Bank of America corrected its forecasted price to 1 €. Mr. Braun also contributed to the decline by having to sell shares in order to meet margin calls. Mr. Braun is currently on bail of 5 mn Euros and has to visit the police once a week. 

We will keep you updated.

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