UPDATED
Wirecard Suspends Executive After $2.1 Billion Goes Missing

 Eyk Henning, Jan-Patrick Barnert and Sarah Syed

Bloomberg June 18, 2020


View photos
(Bloomberg) -- Wirecard AG has temporarily suspended its outgoing chief operating officer after revealing that auditors couldn’t find about 1.9 billion euros ($2.1 billion) in cash, spooking investors and casting doubt on the company’s leadership and survival.

Jan Marsalek has been suspended on a revocable basis until June 30, the company said in a statement on Thursday. James Freis, who had already been tapped to lead the company’s new “integrity, legal and compliance” department starting next month, will begin in his role immediately. Marsalek was due to step down from the COO role to a new position in charge of business development, Wirecard said in May.

The company suffered one of the worst stock slumps in the history of Germany’s benchmark index on Thursday after revealing that auditors had been unable to find billions of cash that was supposed to be held in Asian banks. The company warned loans of as much as 2 billion euros could be terminated if its audited annual report, delayed for the fourth time, was not published by June 19.

Marsalek had tried to get in touch with the two Asian banks and trustees over the past two days to recover the missing money, but wasn’t successful, according to a person familiar with the matter. It’s unclear if the funds can be recovered, the person added.

A representative for Wirecard didn’t respond to requests for comment. Marsalek couldn’t immediately be reached for comment.

Ernst & Young was unable to confirm the location of the cash in certain trust accounts, and there was evidence that “spurious balance confirmations” had been provided, Wirecard said in a statement on Thursday. That’s about a quarter of the consolidated balance sheet total, Wirecard said.

“We are stunned,” said Ingo Speich, a fund manager at Deka Investments, a top 10 shareholder at the firm. “A new start in terms of personnel is more urgent than ever.”

The escalating crisis also calls into doubt the future of Chief Executive Officer Markus Braun, who is the company’s biggest shareholder. Braun has been at the helm since 2002, building the company from a startup into a payment provider whose technology facilitates transactions around the world.

Braun painted the company as a potential victim in a separate statement. The CEO has been resisting calls to resign and aggressively defending the company against accusations of accounting fraud, led by a series of articles in the Financial Times.

“It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred,” said Braun, adding that the company will file a complaint against unnamed persons.

The stock dropped as much as 67% to 35.85 euros in Frankfurt on Thursday, the biggest fall on record and the largest for a member of Germany’s prestigious 30-company DAX stock index. Wirecard’s bonds also suffered a record plunge.

Loan Issue

Wirecard warned loans up to 2 billion euros could be terminated if its audited annual report was not published by June 19. Analysts at Morgan Stanley estimated that Wirecard has available cash of around 220 million euros, if it cannot locate the missing $2.1 billion.

“While we would expect Wirecard to seek covenant waivers, if the banks call 2 billion-euros of debt and that is mostly drawn, then we expect investor focus to turn to the balance sheet and liquidity,” said analysts at Morgan Stanley in a note on Thursday.

Wolfgang Donie, analyst at NordLB, warned that the “overall situation at Wirecard can only be described as insupportable and the scandal is now becoming a crisis that is threatening the existence of the company.”

German financial markets regulator BaFin said it is examining Wirecard’s disclosure on Thursday as part of its investigation into whether the company violated rules against market manipulation, according to a spokeswoman.

In September 2018, Wirecard reached a market valuation of 24.6 billion euros, replacing Commerzbank AG in the DAX alongside titans such as Volkswagen AG, Siemens AG, and Deutsche Bank AG. Following Thursday’s collapse, the company is valued at around 6.7 billion euros.

“Wirecard’s retreat could be terminal,” said Neil Campling, an analyst at Mirabaud Securities.

Asian Banks

EY told Wirecard that their results will require additional audits after two unnamed Asian banks that have been managing the company’s escrow were unable to find accounts with about 1.9 billion euros in funds, Wirecard said in an additional statement. Those funds had been set aside for risk management, the company said.

Wirecard said last month that the latest delay in publishing results was due to Ernst & Young needing more time to finish its review, and that the auditor hadn’t found anything material within the scope of its work. Wirecard had previously postponed the results while it was working with KPMG on a probe into allegations about accounting irregularities.

Braun has aggressively fought against allegations that the company’s financials have been mismanaged. Braun has also resisted calls from activist investors TCI Fund Management Ltd. to step down, promising to regain investor confidence and improve compliance and control.

Wirecard headquarters were searched in May by German prosecutors as part of a probe involving the company’s senior management.

Wirecard said in February that full-year revenue rose about 38% to 2.8 billion euros while earnings before interest, taxes, depreciation and amortization jumped 40% to 785 million euros.

(Updated with Wirecard statement, CEO comment, context on loans.)

©2020 Bloomberg L.P.

Crypto Card Issuer Wirecard Says It’s Missing $2.1B in ‘German Enron’ Scandal

 Paddy Baker CoinDesk June 18, 2020


Former German blue-chip Wirecard has said a quarter of its total balance sheet is missing after “spurious cash balances” were provided to its auditor, EY.

In an explosive statement Thursday, the Munich-based card issuer, said a total of €1.9 billion ($2.1 billion) could not be accounted for and that some members of the company had purposefully filed false or misleading statements “in order to deceive the auditor and create a wrong perception of the existence of such cash balances.”

Wirecard admitted the accounting hole was roughly a quarter of the company’s total balance sheet.

A former poster child of the German tech scene, Wirecard has been heavily scrutinized over supposed irregularities in its accounting practices. The company was accused last year of fraudulently inflating sales and profit figures, and that it was using client funds held in escrow accounts to boost cash balances.

