Wirecard stock price with milestones: from the appointment of Markus Braun as CEO (1), admission to the German top 30 index (event 2) to the appointment of an audit (3) and the discovery of fraud by audit firms (4, 5)
In its early years, Wirecard AG was a little-known company from a small town near Munich. In 15 years, its long-term CEO Markus Braun turned the company into a global giant of electronic payments, writes the WSJ.
Wirecard earned commissions for processing credit card transactions from businesses. The company expanded into emerging markets, bought up small companies and entered into partnerships to attract more customers. In the financial statements, sales and profits steadily increased. Wirecard claimed to process transactions worth $140 billion a year from a quarter of a million companies, making it a full-fledged competitor to Square and PayPal. In a short period of time, Wirecard's market capitalization exceeded the capitalization of any German bank.
Then the company fell apart at lightning speed.
Wirecard’s implosion is reminiscent of the rapid collapse of energy company Enron nearly two decades ago. On June 17, 2020, Wirecard was valued at more than $14 billion. Eight days later, it filed for bankruptcy.
On June 18, Wirecard admitted that it had lied to auditors. It said it had $2 billion in assets in a pair of Philippine banks when none was actually there. That’s equivalent to the company’s entire profits for more than a decade.
The company and its auditors say the missing money probably never existed. German regulators and prosecutors are digging through its books to unravel whether one of Europe’s most promising financial firms used fictitious income to inflate its sales and deceive investors about the health of its business. Last week, Munich prosecutors said a team of prosecutors, police officers, and IT experts had raided three Wirecard offices in Munich and two in Vienna.
Because it all fell apart so quickly, investigators are only just beginning to piece together the big picture. The leading theory is that Wirecard used independent third-party partners to handle its business in countries where it did not have licenses to generate bogus revenue streams — in order to boost its share price and capitalization.
"A sophisticated fraud"
Ernst & Young GmbH, which has audited the company for years, said on June 25: “There are clear indications that this was a sophisticated and complex fraud involving multiple parties worldwide in different organizations.”
The investigation is being led by German prosecutors, as well as authorities in Singapore and the Philippines. Prosecutors and regulators are trying to determine whether the missing $2 billion was a fabrication to cover up poor performance, or part of a money-grab scheme — or both.
Chief Executive Markus Braun was arrested, charged with inflating sales with false revenues, and released on bail. His assistant has fled and is wanted in Germany and the Philippines, although investigators believe he has since fled.
Braun has resigned. His lawyer said the client was cooperating fully with prosecutors and declined to comment further. Wirecard said in a written statement that it would continue to operate the payment processor while it restructures its business in bankruptcy proceedings. The company has denied that the money ever existed and that third parties conducted business on its behalf.
Online payments are a fast-growing financial sector, driven by the rise of e-commerce and the decline of cash. Companies like Wirecard make the software and hardware that merchants use to process payments. Payment processors also help merchants with accounting and fraud protection. The
success of Square and PayPal has fueled a boom in the market. Last year, Fidelity National Information Services paid $35 billion for Wirecard rival Worldpay.
Wirecard claimed to be one of Europe’s leading payments companies. However, the company was not included in the authoritative Nilson Report, an industry ranking of payments players, because it did not, unlike most of its competitors, explain how its reported payment volume was broken down by type of business.
Markus Braun, a computer scientist by training, joined Wirecard around 2000 after working as a management consultant. He helped the owners of what was then Electronic Billing Systems AG make a series of mergers and acquisitions in the nascent industry.
The company went public on the German stock exchange in 2002 after buying dot-com bubble victim InfoGenie. Braun was named chief executive.
The company changed its name to Wire Card, originally a two-word name. It kept its financial statements clear of online pornography and illegal gambling (online poker is illegal in the U.S.), even though it handled such payments, former employees say.
Tall and slender, Mr. Braun, 50, gave speeches at financial technology conferences that were full of predictions about the future. He often wore black turtlenecks.
From 2012 to 2019, the corporation’s revenues and profits grew rapidly. At least on paper. An investigation is currently underway into the story of the missing $2 billion, which is a product of the rapid “paper” growth of turnover and profits.
The company's revenue and net profit in 2012-2019 before taxes, dividends and depreciation
The investigation is currently looking into Wirecard’s partners who may have worked on its behalf or in its interests in markets where Wirecard does not have a license. In particular, the activities of the Singaporean company Senjo Group are being examined. Wirecard itself said that it receives a percentage of transactions, and the income settles in accounts controlled by a trusted manager.
Senjo, along with two similar companies in Dubai and the Philippines, accounted for more than half of Wirecard's revenue and 95% of its profits on paper in recent years.
Interestingly, some auditors had long warned of Wirecard's fraud. In particular, Matthew Earl, the author of the 2016 report, firmly predicted a sharp decline in Wirecard shares. If he had indeed shorted them, then a decline of almost 100 times would have provided the researcher with significant financial support.
Source
