10 ms·

Wirecard – The “German Enron”, and a personal history

185 points by joydeepdg 6y ago

stargazer-3 6y ago
It's easy to miss that the article is published under the same username as the one described as an "anonymous source", in, for example "... Wirecard desperately wanted to know who this memyselfandi007 was to sue the shxx out of him, but the police didn’t pass on the real identity."
- FabHK 6y ago
  Yes, the author writing about themselves in the third person is really misleading/annoying.
chewz 6y ago
> Lessons to be learned * even a pretty obvious fraud can go on much longer than one would think if the organizers are ruthless enough. My original short position would have gone against me 25x over 12 years and the share price even after today’s disaster would be higher than back in 2008 (just to be clear: the company is worth ZERO in my opinion) * a company that goes against people who write negative articles as aggressively as Wirecard has something to hide * if the profitability of a business can not be explained by its business model, then most likely something is very wrong (greetings Bernie Madoff) * 99% of professional investors and analysts don’t care about these things even if you tell them. A lot of people knew that the company was fishy but hey thought they can make money anyway and a lot of people made a lot of money over the years * Small companies with far flung operations in difficult geographies should be avoided (see Globo Plc) as this makes fraud difficult to detect for auditors * A big 4 Audit firm is no proof of quality.
- 9nGQluzmnq3M 6y ago
  The first one really is key here. Exhibit A is "stablecoin" Tether, which has more red flags than a Kremlin May Day parade and steadfastly refuses to get audited, but has nevertheless been puttering away for several years now. When will the penny drop? https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
  - C1sc0cat 6y ago
    How do you avoid getting audited for several years ?
    - sokoloff 6y ago
      As a cryptocurrency? You just decide not to get audited.
    - lordnacho 6y ago
      I'm no expert, but I think what happens is you shop around for an auditor but you somehow can never find one who will sign off on the audit, because they need you to produce some docs that you don't have.
      - 9nGQluzmnq3M 6y ago
        s/don't have/don't want to give/
    - seanhunter 6y ago
      If you're not a public company then in many/most jurisdictions it's up to the owners/investors to decide whether or not to have audited financials. If they are a 100% legit and have assets to back their tether there really isn't much of a reason not to have that audited and published on a website. For example bullionvault.com publish an audit of physical metal reserves daily.
  - chewz 6y ago
    From my experience a fraud is easy to spot with a keen eye. But persuading the public that hot company is a fraud - different matter.
- pythonwizz 6y ago
  I wrote this here a few days ago: ------------------------- Wirecard has been accused before of fraud by so called "short sellers". The document published (2 years ago?) showed a tremendous, extraordinary complex network of international corporations. Such complex setups have a very limited purpose. It can basically be only tax "optimization", hide fraud or hide ownership (UBO). After having seen this PDF I would not touch the Wirecard stock. By the way, I think Alibaba is opening two new corporations. Per day. You may also want to read at Bronte Capital about Alibaba. ------------------------- "the company is worth ZERO in my opinion)" This IS a possibility. But the stockmarket exaggerates always in both directions, "like a sausage dog on a leash, sometimes walks in front of you, sometimes behind you but always comes back to you" Kostalany If you want to make a gamble there could be buying prices now or soon. But it stays a gamble. "Even a good company can be too expensive" Buffet "Even a shitty company can be cheap" me
- blibble 6y ago
  amusingly: back in 2019, when journalists pointed out irregularaties in the company's accounts, the German Financial regulator's reaction was to ban short selling of their shares... and then issue legal proceedings against the journalists > On Monday, BaFin banned further short selling of shares in Wirecard, the Dax-listed payments services group. The stock has dropped steeply after FT reports raised questions over the validity of accounts. The German financial regulator said its first ever ban on shorting a single stock was needed to prevent a loss of confidence in financial markets. https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36ce8e https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36c... has the full details (but paywall)
  - deleted 6y ago
    [deleted]
  - justinclift 6y ago
    Non-paywalled version: https://archive.vn/VAuC7 https://archive.vn/VAuC7
  - C1sc0cat 6y ago
    And sadly that attitude is why you got the Bunga Bunga Parties scandal that VW and IG Metal Where involved in.
  - Kalium 6y ago
    Governments and regulators don't always act in a clear-headed way when a company seen as a national champion is involved. Often the fear of bringing down political wrath, making a mess of national prestige, and more crop up even when explicit political meddling is absent. A company that understands it's in such a position is, IMO, more likely to misbehave because they know the odds of there being consequences are much lower.
- nabla9 6y ago