Wirecard’s share price has tanked. At press time, shares traded at the €36 (~$40) mark, down 70% since Wednesday. The credit card issuer had once been one of Germany’s most prestigious companies, even surpassing Commerzbank with a €24.6 billion( ~$27.6 billion) market valuation in September 2018.

Lionel Barber, former editor-in-chief of the Financial Times, said on Twitter that Wirecard was turning into a German version of the Enron scandal.

Wirecard subsidiary Wirecard Card Solutions branched out into crypto when it became the issuer for crypto payment card providers Crypto.com and TenX. Wirecard had also partnered with TON Labs, the developer house behind Telegram’s blockchain. A court document also claimed Wirecard’s COO participated in the $1.7 billion token sale in 2018.

It’s unclear if Crypto.com, which only rolled out is payment card in Europe last month, is planning on switching its card issuer. CoinDesk reached out for comment but hadn’t heard back by press time.

Wirecard had already delayed the release of its audited financial statements and Thursday was supposed to be the final publication date. Today’s news has now pushed this back indefinitely. The delay means creditors will be able to pull up to €2 billion (~$2.2 billion) worth of loans as of Friday.

Wirecard’s board is now working “intensively” with EY “towards a clarification of the situation.”

 German payments firm Wirecard and its missing billions

Reuters June 18, 2020

(Reuters) - Billions of euros of loans to Wirecard could be called in as early as Friday after the German payments company said its auditor had refused to sign off on its 2019 accounts, knocking more than half the value off its shares on Thursday.

Wirecard said that its auditor EY had informed it that sufficient evidence could not be found for 1.9 billion euros ($2.1 billion) in cash balances on trust accounts - or around a quarter of its balance sheet total.

Following are some key facts about the company and pivotal dates in its recent history:

* Founded in 1999, Munich-based Wirecard has 5,800 employees in 26 countries around the world. It processes digital payments for both consumers and businesses and reported revenues of more than 2 billion euros ($2.3 billion) in 2018, more than triple the figure in 2014.

* Wirecard's expansion was driven by its chief executive and leading shareholder Markus Braun, an Austrian who has led the company since 2002. It was promoted to Germany's blue chip index in September 2018 when it ousted Commerzbank.

* In Feb. 2019, Singapore police said they were looking into reports by the Financial Times of alleged financial irregularities at Wirecard's local office, allegations that had driven its shares sharply lower.

* In Oct. 2019, Wirecard rejected any impropriety after the Financial Times published documents on the company's accounting practices which it said appeared to indicate an effort to inflate sales and profits.

* An independent investigation by auditor KPMG published in April this year found Wirecard did not provide sufficient documentation to address all allegations of accounting irregularities made by the Financial Times.

Wirecard said the KPMG audit had not uncovered any incriminating evidence to support allegations it manipulated its accounts and it would not restate its accounts for the years 2016 through 2018.

* On June 5, Munich prosecutors said they had searched Wirecard's headquarters and opened proceedings against the payment company's management board as part of a market manipulation probe initiated by financial regulator BaFin.

Prosecutors said the company was suspected of having issued misleading information which may have impacted Wirecard's share price between March 12 and April 22.

($1 = 0.8885 euros)

(Editing by Keith Weir and Alexander Smith)

Wirecard shares plunge after saying auditor can’t find billions of missing cash

Published: June 18, 2020 By Steve Goldstein

The headquarters of the technology and financial services company Wirecard in Aschheim near Munich, Germany, on September 18, 2018. 

Referenced Symbols
WDI
-66.35% WCAGY
+5.27% DAX
-1.13%

Shares in Wirecard lost two-thirds of their value as the German payment processor said on Thursday its auditor can’t find evidence for a quarter of the cash on its balance sheet.

Wirecard WDI, -65.97% WCAGY, +5.27% shares lost 65% as the firm said Ernst & Young said it didn’t have sufficient audit evidence for €1.9 billion euros in cash.

“There are indications that spurious balance confirmations had been provided from the side of the trustee,” the company said.

“Previously issued confirmations by the banks were no longer recognized by the auditor. All parties involved are endeavoring to clarify the matter as quickly as possible,” said Markus Braun, Wirecard chief executive, in a statement. “It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred.”

Wirecard said the banks managing the escrow accounts are two Asian banks that have investment grade ratings. The trustee, who has been in office since 2019, holds numerous mandates in Asia, Wirecard said.

The DAX DAX, -1.12% component postponed its 2019 annual financial statements for a fourth time, and if not completed by Friday, some €2 billion of loans can be terminated.

It is the latest twist in a long-running saga. The Financial Times reported in October that Wirecard staff appeared to have conspired to fraudulently inflate sales and profit at subsidiaries. Wirecard has denied those charges, while KPMG has conducted a special investigation and said it couldn’t prove the revenue of its third-party acquiring business.

“Even today Wirecard’s long standing CEO Marcus Braun has brazenly tried to portray the company as a victim of fraud and instead tried to focus investors on apparently strong reported revenue growth,” said Barry Norris, manager of the Argonaut Absolute Return Fund, who said the stock was his biggest short position. “During our first-quarter conference call we previously described the company as ‘having more red flags than you would see at a communist rally.’”

Wolfgang Donie, an analyst at NordLB, cut the stock’s rating to sell from hold, and his target price to 20 euros from 80 euros, saying the new allegations are leading to an “existential crisis.”

