Wirecard, fintech fraud and supervisory blunder

Wirecard - Financial TimesJim Singh, am executive committee member of the Alternative Investment Management Association had an interesting summary of the Wirecard scandal.

  • The company was a credit card payment processor, and also the answer to California’s Silicon Valley.
  • In June 2020, Wirecard was admitted into the Dax, at double of Deutsche Bank’s valuation, before being quickly kicked out, because of a major scandal.
  • It turns out that the company was created by money launderers for the purpose of laundering criminal proceeds.
  • Wanted - Jan Marsalek - Munich policeThe company survived for two decades. Its admission to the Dax actually demonstrates “The abject failure of Wirecard’s auditors and the German regulators to do one thing: their jobs.”
  • In 2002, Germany created BaFin, a regulator to monitor financial frauds, in the wake of the Enron Scandal, but allocated only €6 m as a budget, enough for 14 employees.
  • When financial analysts (short sellers) reported to BaFin the likely wrongdoing of Wirecard, the regulator actually turned against the whistleblowers and opened investigations into market manipulations.
  • BaFin also defended Porsche and Volkswagen in their own respective scandals.
  • Wirecard’ auditors – EY no less – never detected any malfeasance, for decades.
  • The non-exec directors of the board never saw any malfeasance either.
  • The story only came to light because investigative journalists came out with the research (below) to confirm the malfeasance. The story is worth of the best spy novels – expensive attorneys, Russian connections, slush funds, fake surveillance stories, threats and many other treats.

Ft's WireCard cover stories

  • Worse, the BaFin regulators have survived the scandal and kept their jobs.

 

Fraudulent executives proceedings in their crime for years, retaliating against whistleblowers, with the support of the regulator, in a major developed country. What worse could you imagine?

That it happens also here. It would never happen, right? Your thoughts?

 

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Written by Gontran de Quillacq

Gontran de Quillacq is an expert witness and a legal consultant. He is a recognized authority in options, trading, derivatives, structured products, portfolio management, hedge funds, mathematical finance, quantitative investment, strategy research and financial markets in general.

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