  Another: * They tie big names into the firm to get credibility. Hire them into the board, or pay them good money for short term consulting gigs. Examples: 1) Gen. James Mattis was in Theranos board. So was Henry Kissinger and George Shultz. 2) Enron paid Paul Krugman $50,000 to attend at least two times in advisory board meetings, nothing related to Enron business. What Enron really bought was the ability to say Paul Krugman was in the advisory board. https://www.princeton.edu/~pkrugman/enron.html https://www.princeton.edu/~pkrugman/enron.html
  - tnolet 6y ago
    The book on Theranos (Bad Blood) actually makes the argument that no “real” big names were in Theranos: Kissinger, Mattis and Schultz knew nothing about health care or medicin. They are/were career politicians. The book argues investors with actual experience in the industry staid far away.
    - nabla9 6y ago
      Could briefly comment what you think I meant with big name?
      - tnolet 6y ago
        Well known, powerful folks but also experts in the field or respected in the specific industry they are investing in / are board members of.
    - 420codebro 6y ago
      Lots of companies have directors from a wide background. In Theranos' case, the fact that Kissinger, Mattis, and Schultz were on the board was probably more useful to Ms. Holmes than having some reality-center doctor investors.
    - catalogia 6y ago
      None of this went unnoticed as soon as the company came to public attention. One of the first discussions on HN about Theranos had people being impressed with the big names on the board, and other people noting that it lacked connections to the healthcare industry. > That is a pretty stunning board of directors as well. I don't doubt their CEO can get an introduction to, and lunch with, nearly anyone on the planet. > This board seems heavily geared to do deals for defense-related applications. That's fine; getting deals with the Armed Forces and VA is feasible and quite rewarding. What they overtly lack is connections to the healthcare world. I'm surprised they aren't publicly roped into Cleveland Clinic, Mayo Clinic or Kaiser, as they to support novel technologies in this space. I suppose you can argue that the business model is fundamentally incompatible, but I've seen Mayo and Kaiser go in anyway; they can acquire these labs and roll them into operations pretty easily. > That BOD is stunning with heavy national security/ military operations. I almost thought it was a CIA cover company. > So, it's a health testing company that will keep all my blood-related health information and make it "actionable", with the backing of James Mattis, William Perry and none other than Henry Kissinger. There are more soldiers in that board there than doctors. The only way I'd give them my blood would be to infect them with a disease. > Wow. She must be a pretty amazing woman to have collected such strong allies. I'd have lunch with her. [This last one was downvoted, but is probably the sort of reaction Theranos was hoping to engineer.]
- yellowstuff 6y ago
  Enron is one example of how these things can turn out, but Herbalife (HLF) is another. HLF is a multi-level marketing company; they're a shady company in an inherently shady business; they have far-flung operations; they aggressively went after people expressing negative information; they had questionable accounting; and there were eventually regulatory rulings against them. But they also are a profitable business that sells stuff that people want to buy. They started getting a lot of press over being a fraud in 2012, today the stock is 30% higher than the 2012 peak, and Bill Ackman lost around $1B shorting it before he gave up. "Fake it til you make it" isn't just for tech startups. A lot of companies juice results with a bit of fraud, but eventually get good real results anyway. It's hard to tell the difference between an outright fraud and a healthy company with aggressive accounting.
  - paganel 6y ago
    I'm no Bill Ackman but I still do think that Herbalife is a fraud. It's basically just a better marketed MLM company, I first realised about the MLM part 12 or 13 years ago when I went to one of their presentations in my city (got out as soon as I could), which I guess leaves them with the "better marketing" part, which I admit they're pretty good at (if I'm not mistaken at some point they were sponsoring the football team AC Milan and the football player David Beckham).
  - Nextgrid 6y ago
    > they also are a profitable business that sells stuff that people want to buy [citation needed] Just like the other MLMs (or rather pyramid schemes, because that's what they really are), they sell a (unprofitable) lifestyle using deceptive marketing. The products are secondary (they're just there to keep regulators at bay) and are always sub-par and inferior to what can be found off-the-shelf.
    - intuitionist 6y ago
      There’s nothing illegal, or inherently unprofitable (for the business), about selling people a lifestyle. Louis Vuitton sells people a lifestyle. Harley-Davidson sells people a lifestyle. Apple sells people a lifestyle. All of these companies have products, sure, but the products aren’t really the point.
- newsclues 6y ago
  How many times will we need to learn that the audits and auditors are not always doing a good job?
  - dr_faustus 6y ago
    substitute "not always" with "almost never". Edit: The problem is that companies get to pick their auditors. Since the auditors sell a homogenous product (it doesnt really matter, who signs off you yearly report), the only way the big four accounting firms can compete is by being cheaper and/or more "favourable" to the customer. Both not that great for the customer (which actually should be the shareholders and in reality its mostly the board).
