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I wonder how many companies in the world are basially built on warm words without any real value behind. I made the experience that a lot of people don't really care if a company has positive revenue streams anymore, they don't even know what a balance sheet is. They simply invest because other people do. And those other people invested because people before them did. This new style "invest billions now in a lossy start up and hope for a positive cashflow in a few years" is absolutely insane, it transformed the economy into a pure gambling hall.

What makes it even worse, in case of wirecard, their auditor EY had audited and certified wirecard's balance sheet for years with no objection. They were satisfied with a clumsy fake audit certificate for 2 billion euros in a Philippine account! For how many companies EY did the same? How superficially do they check their customers?

The EY point is interesting. I'm not sure if it's still this way, but when I worked there, a lot of care was put on audit clients as the partner(s) signing off the work had effectively unlimited liability, and could lose pretty much all their money in a worst case scenario.

Unfortunately audit work, where the company decides on their auditor, has an in-built conflict of interests. If the auditor is too harsh/rigorous, then they risk losing the audit. If they're too lax and miss something material, then they risk lawsuits and regulator attention.

Then for large companies there's further complications liket doing the audit may preclude a company from doing other (more lucrative) consultancy work, or that large companies essentially only use one of 4 companies to do their audits, which leads to people rotating through that but little effective competition.

I have a relative in finance and he says this sort of issue is a lot more prevalent, it's just easier to hide when things are good. When times are bad it's more difficult so more get found out. But it's important to remember that people have been sounding the alarm about Wirecard for years and Worecard, the German government and German Finance Authority (BaFin) have gone after the short sellers and journalists who have tried to expose it. Very few involved have any incentive for these to be uncovered, those that do generally have a lot less power than those that don't want it found out and they will happily use that power to intimidate and destroy their opponents.
> They were satisfied with a clumsy fake audit certificate for 2 billion euros in a Philippine account! For how many companies EY did the same? How superficially do they check their customers?

A lot.

Like a lot a lot.

The entire* commodities sector is built on promises like this.

The entire shipping and freight sector.

The entire commercial paper market.

Its promises, redundancies, assurances, and credit.

It usually doesn't go wrong. As long as bond holders get their 2% and common stock shareholders get wiped out, everything is A-OKAY.

(entire is hyperbole, the point is clear, don't be that guy)

When the scam is big enough, there are consequences for the auditors. Enron sank Arthur Andersen, for example. Didn’t hurt the consulting arm (now Accenture) though.
If you audit basically the entire global economy every year and you're going up against people willing to forge & collude something is going to slip through each year. Sure you may catch 99% of the cases. But that one that does make it through has people asking stuff like:

>For how many companies EY did the same? How superficially do they check their customers?

Public perception of audits is basically a giant example of survivorship bias. All the stuff that auditor do catch generally gets fixed without it making the news. Cause you know confidentiality.

It's not a widget factory where six sigma is possible. It's a messy imperfect process, because well the global economy & most businesses are. 100% is about is plausible as demanding that all programmers globally write bug free code. It's just not happening.

That said...2 billion is like 1/3rd of the company assets. That's one hell of an oversight even in light of the above.

I'm wondering why the CEO called in KPMG for an independent audit. Was he expecting a different result? Or he just picked them to break the news?
Auditors work on assumptions, they assume that the document presented to then are correct and not falsified. If they cannot see that the document is falsified and didn’t see any indications that might raise questions either, how can they be held liable?

OTOH, why does a German company keep 2 billion euros in a Philippine account, that’s strange.

How can you find out about who is auditing a company?
Doesn't surprise me in the slightest.

Worked for a fintech company a few years back that used Wirecard as the processor for one of their products. Somehow they managed to lose the PK/FK relationship between accounts and transactions (or something like that). A whole lot of our customers suddenly started getting other people's transactions on their accounts. It was the final straw that shutdown the entire product line and we moved on to other providers for new projects.

So, not at all surprised they don't know where their money is.

So basically the cardinal sin of payment processing then? Not that I'm surprised.
A total of around $2B has simply "disappeared" -- as in, no one yet has been able to figure out what happened to it.

I keep imagining a Monty Python-esque skit:

"Was it stolen? We don't know."

"Was it spent? We don't know."

"Was it lent? We don't know."

"Was it transferred? We don't know."

"Was it burned? We don't know."

Coincidentally, or maybe not, the company's last fictitious balance sheet, which was published in November of last year, right before the scandal was revealed, reports approximately $2B in long-term debt.[a]

So, as much as Wirecard was in the business of processing financial transactions ($124B last year!), it was also secretly performing a magic act of borrowing money and making it disappear into thin air. In a way, it's been an "impressive" performance.

On a more serious note, I hope Wirecard's failure is not seen in hindsight as a "Creditanstalt moment."[b]

--

[a] https://ir.wirecard.com/download/companies/wirecard/Presenta...

[b] The failure of Creditanstalt, an Austrian bank, in 1931, marks the beginning of the Great Depression in Europe: https://www.bis.org/publ/work333.pdf

Hin Leong[0] is about to go the way of wirecard with a ’hole’ of mere $3B USD.

I’ll hazard that we’re seeing only the firsts in a wave of [cooked up] companies imploding.

