Wirecard CEO exits as search for missing billions hits dead end in Asia | Hacker News Reader

Wirecard CEO exits as search for missing billions hits dead end in Asia

reuters.com

409 pointshhs261 comments

NPR's Invisibilia did a really interesting show/podcast on one of the biggest short sellers of Wirecard and how he has been harassed for the past few years. I highly recommend people listen to if if they are interested in this crazy Wirecard tale! It's titled "Trust Fall"

https://www.npr.org/transcripts/868001948

Chilling! That would scare the heck out of me.

“Never threaten to cost someone more than it would cost to have you killed.” is a reasonable rule to live by.

That seems like a rule that would have a terrifying chilling effect on a lot of legitimate lawsuits.

You also have to factor in the feasibility of that someone being able to get away with murder, then you must factor in how valuable a couple decades in prison is worth to them, and how prone they are to taking such risks.

> You also have to factor in the feasibility of that someone being able to get away with murder

How would it matter to the person in this example? They're already dead...

I was just pointing out it is not just a monetary issue and most of the successful criminals are intelligent actors.

I disagree, this discounts the martyr

With the important caveats of 1) the implicit costs of murder-for-hire are probably pretty high (risk of going to jail, e.g.) and 2) killing someone doesn't necessarily make the lawsuit go away—though that doesn't help the person being killed.

So the utility formula is something like:

  (p[c] * c[f] + c[a]) ÷ p[l] > c[l]

  where:
  p[c] = probability of getting caught
  p[l] = probability of the lawsuit being dropped
  c[f] = value of your freedom
  c[a] = cost of an assassin
  c[l] = cost of losing the lawsuit

You can layer in additional probabilities—like the probability of the assassination being successful, or the probability of winning the case. This is just fun to talk about the utility formula of assassinations on HN.

But it's probably true that as c[l] increases, c[f] increases as well, and p[l] drops. So it's rarely (never?) worth this trade-off.

You forgot 'probability that your opponent reasons matters like this out rationally', which is a big one I think.

Which, if you want to get pedantic—and yes! let's get pedantic!—probably correlates with a lower probability that the assassination isn't successful. Because if they're irrational, they're going to end up meeting an undercover cop in the parking lot of the local K-Mart or something.

See also: Tiger King. Which is probably the best citation and the best thing I'll type all day.

Ah yes, Tiger King, a well balanced documentary that presents an in-depth look at the practices of murder for hire, and not a lurid tale of entertainment so Netflix can make more money. Popular media, especially shows like CSI and Law and Order, have an incentive to show the rich white folk how resolute the government is, and just how much no one could ever get away with murder. The reality's a bit different, and as recent events have shown, the police aren't above murder anyway. They protect their own and accept murderers in their ranks. So, an ex-cop or current cop is probably the best person to properly incentivize to commit murder.

For them, `p[c] = probability of getting caught` expands to a[c] = probability of getting caught a[b] = probability of there being no repercussions despite getting caught.

But if we're gonna base today's lesson on how to get away with murder on the show Tiger King, the two step lesson it teaches is: 1. own a tiger sanctuary. 2. feed your husband to the tigers for lunch.

One of them was convicted, and the other wasn't. Sure that's not proof of anything, but it's more than just the netflix documentary that says he did it.

They might also try to kill you themselves. Honestly I think most murderers (or would-be-murderers, or people who [try to] hire murders) are probably not thinking about their situation rationally. Phrased another way: most murders are not rationally motivated. Therefore I don't think the 'rational analysis' approach to predicting who might try to have you dead is likely to work well.

There are exceptions to everything but I think in general the more erratically somebody behaves, the more you should be concerned.

Your daily lesson in economics and its utter lack of morality!

But wait! It's not just the basic lesson of despair, here we have a bonus lesson: it's an equation where the actual values are impossible to determine, just like virtually every economic equation.

Logical, and I host most of us are able to live a life of such privilege. In desperate times, however, there are those who are forced to stand up for what they believe is right, and not to simply roll over. The fight with my HOA on my right to put in a trampoline is not worth killing over, but people like President Lincoln, Mahatma Gandhi, Martin Luther King Jr., and Alexander Litvinenko have faced problems that were.

I had an idea for how to deal with that sort of harassment. There's no point in the harassment unless the harassee knows where it's coming from. But revealing that would allow Wirecard to be caught. So you have to play a game of "WHAT'S THAT? I'M HARD OF HEARING! YOU'LL HAVE TO SPEAK INTO THIS MICROPHONE!" And make public pronouncements that you don't know who's harassing you. Could make a good premise for a comedy. Willful ignorance.