Germany’s stock-market regulator separately is investigating Braun over insider-trading allegations. Braun held 7% of the stock, according to FactSet data, making him the largest shareholder







Wirecard Bet Hammers Star U.K. Stock Picker

Suzy Waite and Lucca de Paoli
Bloomberg June 18, 2020




(Bloomberg) -- Star U.K. stock picker Alexander Darwall’s investment trust slumped as its biggest holding went into freefall amid accounting concerns.

Wirecard AG accounted for just over 10% of the European Opportunities Trust Plc’s investments as of May 31, according to the website of Devon Equity Management, where Darwall is chief investment officer.

When the German payments firm delayed the release of its annual report for a fourth time on Thursday, shares in Darwall’s trust fell 11.6%. That was the biggest daily drop since 2008.

Devon’s Chief Executive Officer Richard Pavry declined to comment.

Darwall built his reputation over almost a quarter century at Jupiter Fund Management Plc, where he at one time managed nearly 8 billion pounds ($10 billion) focusing on large bets on European firms. Many of his vehicles were heavily invested in Wirecard, which had proven to be a profitable wager for the manager. In the 10 years before Darwall left Jupiter, the German firm’s share price surged from 6 euros to around 150 euros.

Wirecard stock dropped by a record 62% in Frankfurt on Thursday after auditors were unable to find about 1.9 billion euros ($2.1 billion) in cash, causing analysts to question liquidity at the German payments firm.

In January, Darwall apologized to investors of the trust about its large stake in Wirecard, and said at the time he would not have out-sized positions in any stock in the future. He also reiterated his confidence in the stock, despite a number of reports questioning the accounts of the growing business.

Investors pulled 4.5 billion pounds from Jupiter in 2019, which CEO Andrew Formica said was “almost entirely” because of Darwall’s decision to leave. His departure was announced in July last year.

(Updates with closing share prices in 3rd and 6th paragraphs)

©2020 Bloomberg L.P.

SEE

https://plawiuk.blogspot.com/2020/06/wirecard-committed-elaborate-and.html

https://plawiuk.blogspot.com/2020/06/wirecard-fights-for-survival-as.html

ENRON 2.0
Wirecard committed 'elaborate and sophisticated fraud' say auditors

The auditors of Wirecard have accused it of committing an "elaborate and sophisticated fraud." The German payments provider has filed for insolvency and its CEO has been arrested.



Auditing company EY accused Wirecard of committing an "elaborate and sophisticated fraud" in comments on Thursday.

It came soon after the scandal-hit German payments provider filed for insolvency and its CEO was arrested.

"There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world in different institutions with a deliberate aim of deception," EY said.

German Finance Minister Olaf Scholz said on Thursday that Wirecard's debacle "must be a wake-up call that we need more oversight, more controls" over financial firms.

"The scandal is unparalleled in the financial world," Scholz added. Read more: Former Wirecard CEO Markus Braun arrested

Missing billions

EY had previously sounded the alarm during the audit of the 2019 financial statement, which showed that the firm could not account for €1.9 billion ($2.1 billion).

The €1.9 billion was supposed to have been held by two banks in the Philippines. But earlier this week the country's central bank confirmed that the money had not entered its financial system.

CEO Markus Braun was subsequently detained on suspicion of inflating the company's balance sheet and revenues to make it appear stronger and more attractive for investors and customers.

Three other managers are also under investigation.

'The moneys gone'

Wirecard's creditors have little hope of recovering some €3.5 billion euros that the firm owes, sources familiar with the matter told Reuters news agency.

"The money's gone," one banker said. "We may recoup a few euros in a couple of years but will write off the loan now."

Things also looked grim for shareholders. Wirecard shares have lost 98% of their value since EY refused to sign off on the firm's financial statement last Thursday.

German law firm Schirp & Partner told Reuters that it planned to file class actions against EY on behalf of shareholders and bondholders, now that Wirecard had gone bust.

"It is frightening how long Wirecard AG was able to operate without being objected to by the auditors," partner Wolfgang Schirp said.

Wirecard's fall from grace began last year, when a series of reports in British newspaper Financial Times uncovered accounting irregularities in its Asian operations.

Founded in 1999, the Munich-based had come to edge traditional lender Commerzbank out of the DAX 30 index and was once heralded for its innovation.

Germanys Economy Minister Peter Altmaier has called for a thorough investigation, warning that the Wirecard scandal could erode confidence in the country's finance sector.

jcg/aw (Reuters, AFP, AP, dpa)


Wirecard files for insolvency after financial hole laid bare
The German payment company Wirecard has said it will open insolvency proceedings after disclosing more than $2 billion dollars missing in its accounts. Trade on shares in the company was suspended.



German financial technology firm Wirecard announced Thursday it would file for insolvency amid an accounting scandal that led earlier this week to the arrest of its former CEO.

The company said it was making the filing "due to impending insolvency and debt." It will make the filing at a district court in Munich.

Read more: Scandal-hit German fintech Wirecard secures $1 billion investment

Markus Braun resigned as CEO on Friday after the company could not find roughly €1.9 billion ($2.1 billion) that appeared in its accounts. Braun later turned himself in to prosecutors after Wirecard concluded that the money probably never existed.

Trading in the group's shares was immediately halted by the Frankfurt Stock Exchange, leaving them blocked at €10.74, down 12.7% from close of trading Wednesday. Prior to the sudden scandal, it was trading just over €100.

Wirecard has become the first member of DAX, Germany's blue-chip share index, to go out of business.

The Munich prosecutor's office, which is already investigating Braun on suspicion of manipulating Wirecard"s accounts, said "We will now look at all possible criminal offenses."

Following his arrest, Braun has been released on bail.

