The Wirecard Fraud - How One Man Fooled all of Germany

hi welcome to another cold fusion video wirecard was once the model of tech startups in germany last year they were listed on the german equivalent of the dow jones among the top 30 companies wirecard wasn't just big there were also innovators the company had been dubbed among the top 100 most innovative growth companies by forbes and the company's promotional material wanted you to know that buzzwords like reimagining reinventing and innovation were often used so how in the space of just nine days did y card's share price go from 100 euros a share to less than two euros a share and how did the company end up in a place where they're filing for insolvency and owe creditors 4 billion us dollars the answer lies in the fact that 2 billion us dollars is missing the equivalent of the entire company's operating profit wirecard hid the fraud from financial and regulatory institutions auditors and the government this was a tale of lies accounting manipulation hacking attacks on journalists an arrested former ceo and a missing executive in this episode we'll take a look at the enron of europe wirecard you are watching tell fusion tv [Music] wirecard was founded in 1999 in a suburban munich germany the firm provided online payment services acting as an intermediary between consumers and producers online the money transfers were fast safe and convenient riding off the back of the e-commerce boom the company became a giant in the space of five years they saw its share price increased tenfold ceo at the time marcus braun became a billionaire by earning seven percent of the shares by 2005 they had developed a core business in managing the payments of online gambling and adult content despite shady beginnings through a series of acquisitions they moved into banking and were even issuing their own credit cards after taking over the reigns in 2002 only three years after the company was founded marcus braun had global ambitions for the company in a company christmas party in 2009 he stated that english would now become the company's official language this was to reflect its global ambitions however according to a former staff member this drew awkward reactions as only half of the staff at the time spoke english and many of them couldn't understand what braun was even saying as the company became more successful braun edged billionaire status he appeared to exhibit the image of what a tech leader should look like speaking at tech conferences he began sporting the classic black turtleneck after the theronos episode i find it funny how it's becoming a theme for frauds to try and imitate steve jobs regardless braun had every reason to believe that he was on the same trajectory as jobs having grown the company to a top 30 stock in germany it made wirecard a rare european tech success story however braun himself seemed to be somewhat disjointed from the rest of the company he created a barrier between himself and most of the company he worked on a floor only accessible by senior members leaving work meant getting on an elevator directly to a car park where a chauffeur waited for him in a mercedes he'll be driven away to a building where he owned two apartments and had on occasion told his neighbours about his plans to buy their apartments too by 2015 wirecard now owned a bank in munich and was transacting millions of online credit card payments braun was the face of the company speaking with investors while his protege jan marcelic was jetting around the world closing business deals many saw braun as a tech visionary analysts and investors truly believed that this was a new found german fintech version of steve jobs they praised him as quote the innovative spirit of wirecard and a quote mastermind however not everyone was believing the hype toby clothier head of mirrorboard security strategy team recalls his impressions of braun to the financial times quote the thing we found odd was his obsession with certain words his all-time favorite word was strong we know because we counted other favorites were machine learning and ecosystem if you are very gullible then you might say he's a tech visionary but if you look closer it was all gobbledygook end quote in 2017 braun had told investors that the latest artificial intelligence was being used to process and analyze data in wirecard systems however it's been reported by the financial times that behind the scenes wirecard staff were merely using excel spreadsheets to organize the information another skeptic henrik lieber had met braun at an event organized by goldman sachs upon asking about the strategy and technology of his company lieber received what to be considered abstract and evasive answers almost as if they were being pre-written or being read out by a machine hendrick knew that this was a bad sign and his fund sold all of their wi-card shares several weeks after the pair met from time to time braun liked to remind people of his power all coming from his seven percent share in his company it's reported that braun often checked the share price on his phone and would give verbal blasts to senior management if the price fell demanding that they fix it he would even take out large loans using the seven percent share as collateral so you can imagine how braun felt when kpmg released a scathing report on wirecard's financials in april of 2020 at a recorded town hall meeting braun can be seen fuming with rage but before we get to this moment let's figure out how the company got there on the one hand you have 23 buy ratings from analysts out of the 29 that i counted on the bloomberg today on the other hand there seems to be a non-stop controversy coming from the financial times sirf and a number of other places that create the kind of volatility i don't think german investors are used to why is that there's so much controversy surrounding your company i think we have a tremendous growth development before us we have big innovations before us so this is what we concentrate on uh i do not too much look into controversies but my message is i think we have a very strong year before us we concentrate on technology innovations the first time that wirecard faced scrutiny was back in 2008. financial auditors from the firm ernst young were called to review allegations in the company's balance sheets however strangely on this occasion the two men that had blown the whistle were prosecuted by german authorities due to undisclosed stock positions under the eyes of baffin the german financial supervision authority we saw the biggest stock market scandal in recent german history and as you have explained to your listeners um buffon was more busy with pursuing journalists who wrote about the dodgy business practices of wirecard the reasoning was these two men would write bad about wirecard and then bet on the price going down before the news breaks in order to make some money this is called short selling it would be the same claims of short selling that wirecard would use a decade later to defend itself against claims coming from investigative journalists at the financial times as y-card stock grew so did the questions reports of financial irregularities surfaced and there were claims that the company's operations were far smaller than what they appeared on paper it also seemed no matter how the economy was doing wirecard was always thriving in 2015 it was reported that there was a 250 million euro gap in the company's balance sheet the equivalent of three years of profit for the company wirecard dismissed this as short seller backed propaganda and analysts agreed merely a year later in 2016 claims surfaced again that the company was involved in money laundering again wirecard denied all the allegations but