Key dates in Germany’s Wirecard fraud scandal

BERLIN, Germany – German payments provider Wirecard, once a darling of the fintech scene, has suffered a dramatic fall from grace over the past 18 months.

Here are the key developments that led to the company’s demise.

Newspaper reports

Wirecard’s troubles began in January 2019 with a series of articles in the Financial Times newspaper alleging accounting irregularities in its Asian division.

The company, a provider of software for electronic payments, had stunned the traditional German banking sector in 2018 by displacing financial stalwart Commerzbank from the prestigious DAX 30 index.

Hailed as a champion of the burgeoning financial technology scene, it boasted a market valuation of more than 23 billion euros at the time – outweighing even giant Deutsche Bank.

‘Round-tripping’

The FT alleged that senior executives at the company knew of a so-called “round-tripping” scheme – in which cash was moved around between Asian subsidiaries to artificially pad the books.

Wirecard denied the allegations and prosecutors in Munich said they did not have sufficient grounds to open an investigation.

The allegations however unnerved investors, hammering Wirecard’s share price.

Market manipulation

Munich prosecutors said in February 2019 that they had opened investigation into a Financial Times journalist in relation to the reports.

Germany’s Bafin financial markets watchdog also launched a probe of its own into possible market manipulation over alleged short-selling in relation to the reports.

Short-sellers borrow shares, sell them on the market, and later buy them back. If the price of the shares has fallen, the difference in price is profit for the short-seller, making the practice in essence a bet on falling stock prices.

Singapore raids

In mid-February 2019, police raided Wirecard’s Singapore offices as part of an investigation into the fraud allegations.

A report by the law firm Rajah & Tann found no “criminal liability” in the firm’s head office, but said “some local employees” could be held criminally responsible under Singapore law.

Charges filed

In April 2019, Bafin said it had filed charges with Munich prosecutors over alleged market manipulation “in the form of a short attack on shares of Wirecard AG.”

Fresh allegations

In October 2019, the FT upped the ante by publishing a series of fresh allegations.

The newspaper published internal communications and financial reports it said contained “strong indications” that hundreds of millions of euros of payments processed for some Wirecard clients “could not have taken place.”

Wirecard denied the allegations, but was then hit with claims in November from the Handelsblatt daily that a 2017 audit of its troubled Singapore unit could not be completed.

2019 results

Fast-forward to June 2020, when prosecutors in Munich said they were probing Wirecard’s entire management board after the company repeatedly put off publication of its 2019 results.

Ernst & Young auditors then revealed on June 18 they had identified 1.9 billion euros ($2.1 billion) were missing from Wirecard’s accounts.

The auditors’ red flag was raised over escrow accounts at two Philippine banks, which were supposed to hold the cash to manage risk for merchants using Wirecard’s payment services. (READ: Wirecard ‘trustee’ Tolentino: I’m a victim of a frame-up, identity theft)

Missing 1.9 billion

The next day, Wirecard founder and chief executive Markus Braun resigned.

The group withdrew its preliminary accounts for 2019 and admitted the missing 1.9 billion euros probably “do not exist.”

Braun arrested

On June 22, Braun was arrested on suspicion of market manipulation.

Prosecutors in Munich said he had voluntarily presented himself to the authorities after the arrest warrant was issued.

He was released on bail for 5 million euros ($5.6 million).

Insolvency

The Philippines said it will investigate links to the 1.9-billion-euro scandal, adding the European payment provider’s ex-chief operating officer may be in the country.

On June 25, Wirecard said it was filing for insolvency. Shares in the company plunged by around 97% compared with a week earlier. – Rappler.com