German Wirecard saw its shares plunge by as much as 60% after the payment company revealed that €1.9bn ($2.1bn) was missing just as it was about to file its financial statements for 2019.
The missing cash represents roughly a fourth of the business’ total balance sheet. Its auditor Ernst & Young (EY) refused to sign off on the accounts as it could not confirm the existence of the money.
There could also be signs of foul play as Wirecard admitted that there were indications a trustee had made “spurious balance confirmations” in order “to deceive the auditor and create a wrong perception of the existence of such cash balances or the holding of the accounts for to the benefit of Wirecard group companies,” according to a statement provided by the company.
“The Wirecard management board is working intensively together with the auditor towards a clarification of the situation,” the company added.
If left unresolved, the payment company will be unable to file its financial statements for 2019 this week. If the financial statements are not filed by Friday June 19 then loans made to Wirecard worth about €2bn ($2.24bn) could be terminated, the company said.
“All parties involved are endeavouring to clarify the matter as quickly as possible,” Markus Braun, CEO of Wirecard, said in a statement. “It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred. Wirecard AG will file a complaint against unknown persons.”
But not everyone seems convinced of Braun’s statement. “Markus Braun has brazenly tried to portray the company as a victim of fraud and instead tried to focus investors on apparently strong reported revenue growth,” Barry Norris, of asset manager Argonaut Capital, the hedge fund, told Sky News. “If the cash balances are non-existent then logic would also suggest that current trading is equally fictitious.”
The news comes at a particularly perilous time for the beleaguered Munich-based company. Over the past year it has faced accusations of fraud and criticism for its accounting practices.
Wirecard’s stock price plummeted by 30% back at the beginning of 2019 as the company was facing reports about an alleged accounting scandal at its Singapore office. The scandal dated back to a Financial Times report that alleged that a senior executive at the company had forged and backdated contracts. The news outlet cited a whistleblower and internal documents. The report claimed $42m was moved in and out of Wirecard subsidiaries and external companies.
The FT then continued with reports that an external law firm had found “serious offences of forgery and/or of falsification of accounts”, claims that Wirecard denied days later when it said that the law firm had so far not found anything suggesting criminal conduct.
Wirecard also threatened the FT with legal action for “its unethical reporting” that covered “unproven and false allegations”, according to a CNBC report at the time.
This latest setback could also have wider ramifications for the sector as a whole. Since the launch in 1999, Wirecard has been hailed as one of Germany’s biggest FinTech success stories and a crucial member in both Visa and Mastercard’s network. At one point the company worth more than €24bn and even replaced Commerzbank in the German blue-chip index. Since then its market capitalisation has fallen to just €6.5bn.
Copyright © 2018 RegTech Analyst
