The German payments firm Wirecard is at the center of a huge accounting scandal (perhaps a better choice of words should be fraud) after it revealed it was unable to trace 1.9 billion euros, or about $2 billion, in cash balances. The following is an excerpt from a number of commentaries made by the international press.

Less than a month ago, Wirecard AG told investors that it expected an “unqualified audit opinion” when its long-delayed annual results were finally published. The update that the German electronic-payments processor provided to the market on Thursday was about as far from unqualified as it’s possible to imagine.  

Marcus Braun, CEO of scandal-hit Wirecard resigned after the company acknowledged US$2 billion had gone missing, prompting its share price to plunge by 80%.  As a consequence, 20 billion euros of shareholder wealth has gone up in smoke. The market capitalization is now just 4.4 billion euros.

Auditor Ernst & Young has been unable to obtain enough information to verify 1.9 billion euros ($2.1 billion) of the company’s cash balances, according to the Wirecard statement. Furthermore, there’s evidence that a third party tried to “deceive” the auditor.  However, no one has identified the party.

It appears that it may all have been about hi-tech hype.  Nobody questioned business practices, ethics and profitability.  The company started its business by concentrating on payment segments relating to pornography and gaming, a profitable market segment shunned by other payment platforms.    As the company moved aggressively into other payment segments it was likely that it did not make any money.  KPMG was hired to conduct a forensic investigation, but it was unable to resolve that “the lions share of the 2016 to 2018 profits” were real. 

Perhaps the company ran a Ponzi scheme by ‘over reporting’ financial results to hype its stock price. This may explain the missing cash hidden in fraudulent escrow accounts.  The Financial Times acted upon tip-offs from whistle blowers about accounting irregularities in its Singapore office.  As it turns out, the FT journalist who investigated and reported these issues needs to be congratulated, instead Wirecard sued the FT about the allocations.

As BloombergOpinion put it: “These events cap a devastating fall from a grace for a business that investors hoped would repair Germany’s reputation for being a laggard in IT and technology, and restore the pride of its diminished finance sector. The Wirecard case is also a lesson in the dangers of group think: Financial analysts, directors, regulators and auditors were for too long unwilling to listen to important questions about how it made money”. 

Source:  Press reports and editorial comments