[0] https://www.wsj.com/articles/massive-forgery-helped-hide-3-b...

They never had the money in the first place.
Invisibilia just released a great podcast about trust, based on the experience of a trader who was harassed by Wirecard. The trader, who was shorting Wirecard, was subject to surveillance, and a constant stream of phishing attacks.

https://www.npr.org/2020/06/02/868001948/trust-fall

I'm not sure this podcast is so great. It's a self-promotional piece that takes ages to convey any information and get to the point. I regret listening to it.
Well, the first half of it was a podcast about that trader. Then it abruptly shifts into ... I don't know what. A general talk about trust or something.

It left me confused and unsatisfied.

I just listened to it this morning when it came up in my feed. I had added this episode after it was mentioned in a previous HN thread about Wirecard. I guess the short seller was proven right.
How would wirecard learn who is actually shorting them?
This looks really bad for BaFin, they basically treated the Financial Times as criminals for blowing the whistle over the last few years.
>This looks really bad for BaFin, they basically treated the Financial Times as criminals for blowing the whistle over the last few years.

It's going on, with a variety of companies, every day. The entire system is beyond corrupt. Regulators are siding with frauds instead of investigating them.

A major red flag of corporate fraud is attacking journalists and blaming "short-sellers". Have these entities ever caused the demise of a legitimate company?

Does it matter if the corrupt BaFin officials who decided to treat the journalists as criminals are not prosecuted?
Now is clear what the company motto "Beyond payments" means.
This is painful but it's a step in right direction. They have to serve ongoing processes for a couple of more weeks/months. All subsidiaries that can be sold will probably be sold to pay creditors. Hopefully all toxic parts will be removed and a few healthy ones will stay, in one way or another.
This is the second ceo who started to dress like steve jobs and became a fraud.
Should we be worried about Xiaomi? https://www.gizchina.com/2011/08/17/xiaomi-ceo-chinas-latest...

Based on more recent photos, it was just a phase. Maybe the company fixed its issues before it got caught?

This is an interesting observation... we should catalogue them.
Anyone know if Transferwise Global debit cards are impacted by this?
TransferWise worked with Wirecard for a short time between February 2017 and September 2018 as its debit card issuer in the UK and Europe. The partnership was terminated in September 2018 and has since obtained its own issuance license for cards through Mastercard. TransferWise has no business ties to Wirecard today
the Wirecard Bank is a subsidiary, that has not filed for insolvency. (disclaimer: they are checking if they need to file for the subsidiaries as well - though my guess is they are trying to minimize the impact on the operations and bank transactions, to save the future of the product).
I doubt it will. Wirecard powers too many transactions. It’s going to go into administration and someone is going to pick it up.
Another big one is Payoneer.
The entire story is shameful. I can just hope the Germans learn lessons from this.
The lessons learned will be "hide your crimes better". And a few token gestures. This kind of crime is just too profitable, and the "little man" will not start any larger protests over it. So there is no desire anywhere in substantial changes.
>I can just hope the Germans learn lessons from this.

N'ah! When it comes to big banks, big industry, big infra projects, German state institutions are super corrupt, it makes Wall Street and the City of London look like saints.

I am really unsure if it's something "Germans" need to learn. It is probably something that could happen everywhere...
What should I learn from this? That there are fraudulent companies? You make it sound like all Germans are responsible for this.
Yeah, like the Americans with Madoff? Who "did not run a hedge fund but provided services to hedge funds"?

The SEC had also data provided from professionals that Madoff is either fraud or a ponzi and always ignored it. The sentence above was enough that they did not further investigate him.

What lessons exactly? Did they learn anything from the VW scandal?

  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."
The type of behavior that brought Wirecard down is not a German thing, it is a human thing. We have the ability to think outside the box for profit and greed, and that, sometimes, gets us into trouble.
Another aspect is that the financial auditor responsibility. I am not sure if the financial auditor criminally complicit but I think we are going to figure it out soon.
Any lessons learned from Dieselgate? Or from Danske Bank laundering 236 bilions Russian money?

C'mon this is Europe... We are forgetting quickly here..

Will their cards still work?

    Trade on shares in the
    company was suspended
What does this mean? Is a certain stock exchange not executing trades anymore? Are all exchanges worldwide in sync not executing trades? If so, how is the sync achieved?

If it only was suspended at the Frankfurt stock exchange which is mentioned in the article, it would be interesting to see how it is doing at other exchanges.

Google is still showing realtime Frankfurt prices. Currently at a market cap of about €350M.

And what is the reason behind that? Is it guaranteed that shares of a company that files for insolvency are worth 0? And therefore the exchanges want to save uninformed investors from buying them?

> What does this mean?

That you can not trade the stock for now. Trading has been resumed. On many stock exchanges there are rules for this. Something very common.

> And what is the reason behind that? Is it guaranteed that shares of a company that files for insolvency are worth 0?

No. The company could recover, could get bought etc. As a stock holder you are the last in line. Should the company get liquidated, bond holders will have a higher priority for any money recovered.

> And therefore the exchanges want to save uninformed investors from buying them?

No. Please look up Hertz, the car rental company and what is happen recently the stock. They are bankrupt, people are buying the stock and Hertz was even allowed to issue more shares.