    - toohotatopic 6y ago
      Shouldn't there be a market for a tough auditor? Now a healthy company has a hard time convincing investors that there are no hidden problems. With a tough auditor, you could gain more trust and thus cheaper interest rates.
      - newsclues 6y ago
        If enough of the market is cheating then it puts you at a disadvantage if if you aren’t cheating (the fake market sees your fair baseline as a threat to future cheating)
      - gruez 6y ago
        That would have to be on the investor's side, otherwise the incentives aren't aligned.
- ArmandGrillet 6y ago
  You forgot the two last ones including "The German BAFIN is not very smart and German financial regulation is substandard", which is a pretty big lesson for the biggest economy in Europe.
  - C1sc0cat 6y ago
    Makes the chances of Frankfurt being a Candidate for big companies moving staff from the City even less. I suspect that Alex in the daily telegraph will be commenting on this shortly.
luckylion 6y ago
> In 2019, the boss of the supervisory board hired KPMG mainly to independently confirm that everything is splendid at Wirecard (E&Y is the auditor of Wirecard). So, will anything happen to E&Y, or do they just get to say "we didn't know that was fraudulent, we just did what we got paid to do"?
- bradleyjg 6y ago
  Arthur Andersen went out of business after Enron and the big five became the big four. Maybe that was a good outcome in terms of accountability but there needs to be some effective process for promoting new members if we are going to keep culling this club.
  - 9nGQluzmnq3M 6y ago
    They didn't go entirely out of business: their consulting arm is now known as Accenture.
    - kevindkeogh 6y ago
      The split happened prior to the Enron bankruptcy and was the result of a decade of litigation (Andersen consulting partners weren't happy with the profit-splitting with the audit partners).
  - C1sc0cat 6y ago
    One of the big 5 was banned from Uk government work for decades over the Delorean Scandal.
  - skinnymuch 6y ago
    Arthur Anderson if I’m recalling correctly didn’t go out of business so much as pushed out of business not fairly or completely legally by the feds.
pjc50 6y ago
Is there a good summary of Wirecard for those of us who haven't been paying attention? Was it an inherently fraudulent business, or a regular payment processor whose managers were skimming, or what?
- andi999 6y ago
  I am looking for the same. Might be too early to tell though. What I got seems to be: WC started out as a payment processor who was not afraid to work with fringe clients, other payment processors wouldnt work with. Then somehow the money volume went up high. Now this extra money is not where it should be.
  - brazzy 6y ago
    Seems to me that it's an open question whether that extra money ever existed to begin with.
- corty 6y ago
  Regular payment processor, payments went through and I didnt hear of customer accounts vanishing or anything. But with abnormally high, unexplained growth and growing rumours of something being wrong over the last 3 years or so. Impressions got worse when required audits didn't pass more than once.
- onli 6y ago
  Unknown. The company now claims they got defrauded themselves, but like the OP says, that's weak sauce. It looks like the company was completely fradulent forever. Interesting and more clear cut is the role of the German financial authorities, as they protected that companies for all those years they either are either completely incompetent or completely corrupt.
  - corty 6y ago
    > either completely incompetent or completely corrupt. Both. German financial regulation is kept intentionally incompetent to not annoy the bosses and their politician friends. It is corruption hidden and performed by incompetence imho.
haakonhr 6y ago
Crazy story and a good example on that the market can stay irrational/be wrong longer than you can stay liquid.
- tarsinge 6y ago
  And that the market nowadays has nearly 0 predicting power and live in the very short term/present, contrary to the priced in belief.
ThePhysicist 6y ago
It might still not be the biggest scandal in the recent history of Germany: From 1993-1999 a company named Flowtex caused 4.2 BN Mark (roughly 2.1 BN € or even 3 BN if adjusted for inflation) of damages with a remarkably simple fraud scheme: They would claim to produce horizontal drilling machines (which allow you to e.g. put in tubing for cables without completely opening up roads) that they would sell to leasing companies they controlled themselves. Those companies would then lease back the machines to FlowTex, which would supposedly provide them to construction companies. The lease-back of the machines allowed the leasing companies to get bank loans to fund the buying of the machines. That alone would be legitimate, the problem was only that most of the machines existed only on paper, FlowTex simply sold the same machines over and over by just changing the serial number plates on them. So overall a pretty simple pyramid scheme which required FlowTex to sell more and more non-existant machines to cover the leasing costs it paid. When it eventually collapsed the scheme had caused a massive amount of damage to banks and the state. One of the reasons it could go on for such a long time was that FlowTex had good connections to the state government and the CEO Manfred Schmider and his company became so famous that they were considered "too big to fail" by banks and even the tax authorities, so they didn't act for a long time even though it was apparent quite early that something couldn't be right. In the end the Portugese authorities tipped off an investigation when they discovered FlowTex had supposedly bought drilling machines from a company in Portugal that went bankrupt a long time ago. And while Manfred Schmider went to jail for a couple of years he apparently still managed to move a lot of his assets overseas and comfortably lives on Mallorca today. I'd not be surprised if Wirecard turns out to be a similar case, it's just hard to imagine that they really got defrauded by their banking partners and that a company of this size would simply entrust 1.9 BN € to some random lawyer based on the Philippines, this is almost certainly a cover-up story.
