While we all navigate these new times with a trying sense of positivity, let’s take a moment to uncover what is happening at Wirecard. The German financial services company has officially filed for bankruptcy following a massive accounting scandal – one of the largest accounting scandals to hit Europe, to be precise. This isn’t the first time we’ve seen tumultuous activity from a payment provider, but this one does take the cake for interesting revelations along the way.
Wirecard Scandal Unravels
It all started in October 2019, when whistleblowers from within the company started sending documents to an investigative journalist at the Financial Times. Things slowly started unravelling (over a period of roughly 18 months), and eventually an audit done by EY reported that the company was missing $2 billion. To this, Wirecard announced that the money probably never existed at all, putting the missing whopping chunk of change down to false accounting. A worrying answer from a financial service responsible for moving customers and businesses’ millions of dollars around the world.
Since EY refused to sign off the accounts, the German tech service saw a slump of 85% in stock price in just three days, equating to a $12.5 billion drop in market value. Wirecard’s CEO to over 6000 employees in 26 countries, Markus Braun then resigned.
Where There’s Smoke, There’s Fire
The Financial Times first started reporting on this in January 2019, when a document was shared with them suggesting some illicit activities in Singapore. FT reported that Wirecard had “forged and backdated contracts in a string of suspicious transactions”, Wirecard unequivocally denied this, and a month later the Singapore authorities said they would investigate. This saw the first decline in share price and a definite increase in concern over what is happening at Wirecard.
The next scandal unfolded when the Financial Times released more company documents accusing the company of inflating profits and sales, this time from their outposts in Dubai and Ireland. An investigation led by KPMG followed, and they ruled in favour of the publication, stating that Wirecard had not provided enough information to fully rule out the accusations.
Wirecard’s Fire Continues Raging
On Friday, 19 June, following the mass outbreak of the scandal, Wirecard’s CEO of nearly two decades, Markus Braun resigned. The next Monday, 22 June, Braum handed himself over to the Munich authorities after an arrest warrant was issued, and was arrested on suspicion of falsifying transactions and bank statements. He is believed to have done so to make the company seem more attractive to investors.
“It is a scandal that something like this could happen,” says Felix Hufeld, President of the German Federal Financial Supervisory Authority.
In an unexpected turn of events, the markets witnessed what is known as a Dead Cat Bounce, where a company’s shares increase slightly following a massive drop. Market Insider reports that shares increased by 124% on Monday taking them up to $4.50, but are still 97% below what they were mid June ($112.60).
Braum doubled the company’s worth in just 5 years (2013 – 2018) and was widely considered a tech visionary in Europe. Following the accusations, Braum is believed to have sold off a large percentage of his shares, taking his ownership stake in the company from 7.1% right down to 2.6%. In a hurried attempt to keep investors’ interest, the company is now scrambling to locate the missing funds. This led them to investigate a lead at a bank in the Philippines, however this led cold when the bank denied having seen the missing $2 billion funds pass through their system. The company has since filed for insolvency, appointing an insolvency officer, but will continue to operate until the case is finalised, they announced over the weekend.
As the bizarre story unravels, we’ll keep you in the loop with what is happening at Wirecard.