If what people say matters to me depends on who they are and what things they've accomplished (relevant to the context) Anything that doesn't follow that format just makes me laugh.

> There's no point in the harassment unless the harassee knows where it's coming from.

The harrasser doesn't have to say they're doing it, though. The victim probably knows who it's from even if it's completely anonymous.

That's the point of the pronouncements.

If the harasser thinks you haven't put two and two together yet, they have two options.

1. Quit 2. Be more obvious

1 is what you want, 2 is better evidence in court, win-win.

Or they can not play your game and keep doing what they are doing as it is working. Just because you say they only have two options doesn't mean it is true. There are almost always more options available to others than you can think of, and in this case it is fairly obvious.

> Or they can not play your game and keep doing what they are doing as it is working.

I was assuming a hypothetical where you can convince them you actually don't know who is doing it. Obviously if they think you do know, the whole thing changes.

> There's no point in the harassment unless the harassee knows where it's coming from. But revealing that would allow Wirecard to be caught.

Not really. If you look at the circumstances around this fraud, it's clear that "they are harassing short sellers" would have been just one more grain on the pile of evidence that was willfully ignored as it was going on, or one more legal violation for authorities to look the other way on.

It's not just Wirecard, there are very often media reports of short sellers or whistleblowers being targeted for harassment by companies while they are engaged in ongoing fraud and it rarely makes any difference to broad public perception or regulator action.

Makes me think of a big US automaker that doesn't like short sellers.

This was one of the groups hired to conduct some of his harassment: https://citizenlab.ca/2020/06/dark-basin-uncovering-a-massiv...

I wonder who hired them. Sure, it could be the CEO of Wirecard, but it could also be another large shareholder. Given how ridiculous this story is and how Germany's regulator BaFIN has done such a horrendous job looking over Wirecard, I would believe it if they were somehow complicit. I guess only time will tell, though.

Any shortseller with a lot of money would have an interest in bringing them down sooner rather than later.

Their financial trickery was exposed in early 2019 and then was overwhelmingly confirmed by the end of 2019.

If you were trying to make some money on their stock tanking, timing it would have been anywhere from extremely difficult to impossible.

The KPMG report was a good moment. As was earlier this week when EY refused to attest the 2019 balance sheet. Maybe not perfect, but still enough profit potential if you ask me.

Short sellers seem to be a much more reliable indicator of something corrupt going on in a company than the big auditors. You could be forgiven for thinking they are in on the scam and working to keep the director's bonuses rolling in right until the final months before a company collapses.

I suppose governments couldn't ignore the obvious forever and they are being forced to actually doing their job now.

In the UK Carrillion comes to mind as a big one, and more recently Thomas Cook. There have been many others.

https://www.parliament.uk/business/committees/committees-a-z...

One notable exception appears to be Tesla. But is it being shorted by the same (apparently quite rational) people?

I suppose there are a lot of reasons to short sell a stock, and as a laymen I always felt it was just traders manipulating the stock market casino at the cost of real businesses.

Not sure who was/is shorting Tesla, maybe they just don't like Elon, or maybe there is something going on.

With the "big four" accountants/auditors seemingly being corrupt, and governments ignoring this, or worse being complicit, how else can the financial health of a company really be known?

It now comes down to a hedge fund with the skills to do so realising a company is cooking their books, shorting it as quietly as possible. Then they drop their PDF on Twitter and watch everyone else get screwed.

Rather than EY/KPMG etc. doing their job and warning investors/regulators before the problem gets so big it crashes the stock.

Another example, NMC Health being shorted by Muddy Waters at the end of last year, a FTSE 100 company with EY as the "auditor" since 2012.

https://www.telegraph.co.uk/business/2020/02/17/nmc-health-f...

My understanding is, that short sellers look for reasons to assume a company is over-valued (for whatever reason), calculate an more reasonable evaluation and then short sell for that value.

Doesn't mean it is always fraud. Oesn#t mean they are always right. But more foten thn not, they seem to be very rational about it. Given the amount of money they are moving around, they better are.

For Tesla, it means that, more likely than not, it has nothing to do with Elon. And more with things like:

- Is Tesla a car manufacturer or a "tech" comapny? If the former, it is over-valued, if the latter, it is much less so.