How did Wirecard become insolvent?

Wirecard had been one of Germany's fastest-growing tech firms and was set to be a new giant in the business. The scandal has also raised questions about Germany's ability to implement corporate regulations.

Media reports in 2019 questioned the company’s accounting, but Germany's financial regulator, BaFin, targeted investors instead of the firm itself.

BaFin has described events this week surrounding Wirecard as a "disaster" but also said that it stands by its decisions.

Wirecard had been a member of the DAX index for less than two years and at its peak was worth €25 billion ($28 billion) by market capitaliztion.

ed/msh (AP, dpa)

SEE 
https://plawiuk.blogspot.com/2020/06/wirecard-fights-for-survival-as.html

https://plawiuk.blogspot.com/2020/06/fraud-wirecard-shares-plunge-after.html

CRIMINAL CAPITALI$M

Ex-Wirecard CEO Goes On Trial Over 'Unparalleled' Fraud

By Michelle FITZPATRICK
12/05/22 

Markus Braun, who claims he's innocent, faces several years in prison if found guilty

Ex-Wirecard CEO Markus Braun goes on trial in Munich this week for his role in the collapse of the once celebrated payments firm, brought down by the biggest accounting fraud scandal in German corporate history.


Austrian-born Braun and two other former Wirecard executives will appear in the dock from Thursday on charges of commercial gang fraud, breach of trust, market manipulation and accounting manipulation.

The Munich district court has scheduled 100 court dates for the mammoth trial.

Wirecard, once hailed as a standard-bearer for the German tech industry, imploded spectacularly in 2020 after admitting that 1.9 billon euros ($2 billion) missing from its accounts probably didn't exist.

Chancellor Olaf Scholz, who was finance minister at the time, described the scandal as "unparalleled" in post-war Germany.

Braun, who has been in custody for over two years, denies any wrongdoing.

The 53-year-old has pointed the finger at Wirecard's fugitive former chief operating officer, Jan Marsalek, a shadowy figure with alleged ties to foreign intelligence agencies.

Marsalek was reported earlier this year to be hiding out in Russia.

A senior Wirecard employee, however, told a German parliamentary inquiry last year that nothing happened at Wirecard without Braun's knowledge.

"The group was shaped by Markus Braun, and so was the corporate culture. He decided everything, he dictated everything," Rainer Wexeler told lawmakers.

On trial alongside Braun are Oliver Bellenhaus, the former head of Wirecard's Dubai subsidiary, and ex-accounting boss Stephan von Erffa.

They face several years in prison if convicted.

Bellenhaus has admitted wrongdoing and will serve as a key witness for the prosecution.

It took German investigators more than 20 months to unravel the complex web of fraudulent transactions implicating Wirecard subsidiaries and third-party companies across the globe.

Prosecutors say the accused presented "incorrect" financial results from 2015 to 2018, by including fabricated revenues and profits from partner companies in Dubai, the Philippines and Singapore, and using forged documents to make Wirecard appear more successful than it was.

Among the victims of the fraud were banks that had provided credit of 1.7 billion euros to Wirecard. Bonds worth 1.4 billion euros were also issued and are unlikely to be repaid.

Founded in 1999, the Bavarian start-up Wirecard started out processing payments for porn and gambling sites and grew into a respectable electronic payments provider that edged traditional lender Commerzbank out of the blue-chip DAX index.

Rumours about possible cheating at Wirecard surfaced now and again over the years, including from shortsellers doing research on companies they suspected might be overvalued.

But Wirecard's problems began in earnest with a series of Financial Times articles in 2019 alleging irregularities in its Asian division, based on revelations from former employees and leaked documents.

The company was initially able to fend off the claims, with the FT's journalists themselves coming under investigation from German regulators.

But the scam finally unravelled in June 2020 when long-time auditor EY said it had discovered a 1.9-billion-euro hole in Wirecard's accounts.

The sum, which made up a quarter of the balance sheet, was meant to be sitting in trustee accounts at two Filippino banks.

But the Philippines' central bank has said the cash never entered its monetary system and both Asian banks, BDO and BPI, denied having a relationship with Wirecard.

Wirecard filed for insolvency soon after, becoming the first DAX company to fail.

Wirecard's dramatic downfall sent shockwaves through Germany and prompted an overhaul of the country's finance watchdog Bafin, heavily criticised for ignoring early warning signs about Wirecard.

The fallout also embarrassed Germany's political establishment, with former chancellor Angela Merkel coming under fire for promoting Wirecard during a 2019 trip to China -- when journalists were already raising doubts about the company.

In a grilling last year by lawmakers, Merkel said there was "no reason at that time" to believe there were "serious irregularities at Wirecard".

The mammoth trial in Munich is expected to run into 2024

Instead of looking into the FT's Wirecard revelations, Germany's regulator filed a complaint against the journalists



© Copyright AFP 2022. All rights reserved.

Wirecard Fights for Survival as Billions May Not Exist

No Missing Wirecard Funds in Philippines: Central Bank

Chanyaporn Chanjaroen Bloomberg June 22, 2020

(Bloomberg) -- Wirecard AG was left fighting for survival after acknowledging that 1.9 billion euros ($2.1 billion) that it had reported as assets probably don’t exist, deepening an accounting scandal that has rattled Germany’s financial industry.

The payments processor said it’s in discussions with creditors and considering a full-scale restructuring after pulling its financial results for fiscal 2019 and the first quarter of 2020. Previous descriptions of its business with third parties, which process transactions on Wirecard’s behalf, were “not correct.”

