Wirecard, the payment processing company, founded and run by CEO Markus Braun
which was once considered the darling within the world of German FinTech,
earned money by processing payments, taking a small commission in the process,
and ensuring that money was transferred from customers to the vendors.
However the firm was subject to intense
scrutiny from the Financial Times and especially their investigative
journalist Dan McCrum and the firm's share price plummeted by 97 percent
after the company announced that 1.9 billion euros was missing from the firm's accounts in June 2020.
But how did the company rise to fame and then fall from grace so dramatically?
Here's How It Happened.
Wirecard was founded in 1999 and Marcus Braun, the CEO, invested capital in the
business to ensure its survival in 2002, following the dot-com boom and bust.
He consolidated the business to focus on payment processing earning money through
financial transactions on the Internet. In the early years, the firm's customer
base was predominately adult websites including pornography and gambling companies,
giving the firm a dirty image in the industry. However as the company continued to grow,
they attracted more reputable clientele, including airlines and supermarkets
such as Lidl and Aldi. The firm found itself in the perfect position
as online payments continued to grow through the noughties as the
internet became more and more sophisticated and led to the firm
listing on the TecDAX, the German technology exchange, in a reverse IPO in 2006,
before listing on the German Stock Exchange the DAX in 2018.
Its continued growth saw investors such as SoftBank investing a billion dollars in the firm.
After this video, why not check out our video on SoftBank's worst investments?
The business position themselves as the market leader in a cashless society as
online payments became King and their share price continued to rise.
However their fast growth and suspect financial numbers led to the Financial Times
investigative journalist Dan McCrum looking into the firm in more detail
suggesting that the numbers didn't add up. Wirecard suggested that they had earned
a high commission from third parties who operated in Asia, where Wirecard didn't
have their own business license. But McCrum was left with the question:
if the firm are earning so much commission from third parties, where's all the money?
McCrum found that the firm generated 45% of its revenue from customers paying a
million dollars or more even though they were less than 0.05% of the client base.
Wirecard then played the role of protagonist in
the FT Alphaville stories as the FT followed up on allegations from a whistleblower
in the Singapore office, who had concerns surrounding fraudulent money transfers.
A story that had been squashed by the firm. The FT published
the Singapore story with Wirecard retaliating, suggesting it was false which
led to McCrum and the FT being investigated by German regulators BaFin
for market manipulation. The FT then discovered a Filipino fisherman and his
family, living in a house that was meant to be the site of an international payments business.
The FT then pressed on and published an article suggesting that
profits from Dubai and Dublin were fraudulently inflated and customers
listed in documents provided to EY didn't exist.
Under pressure from investors, the firm appointed KPMG to conduct a special audit which they hoped
would clear them of any wrongdoing. However, if anything, it exposed them as
KPMG then couldn't verify that most of Wirecard's profits reported from 2016 to 2018 were genuine.
They also questioned a billion euros in cash where the only
evidence were documents from a trustee who was no longer associated with the firm.
On the 16th of June, Filipino banks then told EY the documents
suggesting Wirecard had 1.9 billion euros in cash were spurious
and two days later, the firm announced that the money was missing.
Moody's downgraded the firm to junk, Markus Braun resigned and was later
arrested for false accounting and market manipulation, the share price fell 97% in ten days
and one week after the firm made the announcement, they filed for insolvency.
And that's How It Happened.
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