this drew investigations from both the german financial watchdog and private agencies then something strange happened over the next few years journalists and short sellers who had spoken negatively about wirecard's operations began to systematically receive phishing emails designed to compromise their computers however it hasn't been completely verified that wirecard was responsible [Music] in 2018 the company pushed into the dax 30 index this meant that wirecard became an automatic stock in the portfolio of countless german pension funds they were now partnering with german stores such as audi and almost a hundred airlines at their peak the company was worth 28 billion dollars but it was the start of 2019 when things started to escalate there was an internal investigation at wirecard singapore office over fraud money had supposedly been sent to india and back in order to falsely increase the number of transactions this was to make it look like the company was doing more business than it actually was in order to process payments in countries where wirecard didn't have a license they would use third-party companies some of these were in singapore dubai but most importantly the philippines strangely the philippines office was shared with a bus company perhaps a sign that things weren't as they seemed [Music] since wirecard didn't have an operating license in these regions the idea was that these foreign companies would do the payment processing for wirecard and wirecard would receive a commission this ended up being a huge part of wirecard's business pretty much all of its profit 1.9 billion euros or 2 billion us dollars worth investigators found that there was no money coming into wirecard's munich bank it was curious but wirecard explained it away to the auditors that there was actually a set of accounts managed at two banks in the philippines so the investigators went to the philippines upon arriving to visit wirecard's partner company in the philippines the financial times reported having found a retired man and his family who was surprised to find out that their home was supposedly a branch of a multinational company at this point wirecard were furious and sued the financial times for quote misuse of trade secrets a month later in a strange vote of confidence softbank invested a further 900 million euros into wirecard it just seems like softbank can't get a break i think softbank shares with us the vision that the area of digital payments in combination with analytics artificial intelligence innovative financial services on one platform is one of the most interesting growth areas in the next 10 years regardless towards the end of 2019 among mounting investor pressure wirecard appoints the accounting company kpmg to perform an audit it was going to prove that all the allegations against wirecard were groundless six months later in early 2020 kpmg reports it cannot verify quote the lion's share of wirecard's profits over the last two years wirecast ceo marcus braun vigorously denied all claims of wrongdoing and then in early june german police raided the munich headquarters what wirecard had claimed the whole time was that they were using third parties to process payments these third parties would then give wirecard a commission netting them two billion dollars and the majority of their profit the reality was it all appears to be an accounting sham the two billion dollars wasn't in the philippines the banks that were supposed to be holding the wirecard money told investigators that they had no idea what they were talking about the bank stated that this money simply didn't no money none of wirecard's missing 2.1 billion ever entered into the philippines and we're hearing from wirecard itself that they now believe that the 2.1 billion probably does not exist now as you may recall on friday bpi and bdo the two top philippine banks uh had but revealed that they did not have any relationship with wirecard and it is now indicated that the documents that indicate the presence of some funds in those banks were bogus over the next week marcus braun resigns and he's arrested shortly after marcus brown has been arrested now this is obviously a scandal that is becoming or is deepening uh it is no longer only about missing money wirecard is saying that potentially up to 1.9 billion euros could be missing it's now also obviously a criminal investigation and one that is serious enough for the prosecutors to take this step and actually arrest and detain the former ceo wirecard then makes a statement they admit that the money probably never existed in the first place shortly after they filed for insolvency jan martileck wirecard's former chief operating officer and marcus's right-hand man has vanished german newspapers report that he fled to russia or belarus there has been ripple effects from the collapse german pensioners have lost money other payment companies owned by wirecard were thrown into chaos for example the firm pocket has had to freeze funds for its uk clients leaving some in danger of having no hot water or gas and with that that is the end of the wirecard saga it's how a company went from a small startup to superstardom in the european tech world to losing 99 of its share price in just over a week the story raises questions of the effectiveness of regulators auditors rating agencies and financial watchdogs who all let it happen right under their noses was there corruption involved to have this go on for over a decade perhaps time will tell when the financial times was starting to report about irregularities when it comes to their accounting and that was rebuffed violently by wirecard but also the german regulator didn't really look into the matter thoroughly and instead of it they actually looked into whether the financial times journalist has done its job right so today and also already it started yesterday there's a huge discussion in germany whether or not everybody was far too lenient on the company because nobody apparently looked really into the business model neither the regulator nor also the analyst at some point in time one analyst from a very well-known bank here in germany called the reporting from the financial times fake news apparently wirecard was always shielded somewhat as the poster child of being a tech company in germany which we don't have too many of while the story isn't over just yet it seems like the company itself might be thanks for watching in case you missed the last episode on the greatest phone failures in mobile history be sure to check that out a lot of people were saying that they didn't see it in their subscription box i think it's fascinating some of the crazy ideas and stories that happened during the earlier days of the mobile industry and lastly a serious thank you to all of your supportive comments on the very personal video i made before the last one i seriously wasn't expecting it all and it was very encouraging anyway if you're new here and want to see anything on science technology business or history be sure to subscribe to cold fusion this has been to go go and you've been watching cold fusion and i'll catch you again soon for the next video cheers guys have a good one [Applause] [Music] it's me thinking [Music] oh

Channel: ColdFusion

Views: 988,745

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Keywords: Coldfusion, TV, Dagogo, Altraide, Technology, Apple, Google, Samsung, Facebook, Tesla

Id: ivACzzW5wyA

Length: 17min 5sec (1025 seconds)

Published: Thu Aug 06 2020

Reddit Comments

[u/retoolist]

The story of how they went after journalists with phishing attacks is just as fascinating. https://www.npr.org/2020/06/02/868001948/trust-fall

[u/adamccc]

A monkey would do better at picking investments than Softbank