Even before the early Monday statement, the unfolding scandal had seen Wirecard’s shares and bonds collapse, its chief executive depart, and left the company renegotiating debt terms with its lenders. In less than a week, the fintech once hyped as the future of German finance has lost almost 90% of its market value, with the shares slumping for a third trading day on Monday.

“It’s a complete disaster we’re looking at,” said Felix Hufeld, head of BaFin, Germany’s top financial regulator, at a panel discussion Monday. “It’s a shame that something like that happened.”

Wirecard said it was in “constructive discussions” with its lending banks, including the extension of lines coming due at the end of June. It is working with investment bank Houlihan Lokey on a sustainable financing strategy. Also under consideration are cost reductions, a restructuring, and disposal or termination of business units and product segments, according to the statement.

“There is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion euros do not exist,” Wirecard said. The firm had repeatedly delayed announcing its financial statements, and last week warned that loans of as much as 2 billion euros could be terminated if its audited annual report wasn’t published by June 19.

Cracks are already appearing among Wirecard’s lenders. Bank of China Ltd. may write off most of the 80 million euros ($90 million) it’s owed and not extend its credit line, according to people familiar with the situation.

Moody’s Investors Service decided on Monday to withdraw Wirecard’s credit ratings because it “believes it has insufficient or otherwise inadequate information to support the maintenance of the ratings.” It had already cut the ratings six levels on Friday, putting it one step from the lowest tier of junk.

Read more on how Wirecard became an embarrassment for Germany

Wirecard fell as much as 50% and traded 38% lower at 12:35 p.m. in Frankfurt. The stock has lost 85% since Wednesday, the day before it revealed that the funds were missing.

Wirecard’s lenders are demanding more clarity from the company in return for the extension of almost $2 billion in financing after it breached terms on the loan, people familiar with the matter said earlier. At least 15 commercial lenders, including Commerzbank AG and ABN Amro, are in hectic negotiations about the steps to take, they said.

The missing cash “could trigger an event of default and allow creditors to withdraw lines of credit,” said Justin Tang, head of Asian research at United First Partners in Singapore.

Wirecard has an outstanding revolving credit facility of 1.75 billion euros, according to data compiled by Bloomberg. About 90% of the RCF has been drawn by the company, according to people familiar with the matter and a list detailing the facility’s participation that was seen by Bloomberg:

It’s unclear how the latest admissions will affect discussions with the banks. Most are leaning toward an extension of the repayment obligation in order to better assess the potential impact of a default on their balance sheets, one of the people said. However, a prolonged extension could be seen as delaying an insolvency, which is illegal under German law.

The scandal has prompted the resignation of Markus Braun after almost two decades as CEO. He was replaced on an interim basis by James Freis. Braun is unwinding a large portion of the shares he owns in the company, a stake he financed by borrowing against the stock’s value, Bloomberg has reported.

Read more on how Braun has to unwind pledged shares

The deepening mystery over the lost money centered on two Philippine lenders, after Wirecard said a couple of unnamed Asian banks had been unable to find accounts with the cash.

Both the Bank of the Philippine Islands and BDO Unibank Inc. said Wirecard wasn’t a client and they hadn’t seen the money. None of the missing cash entered the Philippine financial system, according to the nation’s central bank, which is conducting its own investigation.

A document purporting to show a link between Wirecard and BPI was “bogus” and may be part of an attempted fraud, the bank’s President Cezar Consing said Friday. BDO Unibank CEO Nestor Tan said it was a matter of “document fraud which was subsequently clarified by the bank as spurious.”

Wirecard is continuing to investigate the matter and can’t rule out potential effects on the financial accounts of previous years, it said in Monday’s statement.

SEE WIRECARD
https://plawiuk.blogspot.com/2020/06/wirecard-committed-elaborate-and.html

https://plawiuk.blogspot.com/2020/06/fraud-wirecard-shares-plunge-after.html

CRIMINAL CAPITALI$M

The ex-convict's tale: Germany's role in Wirecard scandal under microscope
By John O'Donnell and Tom Sims 6 hrs ago

© Reuters/Hannibal Hanschke 

FILE PHOTO: Investigative committee on Wirecard accounting scandal in Berlin

FRANKFURT (Reuters) - In February 2019, after a steep drop in Wirecard's share price, German authorities launched criminal probes into short-sellers and journalists who had accused the company of fraud, and banned investors from betting against the company.

Documents seen by Reuters show for the first time that the only independent information - beyond Wirecard's representations - received by Munich prosecutors who launched the criminal probes was a third-hand account of events from a convicted money launderer, Daniel James Harris.

The rationale that led to the decisions of prosecutors and regulators to launch the criminal probes and short-selling ban, and whether they were overzealous in supporting Wirecard, are central issues being investigated by a parliamentary inquiry into the company's collapse in Germany's biggest post-war fraud scandal.

The criminal probes and short-selling ban were launched by authorities after Wirecard complained it was being targeted by unidentified speculators who it said were in cahoots with two Financial Times journalists and had advance knowledge of a negative report that it said baselessly alleged accounting manipulations.

Some Wirecard executives were in fact engaged in a sophisticated global fraud at that time, the German government, prosecutors and regulators said last year after the payment company filed for insolvency, owing creditors almost $4 billion.

The trove seen by Reuters includes thousands of pages of emails, chat messages and memos provided by German authorities to the parliamentary inquiry, which reaches a climax this week with testimony from Chancellor Angela Merkel on Friday.

The witness testimony from Harris was provided by Wirecard, with a lawyer for the company delivering the two-page written statement in person to a prosecutor on Feb. 14, 2019, according to the documents.

