Robert HARNEIS -TDO- (FRANCE)- The Fintech electronic payments specialist, listed in the German Dax stock exchange, index has collapsed after revealing €1.9bn of its declared funds did not exist. It is another in a series of dramatic German regulatory failures following the footsteps of the Volkswagen emissions scandal and Deutsche bank irregularities.
The discovery was announced on June 18, and the company has since withdrawn its 2019 and preliminary Q1 2020 financial results, adding that previous annual reports may have been impacted.
It is the first company to declare itself insolvent in the history of the Dax which is an index of the 30 leading publicly quoted German companies. The now worthless company was at one time valued at €24 billion.
Ironically it won its place in the prestigious German stock index when it replaced Commerzbank, Germany’s second largest bank, on the grounds of inadequate market capitalization. Commerzbank has also been the subject of financial irregularities.
The collapse was triggered by the refusal of auditors EY to sign off on the 2019 accounts, although they had signed off the previous years figures that contained similar irregularities. EY is already the subject of legal action by shareholders who have lost their entire investment. Wirecare shares were quoted at over €100 as recently as June I.
Markus Braun, who has headed up the firm for the last 18 years, was arrested on suspicion of accounting fraud and market manipulation. He has been released on bail of €5 million.
Less than a month ago, Wirecard’s chief financial officer, Alexander von Knoop, told Accountancy Age that he expected “no major deviations of these very intensively audited financial statements from the reported preliminary figures.”
Although EY spotted the irregularity, Dutch shareholder group VEB is pursuing compensation from the Big Four firm, saying: “EY has played a significant role in the whole Wirecard scandal, not only from its inability to detect the flaws in Wirecard’s escrow account in former years.”
The chairman of the German financial regulator, BaFin, Felix Hufeld, has described the situation as “a complete disaster” and according to news agency dpa said “it’s a shame that something like this happened”.
“We are in the midst of the most terrible situation I’ve ever seen a DAX company,” Hufeld said at a conference in Frankfurt, in reference to Germany’s leading index of safe values.
He acknowledged the criticism of regulators including BaFin, saying that “we have not been effective enough to prevent this from happening.”
Wirecard has been the subject of accusations of financial irregularities since 2014 but the company was successful in diverting criticism by alleging that it originated with hedge funds making money by shorting the companies shares and encouraging them to fall.
CEO Markus Braun has allegedly masterminded a sophisticated PR campaign over several years, against any critics of his company, including an online campaign attacking any individuals who spoke out against financial irregularities company. When media reports led by the Financial Times highlighted apparent inconsistencies in Wirecard’s accounting last year, BaFin reacted by banning short sales in Wirecard shares and investigating the sources of journalists.
Not the least irony of the situation is that Braun was also a member of the highly prestigious supervisory board supervising the rescue of Deutsche Bank, Germany’s biggest bank.
Shareholders and bondholders are particularly angry that earlier this year a financial investment by Softbank was organized by a team of German financial experts for €1 billion which caused the companies shares to rally in April 2019. There is no evidence the executives of Softbank were protecting fraud.
Not for the first time in a major fraud case the deception has been brazen. The money was said to be held in two Philippine banks, BDO Unibank Inc and Bank of the Philippine Islands (BPI).
But on Sunday, central bank governor Benjamin Diokno said that both banks had denied that Wirecard was their client and noted that documents linking them to the money were fake. It is scarcely credible that a serious financial institution would keep billions in accounts in the Philipines apparently in Philipino currency. Sales have been grossly overstated.