- MrBuddyCasino 6y ago
  > And while Manfred Schmider went to jail for a couple of years he apparently still managed to move a lot of his assets overseas and comfortably lives on Mallorca today. This stuff makes my blood boil. I continue to be astounded that this seems to be the default.
deleted 6y ago
[deleted]
netsharc 6y ago
I know German but never heard of "Bumsbude" before. It got a chuckle out of me. The literal meaning (to use similar English words) would be "Shag shack", aka "brothel"...
- Havoc 6y ago
  Never heard it either. I guess we don't roll with the right crowd lol
allendoerfer 6y ago
I personally know people, who invested considerable amounts of money into Wirecard after the COVID-19 crash and even one, who invested last week on the day the stock took its first dip. At the first point in time the shortselling, the FT articles and the ongoing BAFIN investigation were known. At the second point in time it was known, that they hired there buddies from KPMG, who could not find anything wrong, but even they were critizising the quality of their report, EY could not find the missing money and the public prosecutor in Munich started a criminal investigation. They still invested. One of them is a computer scientist and CEO of a small business, the other one has a PHD in business administration and works at a big three consulting firm. Even highly educated people seem think of investments inherently as pyramid schemes. "It fell, so it has to go up again next!" "It cannot rise further, it's already at its all-time-high." No consideration for the actual value being created. At some level, you cannot blame them, TINA and monetary policy actually make it true. Auditing and rating companies, who are supposed to help here are a joke, making it all seem like a game. It digusts me. On one end of the spectrum, money is something real and valuable. It decides, for how long you have to work, whether you have to live in your car or what you can afford to eat that day. On the other end, it's a a surreal thing. The direction it goes is controlled by private (!) instutions with enourmous amounts of power. I hope that more people, who did not need the money lost it, than those who needed it. I also hope, that not only Wirecard staff will get prosecuted, but auditors have to pay for this in some way. Why do we allow auditors to be private institutions with a profit motive, who are also doing business consulting on top of it?
- dr_faustus 6y ago
  The motivation of your friends to put many in Wirecard stock probably less about investment and more about gamblng. I guess, they didnt invest their life's savings but just some money the had not better use for right now. In these times of zero risk free returns (and even low returns on junk bonds), investing in distressed assets can be a good strategy if you have the stomach to lose it all.
  - allendoerfer 6y ago
    Probably true. But to me that's still disgusting. I belong to a social class, which can put an amount of money you could use to feed a family in the first world for an entire year into a company that's probably a pyramid scheme without even blinking an eye. Just makes you think, what kind of stuff people above us could do.
IMTDb 6y ago
After the Enron scandal, the auditor (Andersen) was dismanteled. The german branch of Andersen was bought by no other than Ernst & Young, the auditor of Wirecard.
- Havoc 6y ago
  TIL parts of Anderson were bought...
- skinnymuch 6y ago
  The US govt did a lot of shady stuff with dismantling Anderson (a not so uncommon theme) and broke several laws. By the time judges scolded the govt etc, it was too late. Arthur Anderson was done for.
captn3m0 6y ago
>My personal highlight of the report was an M&A transaction where Wirecard bought a company in India from an SPV for 300 mn USD that was acquired just one month before for 30 mn USD. Wirecard claimed that they didn’t know who the ultimate beneficiary of the sales price was. If I ever have seen something looking like explicit money laundering at a DAX company then it was this transaction. Found a report that covers this: https://www.asianage.com/metros/delhi/180319/acquisition-of-chennai-firm-at-centre-of-fraud-investigation.html https://www.asianage.com/metros/delhi/180319/acquisition-of-... And another from the date of the acquisition: https://www.medianama.com/2015/10/223-wirecard-great-indian-retail-group/ https://www.medianama.com/2015/10/223-wirecard-great-indian-...
Havoc 6y ago
They announced a clean audit before the auditors were anywhere near concluding? Wow that's bold even by fraudster standards
muro 6y ago
I worked for 10tacle some 13 years ago - the company mentioned as a warning flag. The whole operating mode of the company was to buy up companies with borrowed money and run for more investment. There was no will to launch products. Good riddance to them.

