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Wirecard – The “German Enron”, and a personal history

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Re: Wirecard – The “German Enron”, and a personal history

#11

Post by blibble »

chewz wrote: post #2

> Lessons to be learned * even a pretty obvious fraud can go on much longer than one would think if the organizers are ruthless enough. My original short position would have gone against me 25x over 12 years and the share price even after today’s disaster would be higher than back in 2008 (just to be clear: the company is worth ZERO in my opinion) * a company that goes against people who write negative articles as ag…

amusingly: back in 2019, when journalists pointed out irregularaties in the company's accounts, the German Financial regulator's reaction was to ban short selling of their shares... and then issue legal proceedings against the journalists

> On Monday, BaFin banned further short selling of shares in Wirecard, the Dax-listed payments services group. The stock has dropped steeply after FT reports raised questions over the validity of accounts. The German financial regulator said its first ever ban on shorting a single stock was needed to prevent a loss of confidence in financial markets.

https://www.ft.com/content/f04793df-43a2-4d69-a39f-e04dac36c... has the full details (but paywall)

Re: Wirecard – The “German Enron”, and a personal history

#13

Post by nabla9 »

chewz wrote: post #2

> Lessons to be learned * even a pretty obvious fraud can go on much longer than one would think if the organizers are ruthless enough. My original short position would have gone against me 25x over 12 years and the share price even after today’s disaster would be higher than back in 2008 (just to be clear: the company is worth ZERO in my opinion) * a company that goes against people who write negative articles as ag…

Another:

* They tie big names into the firm to get credibility. Hire them into the board, or pay them good money for short term consulting gigs.

Examples:

1) Gen. James Mattis was in Theranos board. So was Henry Kissinger and George Shultz.

2) Enron paid Paul Krugman $50,000 to attend at least two times in advisory board meetings, nothing related to Enron business. What Enron really bought was the ability to say Paul Krugman was in the advisory board. https://www.princeton.edu/~pkrugman/enron.html

Re: Wirecard – The “German Enron”, and a personal history

#14

Post by bradleyjg »

luckylion wrote: post #9

> In 2019, the boss of the supervisory board hired KPMG mainly to independently confirm that everything is splendid at Wirecard (E&Y is the auditor of Wirecard). So, will anything happen to E&Y, or do they just get to say "we didn't know that was fraudulent, we just did what we got paid to do"?

Arthur Andersen went out of business after Enron and the big five became the big four. Maybe that was a good outcome in terms of accountability but there needs to be some effective process for promoting new members if we are going to keep culling this club.

Re: Wirecard – The “German Enron”, and a personal history

#16

Post by ThePhysicist »

It might still not be the biggest scandal in the recent history of Germany: From 1993-1999 a company named Flowtex caused 4.2 BN Mark (roughly 2.1 BN € or even 3 BN if adjusted for inflation) of damages with a remarkably simple fraud scheme: They would claim to produce horizontal drilling machines (which allow you to e.g. put in tubing for cables without completely opening up roads) that they would sell to leasing companies they controlled themselves. Those companies would then lease back the machines to FlowTex, which would supposedly provide them to construction companies. The lease-back of the machines allowed the leasing companies to get bank loans to fund the buying of the machines. That alone would be legitimate, the problem was only that most of the machines existed only on paper, FlowTex simply sold the same machines over and over by just changing the serial number plates on them. So overall a pretty simple pyramid scheme which required FlowTex to sell more and more non-existant machines to cover the leasing costs it paid. When it eventually collapsed the scheme had caused a massive amount of damage to banks and the state. One of the reasons it could go on for such a long time was that FlowTex had good connections to the state government and the CEO Manfred Schmider and his company became so famous that they were considered "too big to fail" by banks and even the tax authorities, so they didn't act for a long time even though it was apparent quite early that something couldn't be right. In the end the Portugese authorities tipped off an investigation when they discovered FlowTex had supposedly bought drilling machines from a company in Portugal that went bankrupt a long time ago.

And while Manfred Schmider went to jail for a couple of years he apparently still managed to move a lot of his assets overseas and comfortably lives on Mallorca today. I'd not be surprised if Wirecard turns out to be a similar case, it's just hard to imagine that they really got defrauded by their banking partners and that a company of this size would simply entrust 1.9 BN € to some random lawyer based on the Philippines, this is almost certainly a cover-up story.

Re: Wirecard – The “German Enron”, and a personal history

#17

Post by yellowstuff »

chewz wrote: post #2

> Lessons to be learned * even a pretty obvious fraud can go on much longer than one would think if the organizers are ruthless enough. My original short position would have gone against me 25x over 12 years and the share price even after today’s disaster would be higher than back in 2008 (just to be clear: the company is worth ZERO in my opinion) * a company that goes against people who write negative articles as ag…

Enron is one example of how these things can turn out, but Herbalife (HLF) is another. HLF is a multi-level marketing company; they're a shady company in an inherently shady business; they have far-flung operations; they aggressively went after people expressing negative information; they had questionable accounting; and there were eventually regulatory rulings against them. But they also are a profitable business that sells stuff that people want to buy. They started getting a lot of press over being a fraud in 2012, today the stock is 30% higher than the 2012 peak, and Bill Ackman lost around $1B shorting it before he gave up.

"Fake it til you make it" isn't just for tech startups. A lot of companies juice results with a bit of fraud, but eventually get good real results anyway. It's hard to tell the difference between an outright fraud and a healthy company with aggressive accounting.

Re: Wirecard – The “German Enron”, and a personal history

#19

Post by andi999 »

pjc50 wrote: post #12

Is there a good summary of Wirecard for those of us who haven't been paying attention? Was it an inherently fraudulent business, or a regular payment processor whose managers were skimming, or what?

I am looking for the same. Might be too early to tell though. What I got seems to be: WC started out as a payment processor who was not afraid to work with fringe clients, other payment processors wouldnt work with. Then somehow the money volume went up high. Now this extra money is not where it should be.

Re: Wirecard – The “German Enron”, and a personal history

#20

Post by corty »

pjc50 wrote: post #12

Is there a good summary of Wirecard for those of us who haven't been paying attention? Was it an inherently fraudulent business, or a regular payment processor whose managers were skimming, or what?

Regular payment processor, payments went through and I didnt hear of customer accounts vanishing or anything. But with abnormally high, unexplained growth and growing rumours of something being wrong over the last 3 years or so. Impressions got worse when required audits didn't pass more than once.
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