Five things to know about the Wirecard scandal

More than two years after the dramatic collapse of German digital payments company Wirecard, former CEO Markus Braun and two former directors will stand trial for fraud.

Here are key things to know about the scandal, which has drawn comparisons to the massive accounting fraud that brought down US energy giant Enron in the early 2000s.

– Porn and gambling –

Wirecard, founded in 1999 near Munich, began processing online payments for pornographic and gambling websites. The stable revenue stream helped the company survive the Internet crisis.

With more and more delicious forms of e-commerce over the years, Wirecard’s star has risen.

With Brown in charge since 2002, the company has grown by leaps and bounds, expanding its services to include banking and buying smaller payment companies, particularly in Asia.

– Dax baby –

In 2018, Wirecard pulled traditional lender Commerzbank out of the DAX blue-chip index, cementing its reputation as a rare German success story in the burgeoning fintech sector.

At its peak, the company was valued at more than €24 billion ($25 billion), surpassing even Deutsche Bank.

But Wirecard’s stock price suffered when a series of articles in the Financial Times in 2019 alleged accounting irregularities in Wirecard’s Asian units.

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In June 2020, the company admitted to an EY auditor that €1.9 billion in cash that was supposed to be held in two Philippine accounts likely did not exist.

Wirecard’s share price is down 99 percent. It became the first DAX company to go bankrupt and was kicked out of the index soon after.

– network of deception –

Wirecard is accused of inflating profits through bogus transactions involving a complex network of subsidiaries and partner companies.

German prosecutors say Braun and the co-defendants provided inaccurate financial results for 2015-2018 by including revenue from so-called third-party subscribers (TPAs) — companies that processed payments for Wirecard as they lacked their own license to operate.

But the plaintiffs say that the proceeds from these TPAs ​​in Dubai, the Philippines and Singapore “didn’t really exist.”

A Financial Times investigation found that TPAs ​​account for about half of Wirecard’s reported revenue and a significant portion of its profits. But the address of one such company led to a family home in the Philippines. It was the last bus company in Manila.

Dan McCrum, a journalist at the FT, said that when he learned Wirecard was faking it. “None of this is real. It’s just an incredible hoax,” he said in a Netflix documentary.

– German blind spot –

Wirecard’s discoveries have drawn harsh criticism from German market regulator Bafin, which failed to spot the hoax despite skepticism from journalists and short shops.

Indeed, when the Financial Times articles wreaked havoc on Wirecard’s share price, Bafin’s response was to place a temporary ban on shorting Wirecard shares.

The watchdog even filed criminal complaints against two Financial Times journalists, alleging market manipulation. The complaints were dropped after Wirecard collapsed.

“Many people didn’t want to believe that fraudsters were working for Wirecard,” Volker Bruel, a professor at the Center for Fiscal Studies in Frankfurt, told AFP.

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Baffin has since undergone a major shake-up, with a new boss in office and tighter oversight powers.

Wirecard EY’s auditor has also come under scrutiny, having signed over the company’s accounts for a decade. EY is now facing legal action from Wirecard shareholders.

– stranger than imagination –

The Wirecard saga has spawned a slew of articles, books, documentaries, and a movie starring famous German actor Christoph Maria Herbst as Braun, Wirecard’s geeky boss with a penchant for black collars.

In the Netflix documentary “Skandal! Bringing Down Wirecard,” journalist Makram recounts his relentless pursuit of the story, which finally breaks loose when a former employee hands him a stash of leaked documents.

But with former COO Jan Marsalek still on the run, perhaps the most engaging part of Wirecard’s tale remains untold.

Brown painted fellow Austrian Marsalek as the mastermind of the fraud, as well as himself as the unaware victim.

With his connections to Russian intelligence agencies and his once attempt to assemble a Libyan militia, the party-loving al-Mursalak remains shrouded in mystery.

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