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Wirecard
There is an old English proverb which says: ‘Where there’s muck, there’s brass.’ It basically means there’s always money to be made from activities that are dirty or unpleasant.
After the passing of UIGEA, processing online gambling payments was considered to be a dirty business and best avoided.
Nevertheless, there was one payments company that would raise its head from the mirk and work out how it could benefit from the situation.
Founded in 1999, Wirecard AG would specialize in processing murky payments. It became extremely successful at it.
At its peak, in 2018, Wirecard had become a German DAX top 30 company worth about 22 billion Euros.
By 2022, it was worthless. Never before had such a valuable German stock market company fallen from grace so dramatically.
Skirting the rules, somewhat
Wirecard’s business model revolved around processing hard-to-code payment transactions from many industries, including the online gambling industry.
Wirecard skirted the rules. It was able to get around the 7995 coding in a number of ways:
- Wirecard operated its own bank so it could provide digital wallets. A customer could credit their wallet balance using a credit card. The transaction was not coded 7995, as the intention of the transaction could be for anything – not necessarily online gambling.
- A customer could then use their digital wallet balance to credit a third party, such as an online gambling company. This transaction would be processed exclusively by Wirecard. It could apply any code it liked.
- Creating a network of sub-merchants and payment companies throughout the world, Wirecard could route payment transactions via alternate accounts and used local regulations to code them with greater flexibility.
Obviously, there was a demand for this service and Wirecard went from strength to strength. At one point, Wirecard were everywhere. The company was at all of the gaming shows and just about every operator had a Wirecard merchant account.
Wirecard developed a complex mesh of interrelated companies, in every market it could access. Processing transactions, using local licensing, and routing the payments here there and everywhere. The method confused auditors into thinking the business was doing just great.
Wirecard achieved listing on the German DAX stock market. It joined the top 30 most valuable German companies, an achievement in itself. Investors flocked to buy the Wirecard stock. At one point, the business were valued at more than the combined values of two massive banks, Commerzbank and Deutsche Bank.
Wirecard was the darling of the stock market.
Singapore is an Honest Place
Handling Asia / Pacific business, Singapore was an important location for Wirecard. However, one of their lawyers would uncover what he considered to be suspect trading. He reported this to the Wirecard head office in Munich, who did nothing about it.
Frustrated, the lawyer then decided to inform The Financial Times, as well as the auditors and the authorities.
The Financial Times published an article based on the information received. With true British understatement, it reported that, among other things, there were ‘problems’ with their Asian accounting…
House of Wirecards
In an attempt to quell the bad press, Wirecard hired KMPG to carry out a special ‘forensic’ audit and confirm that ‘all is as it should be’.
There was supposed to be a lot of money on accounts with banks in Asia. The auditors EY had signed off on that fact. However, the only verification of this was a lawyer’s testimony; basically, a local lawyer that testified that ‘a bank account had X amount in it’. His word was taken to be the truth. And it was taken as the truth by the auditors at that time.
As part of the new KPMG audit, a team was tasked to verify the Asian bank accounts. A trip to Manila was needed.
What they found in Manila was not what they were expecting. Worryingly, while attempting to verify the bank balances, the auditors were shown documents and statements that were obvious forgeries. The forged documents attested to large balances in multiple bank accounts.
After double checking, the accounts proved to be completely fictitious and the auditors soon realized that over $2 billion was missing. This was pretty bad news.
Reporting their findings to Wirecard, KPMG were concerned that the report would be suppressed, in an attempt to cover the problem up.
However, KPMG had allowed for this eventuality. The contract between Wirecard and KPMG for the audit work, contained a clause that would allow KPMG to publish the information themselves, without needing Wirecard’s permission.
So, in April 2020, KPMG went ahead and published the report. Predictably, the news hit the markets hard.
The end was near. Wirecard’s stock ended up worthless and Wirecard declared insolvency in June 2020.
Lawsuits and Trials
Since then, a whole raft of lawsuits has followed. The former Wirecard CEO, Marcus Braun is facing charges of fraud and market manipulation and the former COO, Jan Marsalek, is nowhere to be found.
Braun was originally an investor and bailed out Wirecard during its early years. As CEO, Braun saw the potential of the business and set out to capitalize on his investment.
Marsalek was hired by Braun, as he had technical experience from a previous payments venture and he knew his way around computer systems.
Between them, they catapulted Wirecard into the payments market and proceeded to build a seemingly successful company.
Investors are suing Wirecard’s former managers, the auditing company EY, and other parties for damages. There are something like 8,000 lawsuits and 19,000 claims for damages being presented to the courts.
To handle this, a massive trial is being setup in Munich, in a former airport reception hall, on the Munich exhibition grounds. One of the biggest trials Germany has ever seen will commence on 22nd November 2024.
It is expected to last for years…