185 points by joydeepdg 6y ago

It's easy to miss that the article is published under the same username as the one described as an "anonymous source", in, for example "... Wirecard desperately wanted to know who this memyselfandi007 was to sue the shxx out of him, but the police didn’t pass on the real identity."

FabHK 6y ago
Yes, the author writing about themselves in the third person is really misleading/annoying.

chewz 6y ago

> Lessons to be learned * even a pretty obvious fraud can go on much longer than one would think if the organizers are ruthless enough. My original short position would have gone against me 25x over 12 years and the share price even after today’s disaster would be higher than back in 2008 (just to be clear: the company is worth ZERO in my opinion) * a company that goes against people who write negative articles as aggressively as Wirecard has something to hide * if the profitability of a business can not be explained by its business model, then most likely something is very wrong (greetings Bernie Madoff) * 99% of professional investors and analysts don’t care about these things even if you tell them. A lot of people knew that the company was fishy but hey thought they can make money anyway and a lot of people made a lot of money over the years * Small companies with far flung operations in difficult geographies should be avoided (see Globo Plc) as this makes fraud difficult to detect for auditors * A big 4 Audit firm is no proof of quality.

9nGQluzmnq3M 6y ago
The first one really is key here. Exhibit A is "stablecoin" Tether, which has more red flags than a Kremlin May Day parade and steadfastly refuses to get audited, but has nevertheless been puttering away for several years now. When will the penny drop? https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/ https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
- C1sc0cat 6y ago
  How do you avoid getting audited for several years ?
  - sokoloff 6y ago
    As a cryptocurrency? You just decide not to get audited.
  - lordnacho 6y ago
    I'm no expert, but I think what happens is you shop around for an auditor but you somehow can never find one who will sign off on the audit, because they need you to produce some docs that you don't have.
    - 9nGQluzmnq3M 6y ago
      s/don't have/don't want to give/
  - seanhunter 6y ago
    If you're not a public company then in many/most jurisdictions it's up to the owners/investors to decide whether or not to have audited financials. If they are a 100% legit and have assets to back their tether there really isn't much of a reason not to have that audited and published on a website. For example bullionvault.com publish an audit of physical metal reserves daily.
- chewz 6y ago
  From my experience a fraud is easy to spot with a keen eye. But persuading the public that hot company is a fraud - different matter.
pythonwizz 6y ago
I wrote this here a few days ago: ------------------------- Wirecard has been accused before of fraud by so called "short sellers". The document published (2 years ago?) showed a tremendous, extraordinary complex network of international corporations. Such complex setups have a very limited purpose. It can basically be only tax "optimization", hide fraud or hide ownership (UBO). After having seen this PDF I would not touch the Wirecard stock. By the way, I think Alibaba is opening two new corporations. Per day. You may also want to read at Bronte Capital about Alibaba. ------------------------- "the company is worth ZERO in my opinion)" This IS a possibility. But the stockmarket exaggerates always in both directions, "like a sausage dog on a leash, sometimes walks in front of you, sometimes behind you but always comes back to you" Kostalany If you want to make a gamble there could be buying prices now or soon. But it stays a gamble. "Even a good company can be too expensive" Buffet "Even a shitty company can be cheap" me
blibble 6y ago
amusingly: back in 2019, when journalists pointed out irregularaties in the company's accounts, the German Financial regulator's reaction was to ban short selling of their shares... and then issue legal proceedings against the journalists > On Monday, BaFin banned further short selling of shares in Wirecard, the Dax-listed payments services group. The stock has dropped steeply after FT reports raised questions over the validity of accounts. The German financial regulator said its first ever ban on shorting a single stock was needed to prevent a loss of confidence in financial markets. https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36ce8e https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36c... has the full details (but paywall)
- deleted 6y ago
  [deleted]
- justinclift 6y ago
  Non-paywalled version: https://archive.vn/VAuC7 https://archive.vn/VAuC7
- C1sc0cat 6y ago
  And sadly that attitude is why you got the Bunga Bunga Parties scandal that VW and IG Metal Where involved in.
- Kalium 6y ago
  Governments and regulators don't always act in a clear-headed way when a company seen as a national champion is involved. Often the fear of bringing down political wrath, making a mess of national prestige, and more crop up even when explicit political meddling is absent. A company that understands it's in such a position is, IMO, more likely to misbehave because they know the odds of there being consequences are much lower.
nabla9 6y ago
Another: * They tie big names into the firm to get credibility. Hire them into the board, or pay them good money for short term consulting gigs. Examples: 1) Gen. James Mattis was in Theranos board. So was Henry Kissinger and George Shultz. 2) Enron paid Paul Krugman $50,000 to attend at least two times in advisory board meetings, nothing related to Enron business. What Enron really bought was the ability to say Paul Krugman was in the advisory board. https://www.princeton.edu/~pkrugman/enron.html https://www.princeton.edu/~pkrugman/enron.html
- tnolet 6y ago
