Anyone been following this? Shocking failure of Germany's regulatory authorities here.
https://www.bbc.com/news/business-53132953
Wirecard accounting scandal | New Enron?
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New Enron no....but another case of terrible compliance. Another black spot on a big 4 firm (think EY in this case).
Saw this on LinkedIn the other day and Enron was my first thought. Absolute shambles.
I watched the enron documentary on prime. Was a hell of an eye opener.
Interesting. Lots of angles and players to investigate here. I've not heard of a firm either lying about or having its provisions vanish. Were these related to provisions for loan losses or just operational risk?
My first impression is that this sum isn't large enough to indicate an issue with the firm itself rather, this money was stolen due to lax oversight either during the creation of the accounts or where they were held.
For example, I know of a bank here that does penny testing for certain systems and transactions. They trust it to one person, who does the tests on a Sunday. There are no system controls in place to prevent that person from doing a six or seven figure transaction to any account they chose instead of a transaction for one cent. Were they to do that on a bank holiday weekend, no one would find out until the Tuesday or Wednesday. Unfortunately, FIs are rife with these types of scenarios. I'll guarantee you that every bank that offers prepaid cards has a suspense account filled with millions of dollars of unused funds (those three or four cents you can't get off the card when the rest of it is used up) and these are ripe for the picking, too.
My first impression is that this sum isn't large enough to indicate an issue with the firm itself rather, this money was stolen due to lax oversight either during the creation of the accounts or where they were held.
For example, I know of a bank here that does penny testing for certain systems and transactions. They trust it to one person, who does the tests on a Sunday. There are no system controls in place to prevent that person from doing a six or seven figure transaction to any account they chose instead of a transaction for one cent. Were they to do that on a bank holiday weekend, no one would find out until the Tuesday or Wednesday. Unfortunately, FIs are rife with these types of scenarios. I'll guarantee you that every bank that offers prepaid cards has a suspense account filled with millions of dollars of unused funds (those three or four cents you can't get off the card when the rest of it is used up) and these are ripe for the picking, too.
“Smartest People In The Room”?
Didn’t know that was on Prime, might give it another watch.
I find it really odd that a payments firm would have to set aside one quarter of its balance sheet to cover risk, though. Does the story's use of scandal hit imply that they've had issues before? That's the only thing that would necessitate that large of a capital allocation.
Apparently Wirecard is surprisingly shady and there were concerns/reports about them as early as 2008. More recently somewhere around 2014-2015ish there were concerns and then the FT went hard on them in 2018.
Interesting stuff, VZK. How does the deposit insurance scheme work in Germany, i.e. who funds it? Here in Canada it is a government sponsored and member institutions pay premiums to the the insurer.
This is quite an interesting read from a blogger I follow. He called them out all the way back in 2008.
https://valueandopportunity.com/202...rman-enron-a-very-personal-history-2008-2020/
https://valueandopportunity.com/202...rman-enron-a-very-personal-history-2008-2020/
It was bud, but I just had a look and its 2.49 to rent now. Might come back on in the future as they sometimes do.
It's 2 billion euros or one quarter of the balance sheet. I assume you misread some numbers?
Wirecard has always been kind of shady and there have been accusations of fraud for a long time. Some of them were made to commit crimes themselves, some were more legit.
My girlfriend (still) works there but is now looking for a new job as they probably will go bust in the very near future.
Ah cheers, I’ll make sure none of those unscrupulous torrent bastards are doing Bezos out of £2.49 first though.
No, I just don't see the amount as being indicative of systemic corruption at the firm. Enron's fraud was around 75 billion. What makes me curious is that this was a risk allocation and it consisted of one quarter of the firm's value. My first impression reading the story seems like this money was either stolen by an internal actor or they pretended to allocate it to protect their share value.
Reading some of the other links suggests there was quite a bit of thievery and other unscrupulous practices, though, so it will be interesting to see how it all turns out. Hopefully the markets and investors won't be severely impacted.
Collapses into insolvency
Friend of mine as a Pockit Pre paid card and was emailed to tell him that the account would be offline for a while. This looks like affecting millions that use Wirecard as a alternative bank.
The future of German fintechs. There it goes.
Looking at it the wrong way - it’s not that cash disappeared, it is that the cash never existed. Therefore the issue is actually more likely to be fictitious revenue which inflated cash.
Not sure about Germany but in the UK we have the PSR and eMoney regulations which require firms to safeguard cash in segregated accounts. All the more reason that I’m certain that the cash was “inflated” from fake transactions and revenue which never existed. Like I say though not sure what kind of reg exists in Germany.
There were rumours apparently in 2008 that the Company is Worth zilch. All these accountants, fiscal auditors, public agencies... stupid as feck
I'm sorry, is this a publicly listed company? How did this slip under the radar?
Yup, publicly listed on the German stock exchange. How this slipped...no idea yet. More will come out later I suppose.
Me and my brother are caught up in this.
I have a Pockit account, the money in it is frozen.
Brother has an account with some people called card one money. The account is sort of split between a billing account and the card, that in normal circumstances you can move between one and the other. The funds on the card are frozen but he can still pay in/out of the part of the account with direct debits, standing orders or faster payments etc. He's moved most of his money out of that into a bank account in case the whole thing stops working.
I have a Pockit account, the money in it is frozen.
Brother has an account with some people called card one money. The account is sort of split between a billing account and the card, that in normal circumstances you can move between one and the other. The funds on the card are frozen but he can still pay in/out of the part of the account with direct debits, standing orders or faster payments etc. He's moved most of his money out of that into a bank account in case the whole thing stops working.
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Mind boggling. Most basic of audit procedures.
I'd assume there were bank statements although forged ones. Still: oh, you have 2bn on a bank account in the renowned global financial centre that is the state of Phillipines? Seems legit, let's not ask further.
The fictitious documents were bank confirmations of balance. If they’d requested bank statements they’ve have found it.
What makes this even more crazy is that there were suspicions and allegations surrounding these balances. It would be common practice to audit these bank statements, but in that situation where there’s already doubt it’s absolutely crazy that they didn’t.
The bank statements of a bank? Yeh feck that, I wouldn't ask either.
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Actually they weren’t bank confirmations. They were confirmations from a “trustee”. If they’d completed the actual standard procedure of requesting confirmations directly from the bank, they would have found the issue.
Ok. Even worse.
Yup. It’s normal practice in audit to write directly and independently to banks to confirm all cash balances.
If they had done this and the bank didn’t reply (which is not common anymore), that’d be a different story. But they didn’t even write. Which I think is fundamentally negligent.
I think a lawsuit has been filed against EY Germany by the investors for negligence of some kind. I’ve no idea if it’ll be successful, but something has to happen. The big 4 have been battered in recent years and I’ve heard long the arguments of audit being underfunded, conflict with consultancy work, not supposed to seek out fraud etc etc etc. This case blows all of those arguments out the water for me because it’s so very very basic. And clearly given the specifics of the case (the whistleblower accusations) so fundamentally important.
Wirecard can resume regulated activity
https://www.fca.org.uk/news/news-stories/requirements-imposed-wirecard-authorisation#revisions
https://www.fca.org.uk/news/news-stories/requirements-imposed-wirecard-authorisation#revisions