- Some, I'd say questionable, business deals. E.g. the Musk family bail out of Solar City, the sometimes not so clear intercomapny lending between Musks enterproses (SpaceX, Tesla,...)

- Musk seeming lack of focus on Tesla, he does work drectly on a lot f other ventures in parallel

- Musk's pubic behaviour, which seems of compared to other CEOs. Especially in the car industry, which has again a ot to do with the first point

- Corporate governance, that seems to be abit strange in Tesla's case. Normally, when publicly traded comapnies have that kind of trouble with the SEC, it is a bad sign.

Sure, Musk plays a role in all of that. But liking or not liking him is, IMHO, the least reason why someone would put millions at the table to short Tesla.

Regarding the big four, so. If you think back to the time before Enron and SOX, it was a lot worse. Since then, the Big Fur had split up operations, auditors have to change every coupe of years.

That being said, they could a lot stricter. I was way to deeply involved in one audit once, and I wouldn't have signed of balance sheet. Well, they kind of did only bcause the subsidiery I was involved in contributed a tiny fraction and everthing else added up. But still.

Also, Wirecard is a German company, so a lot of the SEC rules don't apply. Doesn't make it any better so.

If you think Tesla is an exception, perhaps you should revisit your assumptions. Their story is not over,it is just beginning.

These stories all work the same way: "Obviously there is no fraud here, this is a short seller scam!" to "this company was always a fraud, obviously." Most people have their head in the sand on the way up, and pretend they knew all along when it implodes.

Every major fraud looks that way.

BaFIN is very much shorthanded, their typical approach is to let go until things get out of hand, they simply do not have the manpower to do pro-active oversight.

Lots of companies that you would expect to be regulated operate entirely on self regulation, and that of course doesn't work at all in the longer run. Increasing the BaFIN budget and making their salary structure comparable to industry salaries would do a lot of good in this respect.

This guy literally called them, multiple times, to their whistleblower hotline asking "Do you speak english?" "Of course, what's up?" "So I've been looking into Wirecard..." "Oh sorry, no, we don't speak english" (hang up).

That's not being short handed, that's being negligent. They knew something was up with Wirecard, and they actively tried to ignore all the warnings, and now all stakeholders have lost ~80% of the share value.

So yeah, the DAX is a joke and Germany is a banana republic.

That's not negligent, that's malicious.

German regulators in short: "we see no evil, we hear no evil. We will only rain penalties if someone else does ALL the work/investigation, and the shit will hit the front page of some major newspaper/website, in which case we cannot play dumb any more." (these are airquotes - not actual statement)(to avoid any lawsuits).

Just have a look at the penalties that DB have been hit with over the years, the dieselgate fiasco and you get the spirit on how they work. External auditors for German companies follow the same approach. It is not negligence, it is complicity.

At the same time they have the super tough privacy rules, I had to fly to Germany for a client (not DB or VW), to review some SOX docs, just to realize they were doing (what I call) "photocopy audit", they just copied last year's tables, they used tipp-ex to change dates and remove names and signatures, and they were the same files to send outside Germany. Oh the shock and horror when I asked for the originals (client couldn't say no anymore)(I wasn't removing/copying data, just reviewing and taking sanitized notes with me).

They cannot be that stupid. I don't buy this.

Not only German regulators are like that... The bigger the country, the more absurd things get... Think Madoff, mortgage-crisis, etc.

“The Big Short” and “Fooling Some of the People All of the Time” are quite interesting reads in that respect.

And as one Finance professor once put it: “If you do business or buy stock in ‘the far east’, P/Ls and Balance Sheets are just fake”. Having seen what is done in some countries - yes, it’s insane.

“ Increasing the BaFIN budget and making their salary structure comparable to industry salaries would do a lot of good in this respect.”

Alternatively, it might just bump up the salary and bonus of existing employees while truly smart people avoid it due to structural issues.

I am wary of the default line that “Thing that sucks is due to poor funding.” Sometimes that is true. But I would like to see more support for that line of reasoning to better understand.

I don’t think money is the only motivator and I’ve worked with organizations that claimed that money was the cause for poor morale and poor performance. But when I dug into it more, even the areas where money was the same as other orgs the morale and performance off.

Often the bad salary is why something sucks, but raising it isn't enough to fix the problems that salary stagnation caused.

The one example is Singapore, where it is possible for civil servants to do so well that they earn millions of dollars annually, and the country does rank extremely high on most development and performance metrics.

