advertisement
advertisement

Wirecard insolvency: What to know about Germany’s biggest tech fraud scandal

When $2 billion suddenly vanishes, people notice.

Wirecard insolvency: What to know about Germany’s biggest tech fraud scandal
[Photo: Flickr user Web Summit]
advertisement
advertisement

Until last week, Wirecard, the digital payment company that once had a valuation of $25 billion, was the darling of Germany’s financial tech scene. Then the company admitted that $2 billion on its balance sheet might be “missing.” Intriguing! Here’s what you need to know:

advertisement

What does Wirecard do?

It is a payment service provider, with clients including FedEx and KLM. Merchants use it to accept payment through credit cards, Apple Pay, Paypal, and others. The company began 20 years ago processing payments for gambling and porn websites. The giant now operates in English with a global footprint, supposedly massive Asia operations, and ties to numerous top banks.

What the heck happened?

Last week, auditors from EY said that they couldn’t locate $2 billion in accounts. It is likely that the funds never existed. Wirecard shares crashed; the company filed for insolvency; its longtime CEO, Austrian Markus Braun, resigned; and Braun was arrested this week on accusations of inflating profits and misrepresenting the company to investors. He is released on $5.7 million bail.

Why do we care?

In the wake of Brexit, Germany is trying to position itself as the financial center of Europe. It is très embarrassant that German officials did not investigate earlier. The Financial Times began reporting financial irregularities at the company in 2015, which set off behind-the-scenes cyberwar: Hundreds of journalists, analysts, and others who questioned Wirecard’s dominance received years of phishing and hacking attacks. Competitors like Paypal have enjoyed a stock boost.

How is the Philippines involved?

The accounts holding the $2 billion were supposed to be in the Philippines. The Financial Times traveled to one Wirecard address there last year, and discovered the home of a retired seaman and his family. Wirecard sued The Financial Times. Authorities there are currently looking for Wirecard’s chief operating officer, Jan Marsalek, a fellow Austrian who was a protege of Braun.

What’s next?

It’s not looking good. Wirecard was unable to reach a deal with its lenders, the company said in a statement today, and it expected a termination of loans totaling 800 million euros on June 30 and another 500 million euros on July 1. “The Management Board has come to the conclusion that a positive going concern forecast cannot be made in the short time available,” the company added. “Thus, the company’s ability to continue as a going concern is not assured.”