In the statement, Harris identified himself as an equities trader in Essex, southern England, and said he met his broker, whom he didn't identify, on Jan. 30, 2019, the day Wirecard's share price plunged up to 22%.

The broker said he had been told that investors were trading in anticipation of a negative FT report about the company, which was published in the afternoon of that day, according to the statement seen by Reuters.

"He told me he had spoken with a friend of his," Harris said. "My broker said that this friend had told him that an article was about to be published about Wirecard."

In his statement, Harris said he didn't act on the information. However Wirecard argued that market talk of a negative article ahead of publication was proof that investors were trading on inside information, and perhaps in collusion with journalists. At the time, the FT denied this, characterising Wirecard's claims as a "smokescreen".

Reuters was unable to contact Harris or his lawyers for comment.

Harris was sentenced to a two-year jail term in February 2017 for money laundering for drug dealers who ran a moped delivery service in London and Essex, according to Britain's National Crime Agency.

A spokeswoman for the Munich state prosecutors said Harris' statement corroborated Wirecard's claims that it was unfairly targeted by speculators.

"The statement under oath was used by legal representatives of Wirecard to substantiate the legal complaint," she added.

In February this year, the state prosecutor told the parliamentary inquiry that he did not speak to Harris, without elaborating.

Munich prosecutors dropped the inquiry into the journalists last year, concluding there was no evidence of any collusion with investors, while no action has yet been taken against the several short-sellers investigated.

'VERY CONCRETE INFORMATION'

The documents seen by Reuters include correspondence by executives and officials from Wirecard, prosecutors and financial regulator BaFin provided to lawmakers.

The prosecutors' office emailed Harris' statement to BaFin on Feb. 15, 2019, a Friday, the documents show, and the following Monday BaFin announced the first short-selling ban on a single stock in German history.

BaFin's ban was a watershed in the saga, according to lawmakers who have said it implicitly vouched for the company's credibility, while halting investors that doubted it.

A BaFin spokeswoman said the Harris witness statement played "no role" in the short-sale ban, but that it did fit into its examination of market manipulation.

Yet Sebastian Kimmer, a member of BaFin's staff who corresponded with Munich prosecutors, testified before lawmakers in February this year that the Harris statement provided "very concrete information" that supported Wirecard's complaint.

Kimmer said the information from prosecutors was deemed serious and credible by the regulator. He added that Harris' statement, along with the allegations from Wirecard relayed by prosecutors, were escalated to his superiors.

No details about Harris' statement have been publicly disclosed.

Munich prosecutors have previously defended their role, saying they acted impartially in alerting BaFin to Wirecard's fears that it was going to be targeted by short-sellers.

Felix Hufeld, then president of BaFin but who has since resigned in the wake of the scandal, had defended the short-selling ban as a means to maintain confidence in Germany's stock market.

But three lawmakers on the parliamentary inquiry said that the prosecutors' and BaFin's actions in February 2019 showed their readiness to side with Wirecard against critics, even in the face of what they characterised as flimsy evidence.

Florian Toncar, one of the lawmakers, said the Munich prosecutors had shown a tendency to take a "one-sided view on the Wirecard case".

"They held the unsigned draft of a vague testimony ... as a plausible story," he added.

(Reporting by John O'Donnell and Tom Sims; Editing by Pravin Char)

'The money's gone': Wirecard collapses owing $4 billion

Arno Schuetze, John O'Donnell

FRANKFURT (Reuters) - Wirecard collapsed on Thursday owing creditors almost $4 billion after disclosing a gaping hole in its books that its auditor EY said was the result of a sophisticated global fraud.

The payments company filed for insolvency at a Munich court saying that, with 1.3 billion euros ($1.5 billion) of loans due within a week its survival as a going concern was “not assured”.

Wirecard’s implosion came just seven days after EY, its auditor for more than a decade, refused to sign off on the 2019 accounts, forcing out Chief Executive Markus Braun and leading it to admit that $2.1 billion of its cash probably didn’t exist.

“There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world,” EY said in a statement.

EY said while it was completing the 2019 audit, it was provided with false confirmations with regard to escrow accounts and reported them to the relevant authorities.

RELATED COVERAGE

Factbox: German payments firm Wirecard goes from boom to bust

Wirecard declined to comment following EY’s statement.

The financial technology company is the first member of Germany’s prestigious DAX stock index to go bust, barely two years after winning a spot among the country’s top 30 listed companies with a market valuation of $28 billion.

“The Wirecard case damages corporate Germany. It should be a wake-up call for reforms,” said Volker Potthoff, chairman of corporate governance think-tank ArMID.

Creditors have scant hope of getting back the 3.5 billion euros they are owed, sources familiar with the matter said. Of that total, Wirecard has borrowed 1.75 billion from 15 banks and issued 500 million in bonds.

“The money’s gone,” said one banker. “We may recoup a few euros in a couple of years but will write off the loan now.”

‘TOTAL DISASTER’

The collapse of Wirecard, once one of the hottest fintech companies in Europe, dwarfs other German corporate failures. It has shaken the country’s financial establishment with Felix Hufeld, head of regulator BaFin, calling it a “total disaster”.

German Finance Minister Olaf Scholz described the collapse as a “scandal”, acknowledging it was time to review regulation.

“We must rethink our supervisory structures,” said Scholz, adding he had asked his ministry to come up with ideas in the next few days.

“If legal, legislative, regulatory measures are needed, we will embrace them and implement them,” he said. “A scandal like Wirecard is a wake-up call that we need more monitoring and oversight than we have today,” he said.

