Wirecard not so fast
25 June 2020
#Wirecard #EY
I thought it good that ex chief of Wirecard, Markus Braun, was arrested and criminal proceedings were being levelled. Then I thought this would never have happened in London. SFO frequently fails to prosecute successfully (e.g. Barclays, Tesco and numerous others). I praised the auditor and investigators EY and KPMG respectively for not rubber stamping what was going on. Wirecard collapsed into insolvency on 24 June 2020. But now, on reflection, I think I may have been too hasty in singing anyone’s praises.

No one in Germany took the claims against Wirecard seriously. Issues about Wirecard’s accounting started in 2015 and have intensified since. Probably like Patisserie Valerie, a clear case, in my view, of rapid expansion without proper systems and controls.

The Financial Times, held a crusade fuelled by short-sellers and whistle-blowers. Germany’s markets regulator, BaFin (German equivalent of the FCA), bolstered confidence in Wirecard. Worse still, it dismissed those who raised any wrongdoing. Then it temporarily banned shorting of the firm’s stock, and opened a criminal case against journalists for suspected manipulation. Deutsche Bank, Softbank and others, backed Wirecard. In many cases doubling down, even as more and more problems came to light. Due diligence was thrown to the wind despite various investigations in Singapore and elsewhere. German media mainly followed Wirecard’s line that it was the victim of witched plot by hedge fund managers. The FT also claims that half a dozen analysts still had buy recommendations on the stock when Markus Braun resigned.

This throws the light back on to Wirecard’s auditor, EY, who will now face scrutiny. They acted properly when they refused to sign-off the accounts now (June 2020) but what about the earlier years when rumours were rife?
See also fin-rep.org

Short-selling good for the market?
25 June 2020
#Wirecard #short-sellers #Luckin #NMC #Whitbread #Costa
The Economist came up with an interesting editorial. Headlined:
Wirecard’s scandal shows the benefits of short-sellers
The German media, and German financial institutions solidly backed Wirecard until the bitter end (insolvency on 24 June 2020). Due diligence went out of the window. Analysts were still supporting Wirecard up to Markus Braun’s resignation a few days ago.

So the Economist argued that anything that injects scepticism is welcome. It brings a counterweight to market consensus – backed by politicians, central banks and German institutions. It may appear that that company managers are more trustworthy than their shareholders.

I have not always been enamoured with short-selling. Claims that shorting causes instability have not been proven. Short-selling is not universally always good. However, more often than not, though, they are on to something. Over the past years they have uncovered several big frauds, from the fabricated sales at Luckin Coffee, to the debt-disguising shenanigans at NMC Health, Steinhoff and the missing money and assets. Counter examples are Whitbread which was almost forced to divest itself of the Costa Coffee division – Whitbread though did not come off to badly with a high prices sale.
See also fin-rep.org

What would have happened if Wirecard had been listed in London?
24 June 2020
Wirecard’s founder Markus Braun was arrested and bailed on suspicion of false accounting and market manipulation. The FT labelled Wirecard as Europe’s leading fintech group.  The missing €1.9bn of cash reported on its balance sheet is now thought not to exist. Markus Braun is suspected of artificially inflating the payment group’s balance sheet and revenues to make it more attractive to investors and clients.

The interesting question is would Markus Braun have been arrested if Wirecard was listed in London and among the FTSE 100? Probably not. Worse still, on the current record, the SFO would not have succeeded in any prosecutions. The FRC might have raised fines on the auditors but, as with Tesco, they may just have closed their investigation after several years have elapsed.
See also fin-rep.org