A large gap of US $ 2,131 million in its accounting caused its capitalization to be destroyed in a resounding way
El Economista – Mexico City
Wrapped up in an accounting scandal after failing to verify a $ 2.131 billion amount with the regulator, Wirecard became the first DAX index company to file a claim to become insolvent. The company is currently considering the same possibility for Wirecard Group subsidiaries.
His situation has sparked discussion about his rapid rise and positioning on the stock market and also about how trustworthy Fintech companies are. Some already describe this news as a shame for Germany, as they question the null functioning that the laws showed and the performance of the regulatory entity BaFin.
The shares of this company listed on the Frankfurt Stock Exchange closed on June 17 with a price of US $ 11,724 per share. The next day they began to transform into trash. The company announced the suspension of its chief operating officer, Jan Marsalek, and postponed its 2019 financial report due to account mismatch.
“There are indications that spurious balance confirmations have been provided by account holding banks to the auditor to mislead and create a misperception of the existence of such cash balances or the holding of accounts for the benefit of Wirecard group companies” , he explained in a statement.
Agencies like Europa Press reported that after an audit, the EY company failed to find evidence of $ 2.131 billion in its trust accounts, nearly 25% of its balance sheet. The operations of that day took 61.82% from the price of their titles and thus the collapse began, up to 1.28 euros last Friday.
Before the debacle, Wirecard’s market value was $ 14,585 million. Today the figure has dropped to $ 177,266 million. Chief among those affected by Wirecard are executives from SoftBank, an Abu Dhabi sovereign wealth fund, wealth manager DWS, and DZ Bank’s Union Investment.
According to Spain’s Expansión newspaper, Valdis Dombrovskis, vice president of the European Commission, said in an interview with the Financial Times that an investigation will be opened to determine if BaFin failed in its supervisory work. Despite constant allegations of fraud, BaFin concentrated on investigating journalists in the sector.
The company was accused of accounting irregularities in Asia and money laundering in early 2019 by the British newspaper Financial Times. The allegations began when an informant contacted the newspaper to inform him of anomalies within the company that was considered Germany’s PayPal.
Accounting fraud was confirmed when the company attempted to report its 2019 financial figures and the EY (Ernst & Young) auditor found the accounting hole and refused to sign the report. This forced the resignation of Markus Braun exCEO of the company, on June 19, who was a fugitive from justice until Tuesday, when he surrendered.
Braun reportedly presented false information to Wirecard’s clients and investors. The alleged assets were reportedly held in fiduciary accounts at Philippine banks, which subsequently denied the existence of those accounts at the request of their auditor, according to the German news agency dpa.
The former director paid a bond of US $ 5,609 and was free to take his process on charges of accounting fraud and market manipulation. The Austrian-born businessman must report weekly to the Munich police while under investigation by the German authorities.
Wirecard is one of the main payment processors in Germany. It is the first DAX index company to declare bankruptcy, and this happens less than two years after becoming one of the 30 most important issuers of the Frankfurt stock exchange, necessary to join the index.
Marcus Braun came to Wirecard in 2002 from the KPMG consultancy. He became CEO after making a significant investment to capitalize the company. With the Internet, growth was exponential and in 2005 the company went public when it acquired the company InfoGenie AG, which was listed on a market for startups.
International expansion, which was key to its frauds, began in 2007 with its subsidiary in Singapore. In 2014 she ventured into New Zealand, Australia, South Africa and Turkey. In 2018, due to the supposed good performance of the business -which was reflected in the stock market-, the Wirecard share replaced the Commerzbank bank in the DAX.
In February 2019, the Financial Times began to untangle the Wirecard framework, which included capital movements among its subsidiaries in different countries in order to simulate growth in its business figures. The accusations in the face of the furor caused by the technology born in an industrial economy were ignored.
The media question the performance of the financial regulatory body BaFin and the lax laws on the matter. BaFin, which does not directly supervise Wirecard, despite the group owning a bank, did not heed the constant allegations. In Germany an amount of only US $ 56,096 is required to open a payment company.
The vice president and spokesperson of the Commission for Financial and Emerging Technologies of the College of Public Accountants of Mexico (CCPM), José Díaz Cuadra, stated that in the case of Wirecard, the problem was the lack of operational control in a business that grew rapidly, driven by its IPO.
Wirecard was a huge Fintech. By launching into the stock market, the company becomes valuable as an investment. A successful technology-based company grows fast, but if it goes public this effect is greater, which can be a problem if it is not subjected to adequate risk controls, ”he explained.
According to this expert, the challenge for regulatory entities is to follow the path to new businesses, which are growing at a faster pace than regulation, without the sector’s rules becoming prohibitive and preventing their development. “This can only be achieved with a knowledge of the market, which will come with experience.”
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