Wirecard shares, which were suspended ahead of an earlier announcement that it would seek creditor protection, crashed 80% when trading resumed. They have lost 98% since auditor EY questioned its accounts last Thursday.


EY, one of the world’s “Big Four” accountancy and consulting firms, faces a wave of litigation in a debacle that has drawn comparisons with Arthur Andersen’s disastrous oversight of U.S. energy company Enron.

German law firm Schirp & Partner said that with Wirecard now effectively sidelined, it would file class actions against EY on behalf of shareholders and bondholders.

“It is frightening how long Wirecard AG was able to operate without being objected to by the auditors,” partner Wolfgang Schirp said.

Wirecard’s new management had been in crisis talks with creditors but pulled out on Thursday morning “due to impending insolvency and over-indebtedness”.

The insolvency filing did not include its Wirecard Bank subsidiary, which holds an estimated 1.4 billion euros in deposits and is already under emergency management by BaFin.

FILE PHOTO: The headquarters of Wirecard AG, an independent provider of outsourcing and white label solutions for electronic payment transactions is seen in Aschheim near Munich, Germany April 25, 2019. REUTERS/Michael Dalder/File Photo

‘COMPLETE VINDICATION’

A second source close to talks with creditors said although the company had a healthy core, it had faked two-thirds of its sales. This meant there was no way it could repay all its debt, notwithstanding all the legal challenges it will face.

The ascent of Wirecard, which was founded in 1999 and is based in a Munich suburb, was dogged by allegations from whistleblowers, reporters and speculators that its revenue and profits had been pumped up through fake transactions.

Braun fended off the critics for years before finally calling in outside auditor KPMG late last year to run an independent investigation.

KPMG, which published its findings in April, was unable to verify 1 billion euros in cash balances, questioned Wirecard’s acquisition accounting and said it could not trace hundreds of millions in cash advances to merchants.

“Today is a complete vindication for those that exposed the fraud,” said Fraser Perring, who bet on a fall in Wirecard’s shares and co-authored a 2016 report that alleged fraud.

The Munich prosecutor’s office, which is investigating Braun on suspicion of misrepresenting Wirecard’s accounts and of market manipulation, said: “We will now look at all possible criminal offences.”


Braun was arrested on Monday and released on bail of 5 million euros a day later. Former chief operating officer Jan Marsalek is also under suspicion and believed to be in the Philippines, according to justice officials there.

($1 = 0.8903 euros)

Key Wirecard 'Business Partner' Turns Up Dead In The Philippines After Mafia Links Exposed

by Tyler Durden

Thu, 08/06/2020 - 10:35

Wirecard's collapse was forestalled for years thanks to Germany's financial regulator BaFin, which aided the fraud by targeting journalists (most notably the FT's Dan McCrum) who sought to expose the crude shell game used by the company to mask the fact that 2/3rds of its reported profits were pure make-believe.

Two months after one of Europe's biggest accounting frauds was exposed by an "independent" report ordered by the company, Wirecard's ex-CEO is under house arrest as he awaits trial for fraud charges, while his former No. 2, ex-COO (and purported Russian intelligence asset)  Jens Marsalek, remains a fugitive from justice (it's believed he's hiding in Russia). FT reporters digging into Wirecard's shady payments business have recently stumbled upon a disturbing link to one of Italy's most powerful crime syndicates: The 'Ndrangheta, a network of organized crime families based in the southern Italian region of Calabria. Apparently, a significant chunk of the "legitimate" profits that Wirecard managed to generate was tied to its work as a de-facto money laundering network for organized crime groups in Italy, Albania and Russia, the FT reports in a story entitled "Wirecard processed payments for Mafia-linked casino".

Now, one of the owners of a Wirecard "payments partner" based in Manila who received millions of euros in "inward remittances" from the company over his - and was the subject of an FT investigation more than a year ago as the paper was trying to piece together the elaborate shell game being run by the company. That trek took the paper and its reporters to the Philippines, the country where Wirecard claimed to be hiding some $2 billion in profits that auditors never bothered to check.

That man's name was Christopher Bauer. And as the FT reported Thursday, Bauer, 44, has apparently died under mysterious circumstances just weeks after Philippine authorities said they were investigating Bauer and his wife, Belinda Bauer, in a probe involving Wirecard’s partner businesses.

Bauer and his death was reported to a civil registry in Manila last week. Filipino officials repeatedly told the FT they couldn't confirm if the Bauer who died was the same one who ran a Wirecard subsidiary that was, apparently, a key player in the company's sweeping fraud.

Menardo Guevarra, the Philippine secretary of justice, told the Financial Times he had “to determine first if the deceased person is the same person subject of the ongoing investigation”. He would decide whether further investigation into Mr Bauer’s reported death was necessary after obtaining a copy of the death certificate. The Bauers — identified in an Financial Times investigation last year — owned PayEasy as of 2017, according to public filings, and have represented Centurion Online Payment International, a second partner business, in interactions with Wirecard. Mr Bauer in 2015 “reportedly received an inward remittance from Wirecard Asia for consultancy services rendered”, said Mr Guevarra without disclosing an amount.

On closer inspection, Bauer, it appears, was paid hundreds of millions of euros to bring in what appears to be laundered mafia money through digital gaming companies and other clients of PayEasy, the subsidiary that Bauer owned and ran (but was a critical node in Wirecard's network).

Bauer also appears to have been closely tied to Wirecard's fugitive COO Jan Marsalek, who is believed to be an operative working with Russian intelligence.