  The book on Theranos (Bad Blood) actually makes the argument that no “real” big names were in Theranos: Kissinger, Mattis and Schultz knew nothing about health care or medicin. They are/were career politicians. The book argues investors with actual experience in the industry staid far away.
  - nabla9 6y ago
    Could briefly comment what you think I meant with big name?
    - tnolet 6y ago
      Well known, powerful folks but also experts in the field or respected in the specific industry they are investing in / are board members of.
  - 420codebro 6y ago
    Lots of companies have directors from a wide background. In Theranos' case, the fact that Kissinger, Mattis, and Schultz were on the board was probably more useful to Ms. Holmes than having some reality-center doctor investors.
  - catalogia 6y ago
    None of this went unnoticed as soon as the company came to public attention. One of the first discussions on HN about Theranos had people being impressed with the big names on the board, and other people noting that it lacked connections to the healthcare industry. > That is a pretty stunning board of directors as well. I don't doubt their CEO can get an introduction to, and lunch with, nearly anyone on the planet. > This board seems heavily geared to do deals for defense-related applications. That's fine; getting deals with the Armed Forces and VA is feasible and quite rewarding. What they overtly lack is connections to the healthcare world. I'm surprised they aren't publicly roped into Cleveland Clinic, Mayo Clinic or Kaiser, as they to support novel technologies in this space. I suppose you can argue that the business model is fundamentally incompatible, but I've seen Mayo and Kaiser go in anyway; they can acquire these labs and roll them into operations pretty easily. > That BOD is stunning with heavy national security/ military operations. I almost thought it was a CIA cover company. > So, it's a health testing company that will keep all my blood-related health information and make it "actionable", with the backing of James Mattis, William Perry and none other than Henry Kissinger. There are more soldiers in that board there than doctors. The only way I'd give them my blood would be to infect them with a disease. > Wow. She must be a pretty amazing woman to have collected such strong allies. I'd have lunch with her. [This last one was downvoted, but is probably the sort of reaction Theranos was hoping to engineer.]
yellowstuff 6y ago
Enron is one example of how these things can turn out, but Herbalife (HLF) is another. HLF is a multi-level marketing company; they're a shady company in an inherently shady business; they have far-flung operations; they aggressively went after people expressing negative information; they had questionable accounting; and there were eventually regulatory rulings against them. But they also are a profitable business that sells stuff that people want to buy. They started getting a lot of press over being a fraud in 2012, today the stock is 30% higher than the 2012 peak, and Bill Ackman lost around $1B shorting it before he gave up. "Fake it til you make it" isn't just for tech startups. A lot of companies juice results with a bit of fraud, but eventually get good real results anyway. It's hard to tell the difference between an outright fraud and a healthy company with aggressive accounting.
- paganel 6y ago
  I'm no Bill Ackman but I still do think that Herbalife is a fraud. It's basically just a better marketed MLM company, I first realised about the MLM part 12 or 13 years ago when I went to one of their presentations in my city (got out as soon as I could), which I guess leaves them with the "better marketing" part, which I admit they're pretty good at (if I'm not mistaken at some point they were sponsoring the football team AC Milan and the football player David Beckham).
- Nextgrid 6y ago
  > they also are a profitable business that sells stuff that people want to buy [citation needed] Just like the other MLMs (or rather pyramid schemes, because that's what they really are), they sell a (unprofitable) lifestyle using deceptive marketing. The products are secondary (they're just there to keep regulators at bay) and are always sub-par and inferior to what can be found off-the-shelf.
  - intuitionist 6y ago
    There’s nothing illegal, or inherently unprofitable (for the business), about selling people a lifestyle. Louis Vuitton sells people a lifestyle. Harley-Davidson sells people a lifestyle. Apple sells people a lifestyle. All of these companies have products, sure, but the products aren’t really the point.
newsclues 6y ago
How many times will we need to learn that the audits and auditors are not always doing a good job?
- dr_faustus 6y ago
  substitute "not always" with "almost never". Edit: The problem is that companies get to pick their auditors. Since the auditors sell a homogenous product (it doesnt really matter, who signs off you yearly report), the only way the big four accounting firms can compete is by being cheaper and/or more "favourable" to the customer. Both not that great for the customer (which actually should be the shareholders and in reality its mostly the board).
  - toohotatopic 6y ago
    Shouldn't there be a market for a tough auditor? Now a healthy company has a hard time convincing investors that there are no hidden problems. With a tough auditor, you could gain more trust and thus cheaper interest rates.
    - newsclues 6y ago
      If enough of the market is cheating then it puts you at a disadvantage if if you aren’t cheating (the fake market sees your fair baseline as a threat to future cheating)
    - gruez 6y ago
      That would have to be on the investor's side, otherwise the incentives aren't aligned.
ArmandGrillet 6y ago
You forgot the two last ones including "The German BAFIN is not very smart and German financial regulation is substandard", which is a pretty big lesson for the biggest economy in Europe.
- C1sc0cat 6y ago
  Makes the chances of Frankfurt being a Candidate for big companies moving staff from the City even less. I suspect that Alex in the daily telegraph will be commenting on this shortly.