In many cases people quit managers

> Alternatively, it might just bump up the salary and bonus of existing employees

I am afraid that this won't help. The current employees are already used to this passive and unchallenged/unchallenging mode of work, giving them a raise will not move the needle. You need (sorry for the Dilbert-ism) a paradigm shift. Either get 10 contractors and they can define a new baseline-speed, or get 1 director, 2-3 managers, 5-10 new staff from the private sector, that they will redefine processes/speed/scope etc. and the existing staff will either have to pick up their pace or slowly be substituted (one-at-a-time). I have seen this happening many times in the private sector when a M&A happens.

It wasn't just short sellers. Journalists at the Financial Times were also harassed and threatened, including by the German authorities, for their skeptical reporting on Wirecard. There were absolutely abysmal performances by German regulators, Ernst & Young auditors, and the vast majority of the financial media, who ran cover for the fraud long past the point where it became pretty obvious.

The fact that Wirecards claims against the FT weren't laughed out of court, well at the front door, is just stunning. I guess Germany was just happy to have a high profile, highly successful FinTech. And that resulted in some reluctance to look too closely. Not acceptable, either way.

That was fun to listen to but NPR programming always seems to have a grating turn in the middle of "gosh isn't it crazy how people in society don't trust anyone any more??? Not professionals or the government or even police!" and it's like, yep, institutions have continued to epically fail people at large, please stop playing clueless NPR.

If any story shows the utter untrustworthiness of (the vast majority of) the media and government authorities, it's Wirecard. This will probably be further reinforced by a relative lack of serious consequences for everyone involved.

At one time, I listened to NPR for hours every week. After 2016, something in them seemed to snap, and after listening to one of their anchors going after the 538 guy as if he and his industry were fully responsible for Trump's election, and demanding some sort of apology I resolved to give them a dew months to come back to their senses. I still listen to them regularly, they regularly put out good journalism. But when I came back to them they just sounded absurdly out of touch with the rest of the world.

I'm still not entirely sure whether it's because my worlview expanded, or because theirs narrowed.

If all one has is CNN, MSNBC, Fox, and NPR then NPR feels like a (somehow calming) ocean of truth. I think starting circa 2013 there were a few huge stories which made people realize that the "hard-hitting" journalism they were reading wasn't all that hard-hitting. Snowden revelations, all that money in the cayman islands, then the whole lot of nothing being done about either.

Below is a comment I made a year ago on HN about my favorite NPR story:

------

Growing up I though of NPR as a bastion of the left but the older I get the more cynical I become. Your take reminds me of the most infuriating story I heard on NPR about Amazon Seasonal workers.

They spotlighted a retiree couple would supplements their income with it in the winter and drives south to gamble in the summer and it just sounded like a profile of a charmed life, somehow I imagine that isn’t the case for most people who work there...

They have monthly fundraising drives where they ask listeners to pay up for fearless journalism but a lot of it sounds like it was written by and for entrenched industries. https://www.marketplace.org/2017/12/21/business/holiday-seas....

Meh, I don't think it's necessarily 'hard-hitting' to point out that seasonal work doesn't provide a year-round paycheck. There's a whole lot of work in this world that inherently falls way outside of full-year full-time 9-to-5 Mon-to-Fri norms -- and there's not anything inherently wrong with that.

I recognize that not everyone has to live in a cookie cutter mold of my preferred lifestyle. I personally think that an exposé of workers who are underemployed better belongs in a story about social policy, education, culture, or small business than it does in a story about Amazon. Amazon is hardly the inventor of seasonal work, and they pay considerably above market for an unskilled job.

My point of about hard hitting stories was that NPR either doesn't have them or or when they do they remove the teeth by virtue of the perspective they choose.

Take this Wirecard NPR story, Matt owns the Shadowfall company which itself holds 500 million in assets[1]. His situation feels awful, and you should empathize with the man, but god after listening to NPR for several years you wonder why so many protagonists are millionaires.

Bringing up the Amazon-NPR story was just tying together where I think NPR especially fails: I don't think NPR lies, or even covers the wrong topics, they just cover them with an establishment centered perspective.

Take Amazon seasonal workers: why not cover how Amazon extracts huge wealth out of communities and in place gives jobs that pay little with littler benefits?

Take Wirecard story: perhaps short selling is an awful way to hold companies accountable and what we actually need is a SEC company with teeth.