Mr Bauer, who told auditors from KPMG that he was a Wirecard employee before joining PayEasy some 12 years ago, also owned Froehlich Tours, a bus and coach rental business that shares an office with PayEasy in Manila.

At a meeting in Manila in March, Mr Bauer and Wirecard’s fugitive former chief operating officer Jan Marsalek briefed KPMG and EY on PayEasy’s business, telling the auditors that the company specialised in processing payments for “high-risk clients” in online gaming, gambling and porn, according to a special audit by KPMG.

The Philippine authorities are now investigating how immigration records were fabricated to show Mr Marsalek arriving in the country in June and leaving the next day for China. CCTV footage showed no such arrival.

Notices in a German newspaper appear to confirm Bauer's death, and social media posts made by family members appear to commemorate his death.

On July 27, Mrs Bauer posted an image of a black ribbon on Facebook, while her daughter posted a photo of an urn bearing her father’s name two days later. Mr Bauer’s family on August 1 published a death notice in a regional newspaper in Hesse, Germany, where his parents are living. Mr Bauer’s parents declined to comment. Mr Bauer’s lawyer did not immediately respond to a request for comment. Munich prosecutors, who are leading the criminal probe into Wirecard in Germany, said they had not received any official notice about Mr Bauer’s death. They declined to comment if an arrest warrant against him had been issued. 

One shady character hanging out outside Bauer's home in Manila told a FT reporter that he had died of a "heart attack". But considering Bauer's age, that seems unlikely.

Mr Bauer’s cause of death remains unclear. The civil registry declined to comment, citing the data privacy act. A guard at the Bauers’ gated community said he had died of a heart attack. A group of men playing cards outside the Bauers’ house in Manila said the widow could not comment and suggested speaking to her lawyer, whose contact details they declined to disclose. The men were standing by the property’s gate, which was marked by the logo of a local motorcycle club called Iron Cross Sons, whose website features scantily dressed women with Nazi-themed attire.

The men who spoke to the FT reporter at Bauer's home were apparently members of a motorcycle club based in the Philippines whose members wear Nazi-inspired insignia, according to their website.

Links to Wirecard's Russian-intelligence-linked COO? Check. Gangs of Nazis bikers hanging out outside his former home to scare off journalists? Check. Evidence that Bauer was a key link between a multinational corporation once listed on the DAX 30 and organized crime syndicates willing to pay for the privilege of efficiently and safely laundering their money? Check.

We suspect that whatever caused Bauer's death, it probably wasn't natural.

Wirecard overseen by 'only one' German regulatory staffer: report

Germany's BaFin regulator had just one employee overseeing Wirecard, claims the Frankfurter Allgemeine newspaper. The online payments provider says its business "will be continued," despite its insolvency filing.

The Frankfurter Allgemeine (FAZ) in its Sunday edition said Germany's financial supervisory agency BaFin effectively tasked only one overseer with scrutiny of Wirecard as complex allegations spiraled in the past 16 months.

Back in January 2019, said FAZ, the Bonn-based BaFin, prompted by warnings over Wirecard, commissioned Germany's BPR financial accounting inspectorate in Berlin, but it had too few personnel. Only one employee was tasked.

The results of a special audit reportedly instigated by BaFin and DPR in February 2019, were still not available, said FAZ's Sunday edition, known as FAS.

Wirecard AG, a Munich-based payments processor, initiated insolvency protection proceedings in a Munich court on Thursday, and on Saturday said its subsidiaries were continuing operate.

Last week, it had admitted that €1.9 billion ($2.1 billion) missing from accounts in the Philippines — disclosed by external auditors — likely did not exist.

The Munich public prosecutor's office is currently investigating former chief executive Markus Braun and other former and active top managers of the DAX-30 concern.

Wirecard says it has 5,800 employees and 313,000 customers worldwide.

Read more: Opinion: Wirecard debacle exposes cracks at Germany's financial regulator

German financial regulator BaFin has itself come under scrutiny amid the 

Wirecard scandal

EU also scrutinizing German regulators

Germany's apparently fragmented oversight is to be examined by the EU's financial authority ESMA, which had been told by the European Commission to report back to it by July 15, said FAZ.

BaFin chief Felix Hufeld in May last year told a Frankfurt press conference that his agency could "not simply pin a Sheriff's badge to our lapel and ride off to arrest anyone we are suspicious of."

Only prosecuting authorities could use investigative "police means," Hufeld said: "If they conduct an investigation, that does not mean that we have been sleeping on the job."

BaFin itself was spotlighted last year after a series of reports in the Financial Times newspaper cast doubt on Wirecard's accounting practices. 

Business to be 'continued'

In share market statement Saturday, Wirecard AG said its business activities "will be continued," with its management board saying this was "in the best interests of the creditors."

"The business operations of the Group companies including the licensed units are currently ongoing," it stated.  

Payments for merchants of the firm's banking arm, Wirecard Bank, "will continue to be executed without restrictions," and it was in "constant contact with credit card organizations," the parent company added.

Former Wirecard boss Markus Braun was arrested earlier this week

Customer concerns

Britain's Financial Conduct Authority (FCA) watchdog imposed restrictions on Wirecard's British unit on Thursday.

That in turn, reported Reuters, had forced firms relying on Wirecard services to temporarily suspend transactions, leading customers to complain on social media about losing access to vital services — and money.

The FCA said so-called safeguarding rules should protect and return customer money if a firm were to fail. 

Sarah Kocianski, head of research at the fintech consultancy 11:FS, told Reuters that the knock-on effects of the Wirecard drama posed a big test for digital firms that often relied on backend services provided by bigger players.

ipj/dr (Reuters, dpa, AFP)