On June 25 2020, payment provider and financial services provider Wirecard AG filed for insolvency. Earlier in the month, Wirecard reported some EUR 1.9 billion in cash missing. Over the following days, details of a large scandal have emerged. Customers have been left unable to access their funds.
Wirecard was incorporated in Germany in 1999. In 2005, they joined the Frankfurt stock exchange and were leading providers for the management of payments for online gambling and pornography. In 2006, they moved into banking and purchased Xcom. Licensed by Visa and Mastercard, they were able to issue credit cards and handle money on behalf of merchants.
Wirecard: the timeline
Allegations of misconduct were first published In 2008. Then in 2010, Wirecard made its intention to go international, public. In the following four years, they raised over EUR 500 million from shareholders. They also bought up a number of small payment providers across the world, including in Singapore. The country then became the Wirecard headquarters for Asia.
By 2015, the Financial Times had published a series of articles on Wirecard, raising questions about inconsistencies in the group’s accounts. It appeared there was a EUR 250 million gap in the balance sheet. Wirecard denied the existence of any irregularities.
Again, they denied accusations of money laundering in 2016 but they were already under investigation by BaFin, the German financial regulator. The company then announced it would be buying a prepaid card company from Citigroup and would enter the North American payment provider market.
EY gave Wirecard a clean audit in 2017 which sparked a renewed enthusiasm for its shares. Share value doubled in price and they announced a plan to take over Citi’s payment provider businesses across 11 Asian countries. Braun then borrowed EUR 150 million from Deutsche Bank, secured by his 7% stake in the company.
Then in August 2018, Wirecard shares hit a peak value of EUR 191. Wirecard claimed to have over 5000 employees and that it processed payments for 250,000 merchants. They also issue credit and prepaid cards and provide technology for contactless payments via smartphone. Braun told investors that sales will double in the next two years. Braun’s stake in the company was valued at EUR 1.6 billion at that time.
Cracks begin to appear
In 2019, reports of market manipulation begin to emerge via a whistleblower in the Singapore headquarters. The police raided the Wirecard offices and BaFin announced a ban on short selling. The media publishes evidence that the payment provider has actually outsourced most of its business and locations it claims to manage, do not exist.
Other cases of Wirecard’s outsourced payment processing emerged during 2019. It seemed the majority of their profits were made this way. FT published more documents that indicate Wirecard has fraudulently inflated its figures and that customers it claims to have, do not exist.
In December 2019, it emerged that Wirecard had counted cash held in escrow and managed by trustees, as cash balances on its financial statements. Meanwhile, KPMG who had undertaken an audit said they were unable to determine whether the payment providers profits were genuine.
On 5 June, police raided Wirecard offices in Munich after prosecutors launched a criminal investigation into Braun and other board members. BaFin had filed a criminal complaint relating to misleading statements made by the payment provider to investors.
On 18 June, Wirecard was due to publish its audited results for 2019. Instead, they claim that EUR 1.9 billion is “missing”. A day later, Braun resigns. Two days later, Wirecard admitted the potential scale of the multi-year accounting fraud and said that the EUR 1.9 billion probably doesn’t exist.
The end of Wirecard
Braun was arrested on 23 June. Two days later, Wirecard filed for insolvency.
Following the freezing of customer accounts and cards, partners of Wirecard assured customers that their funds were safe and the freeze was temporary. The FCA in the UK, lifted the ban for customers in the UK, effective 30 June.
Fast Offshore has built relationships with a number of payment providers over our 22 years of operations. If you have any concerns about your payment providers or the integrity of those you work with, please reach out to us. If you were also a customer or partner with Wirecard and are looking for new solutions, we are on hand to assist. We work hard to ensure the integrity and reputability of our third-party providers. You can contact us for advice and information here.
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