luckylion 6y ago

> In 2019, the boss of the supervisory board hired KPMG mainly to independently confirm that everything is splendid at Wirecard (E&Y is the auditor of Wirecard). So, will anything happen to E&Y, or do they just get to say "we didn't know that was fraudulent, we just did what we got paid to do"?

bradleyjg 6y ago
Arthur Andersen went out of business after Enron and the big five became the big four. Maybe that was a good outcome in terms of accountability but there needs to be some effective process for promoting new members if we are going to keep culling this club.
- 9nGQluzmnq3M 6y ago
  They didn't go entirely out of business: their consulting arm is now known as Accenture.
  - kevindkeogh 6y ago
    The split happened prior to the Enron bankruptcy and was the result of a decade of litigation (Andersen consulting partners weren't happy with the profit-splitting with the audit partners).
- C1sc0cat 6y ago
  One of the big 5 was banned from Uk government work for decades over the Delorean Scandal.
- skinnymuch 6y ago
  Arthur Anderson if I’m recalling correctly didn’t go out of business so much as pushed out of business not fairly or completely legally by the feds.

pjc50 6y ago

Is there a good summary of Wirecard for those of us who haven't been paying attention? Was it an inherently fraudulent business, or a regular payment processor whose managers were skimming, or what?

andi999 6y ago
I am looking for the same. Might be too early to tell though. What I got seems to be: WC started out as a payment processor who was not afraid to work with fringe clients, other payment processors wouldnt work with. Then somehow the money volume went up high. Now this extra money is not where it should be.
- brazzy 6y ago
  Seems to me that it's an open question whether that extra money ever existed to begin with.
corty 6y ago
Regular payment processor, payments went through and I didnt hear of customer accounts vanishing or anything. But with abnormally high, unexplained growth and growing rumours of something being wrong over the last 3 years or so. Impressions got worse when required audits didn't pass more than once.
onli 6y ago
Unknown. The company now claims they got defrauded themselves, but like the OP says, that's weak sauce. It looks like the company was completely fradulent forever. Interesting and more clear cut is the role of the German financial authorities, as they protected that companies for all those years they either are either completely incompetent or completely corrupt.
- corty 6y ago
  > either completely incompetent or completely corrupt. Both. German financial regulation is kept intentionally incompetent to not annoy the bosses and their politician friends. It is corruption hidden and performed by incompetence imho.

haakonhr 6y ago

Crazy story and a good example on that the market can stay irrational/be wrong longer than you can stay liquid.

tarsinge 6y ago
And that the market nowadays has nearly 0 predicting power and live in the very short term/present, contrary to the priced in belief.

ThePhysicist 6y ago

It might still not be the biggest scandal in the recent history of Germany: From 1993-1999 a company named Flowtex caused 4.2 BN Mark (roughly 2.1 BN € or even 3 BN if adjusted for inflation) of damages with a remarkably simple fraud scheme: They would claim to produce horizontal drilling machines (which allow you to e.g. put in tubing for cables without completely opening up roads) that they would sell to leasing companies they controlled themselves. Those companies would then lease back the machines to FlowTex, which would supposedly provide them to construction companies. The lease-back of the machines allowed the leasing companies to get bank loans to fund the buying of the machines. That alone would be legitimate, the problem was only that most of the machines existed only on paper, FlowTex simply sold the same machines over and over by just changing the serial number plates on them. So overall a pretty simple pyramid scheme which required FlowTex to sell more and more non-existant machines to cover the leasing costs it paid. When it eventually collapsed the scheme had caused a massive amount of damage to banks and the state. One of the reasons it could go on for such a long time was that FlowTex had good connections to the state government and the CEO Manfred Schmider and his company became so famous that they were considered "too big to fail" by banks and even the tax authorities, so they didn't act for a long time even though it was apparent quite early that something couldn't be right. In the end the Portugese authorities tipped off an investigation when they discovered FlowTex had supposedly bought drilling machines from a company in Portugal that went bankrupt a long time ago. And while Manfred Schmider went to jail for a couple of years he apparently still managed to move a lot of his assets overseas and comfortably lives on Mallorca today. I'd not be surprised if Wirecard turns out to be a similar case, it's just hard to imagine that they really got defrauded by their banking partners and that a company of this size would simply entrust 1.9 BN € to some random lawyer based on the Philippines, this is almost certainly a cover-up story.

