The German payment company Wirecard AG was a hot growth story that had shaken off allegations of accounting fraud – until the truth came knocking. First came the admission that some $2 billion in company funds were missing, then insolvency. The scandal led to the company’s former CEO Markus Braun resigning and being imprisoned. Several executives, bank officials and auditors were caught up in the embarrassing fallout that rocked Germany’s financial industry and left regulators looking flat-footed.
How Wirecard went from Fintech Star to Criminal Court
Wirecard was a developer of software and systems for online payments and fraud protection used over the internet, processing a customer’s card details and ensuring that the funds to cover a purchase were transferred to the merchant. The technology helped handle smartphone payment transactions, issue credit cards and detect suspicious activity. Through the aggressive acquisition of at least 18 companies, Wirecard grew out of Munich’s startup scene to report 2.1 billion euros ($2.2 billion) in revenue in 2018. That year, it replaced Commerzbank AG in Germany’s 30-company DAX stock index, along with titans such as such as Volkswagen AG, Siemens AG and Deutsche Bank AG.
2. When did the battle begin?
Wirecard is always used in murky waters. It was launched two decades ago to provide financial services to the gambling and adult entertainment industry. Later it focused on more mainstream customers, but the business model was complex and management was repeatedly forced to defend its reputation. Shares fell after allegations were made in 2008 of accounting irregularities and again in 2016 over fraud allegations, both of which Wirecard denied. The critics never completely went away, and in 2019 the Financial Times published a series of articles accusing the company of incorrect accounting in Asia and the Middle East. As stocks fell, investors stepped in to bet on further falls. In an unprecedented move, the German financial watchdog BaFin placed a temporary ban on short selling of Wirecard shares.
In June 2020, auditor Ernst & Young refused to greenlight Wirecard’s long-delayed 2019 financial report, sending the stock into another tailspin. A few days later, Wirecard admitted that the 1.9 billion euros it had reported as assets probably never existed. Braun, who had led the company for more than a decade, stepped down and Wirecard withdrew its financial results for fiscal 2019 and the first quarter of 2020. Moody’s Investors Service cut its credit ratings by six notches and then withdrew them entirely. Insolvency administrators appointed in August of that year laid off hundreds of employees and began liquidating Wirecard’s assets, selling off businesses in North America, Asia and Europe.
4. Who are the key players?
Braun turned himself in to the Munich police as part of an investigation into the company’s accounting practices. He was charged in March 2022 with fraud, market manipulation and false accounting. He has mostly been in prison out of public view, only to appear in court and before lawmakers. Chief Operating Officer Jan Marsalek, Braun’s right-hand man, fled when the scandal broke and remains at large. He is on Interpol’s most wanted list, and an investigation in Munich against him and other suspects continues.
5. What was the wider impact?
Wirecard had surfed the status of that rare thing in Germany – a relatively young technology company boasting global scale. Its demise was an embarrassment to the country’s regulators and political institutions because red flags had been there for years. Alongside the FT’s work, damning reports from short sellers such as Fraser Perring raised serious questions about the company long before the authorities acted. BaFin was criticized for the short selling ban. The agency’s president, Felix Hufeld, eventually apologized, saying it was among the institutions responsible for the “complete disaster.” He was forced to retire in early 2021.
–With assistance from Steven Arons and Christoph Rauwald.
More stories like this are available at bloomberg.com