MrBuddyCasino 6y ago
> And while Manfred Schmider went to jail for a couple of years he apparently still managed to move a lot of his assets overseas and comfortably lives on Mallorca today. This stuff makes my blood boil. I continue to be astounded that this seems to be the default.

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netsharc 6y ago

I know German but never heard of "Bumsbude" before. It got a chuckle out of me. The literal meaning (to use similar English words) would be "Shag shack", aka "brothel"...

Havoc 6y ago
Never heard it either. I guess we don't roll with the right crowd lol

allendoerfer 6y ago

I personally know people, who invested considerable amounts of money into Wirecard after the COVID-19 crash and even one, who invested last week on the day the stock took its first dip. At the first point in time the shortselling, the FT articles and the ongoing BAFIN investigation were known. At the second point in time it was known, that they hired there buddies from KPMG, who could not find anything wrong, but even they were critizising the quality of their report, EY could not find the missing money and the public prosecutor in Munich started a criminal investigation. They still invested. One of them is a computer scientist and CEO of a small business, the other one has a PHD in business administration and works at a big three consulting firm. Even highly educated people seem think of investments inherently as pyramid schemes. "It fell, so it has to go up again next!" "It cannot rise further, it's already at its all-time-high." No consideration for the actual value being created. At some level, you cannot blame them, TINA and monetary policy actually make it true. Auditing and rating companies, who are supposed to help here are a joke, making it all seem like a game. It digusts me. On one end of the spectrum, money is something real and valuable. It decides, for how long you have to work, whether you have to live in your car or what you can afford to eat that day. On the other end, it's a a surreal thing. The direction it goes is controlled by private (!) instutions with enourmous amounts of power. I hope that more people, who did not need the money lost it, than those who needed it. I also hope, that not only Wirecard staff will get prosecuted, but auditors have to pay for this in some way. Why do we allow auditors to be private institutions with a profit motive, who are also doing business consulting on top of it?

dr_faustus 6y ago
The motivation of your friends to put many in Wirecard stock probably less about investment and more about gamblng. I guess, they didnt invest their life's savings but just some money the had not better use for right now. In these times of zero risk free returns (and even low returns on junk bonds), investing in distressed assets can be a good strategy if you have the stomach to lose it all.
- allendoerfer 6y ago
  Probably true. But to me that's still disgusting. I belong to a social class, which can put an amount of money you could use to feed a family in the first world for an entire year into a company that's probably a pyramid scheme without even blinking an eye. Just makes you think, what kind of stuff people above us could do.

IMTDb 6y ago

After the Enron scandal, the auditor (Andersen) was dismanteled. The german branch of Andersen was bought by no other than Ernst & Young, the auditor of Wirecard.

Havoc 6y ago
TIL parts of Anderson were bought...
skinnymuch 6y ago
The US govt did a lot of shady stuff with dismantling Anderson (a not so uncommon theme) and broke several laws. By the time judges scolded the govt etc, it was too late. Arthur Anderson was done for.

captn3m0 6y ago

>My personal highlight of the report was an M&A transaction where Wirecard bought a company in India from an SPV for 300 mn USD that was acquired just one month before for 30 mn USD. Wirecard claimed that they didn’t know who the ultimate beneficiary of the sales price was. If I ever have seen something looking like explicit money laundering at a DAX company then it was this transaction. Found a report that covers this: https://www.asianage.com/metros/delhi/180319/acquisition-of-chennai-firm-at-centre-of-fraud-investigation.html https://www.asianage.com/metros/delhi/180319/acquisition-of-... And another from the date of the acquisition: https://www.medianama.com/2015/10/223-wirecard-great-indian-retail-group/ https://www.medianama.com/2015/10/223-wirecard-great-indian-...

Havoc 6y ago

They announced a clean audit before the auditors were anywhere near concluding? Wow that's bold even by fraudster standards

muro 6y ago

I worked for 10tacle some 13 years ago - the company mentioned as a warning flag. The whole operating mode of the company was to buy up companies with borrowed money and run for more investment. There was no will to launch products. Good riddance to them.