Another favorite of mine which I think pulls it all together was during the passing of the Trump Tax Cuts. All Things Considered's lead story was that the cuts were good and just at the wrong time. I heard this during rush hour, so NPR prime time![2] During a time of great change in fiscal policy the radio station Trump supporters most loathe is out there politely questioning the timing of his decisions.

[1] https://www.companysearchesmadesimple.com/company/uk/oc41560...

[2] https://www.npr.org/2017/12/04/568392909/is-this-the-right-t...

Why is anyone downvoting this--can one not express a personal experience? It you disagree, comment.

I definitely don't want to dismiss your experience but I have a hard time understanding:

"after listening to one of their anchors going after the 538 guy as if he and his industry were fully responsible for Trump's election, and demanding some sort of apology".

I'm sure Nate Silver wasn't actually blamed for election results and I'm sure no one actually demanded an apology. Can you smooth the hyporbole a bit and explain what they actually said that made you feel that way?

A very good thread summarizing what happened in this massive fraud:

https://mobile.twitter.com/DonutShorts/status/12736903626080...

Expect more revelations in the coming year or so:

> "Only when the tide goes out you find out who has been swimming naked" - Warren Buffet

> "The fraud cycle follows the business cycle" - Jim Chanos

Since years there have been allegation of fraud towards Wirecard. [1] I cannot understand how they even managed to make an IPO.

[1] https://translate.google.com/translate?sl=auto&tl=en&u=https...

They didn't just IPO, they were included in the DAX 30! In addition, Wirecard claimed to be vastly more profitable than their competitors, but they never actually explained how they made all their money. There was certainly enough smoke to warrant an investigation, but regulators were asleep at the wheel.

"No one knew how they did it. One theory was that they were active in more “risky” areas such as online gambling and porn sites but no one cared as long as reported profits and the stock price went up."

That's actually the explanation. 10 years ago I ran a small project and they were the only Payment Service Provider that agreed to work with us. At that time at least in Germany there were no Paypal and Stripe to directly process Credit Cards etc. for small websites. IIRC their fees - especially for refunds - were much higher than those of competitors. Refund rates are normally in the sub percentage but they would accept higher than usual refund rates without cancelling the account. It's easy to start a business in an area where there is a vacuum of competitors.

(FWIW I think cancelling the account with them to switch over to Paypal took almost 2 years...)

I have trouble to see the risk with processing payments for online porn. Sure, some institutions might have a "moral" issue, but otherwise? Gambling could be different, so.

PornHub has an enormous problem with sexual trafficking and child abuse, which means that financing PornHub exposes you to serious legal liability (and an unambiguous moral responsibility). So it's not just institutional prudishness - online porn is full of vicious criminals.

Wow so I guess Facebook needs to be classified as high risk as well? Please don't spread misinformation like that.

I guess there are a lot of chargebacks from people entering their details for "trials" as well as stolen cards being used.

> I have trouble to see the risk with processing payments for online porn.

Huge number of chargebacks. A previous employer of mine had a subsidiary that handled premium rate SMS and phone call billing, a lot of which was adult services. You'd see a huge amount of contested charges, for reasons such as:

* Buyer's remorse (get drunk, wake up the next day, realise you spent $500 on porn)

* Unsupervised minor - your kid "borrows" your credit card for some online "research"

* Outright fraud - stolen cards, etc.

This varies quite a bit. I was the CTO of a very large porn site in the mid-2000s and our chargeback rate was tiny - a small fraction of a percent. That fact didn't help us avoid high-risk categorization, though.

The only time I've ever suffered from "stolen id", not even cards or accounts, was with an online porn company that sold the account in arrears to a collections agency. The agency even admitted they had nothing linking me to the transactions other than my name, but demanded I pay up. A stern letter fixed the problem from my end.

Yeah this is probably a big part of their business. I recently shopped around for a merchant account for a similar market and Wirecard reps were willing to work with me and would allow us to process big numbers.

Also last year Deutsche Bank gave the CEO a €150 million personal loan using his Wirecard stock as collateral.

This isn't a case of a few errors and lack of a little due diligence.

Just for the record, Deutsche Bank is a private company with the majority of stocks owned by non-German investors. It is not to be confused with the Bundesbank, which is something like the German FED.

it's a public company, its shares are tradeable on exchanges

"Private" and "public" companies don't have the same meaning in our side of the Pond. In France, "public" = "state-owned" and "private" = "not public".

Oh, wasn't aware of that. Not that I'm surprised that is Deutsche Bank. They have a long track record of shady dealings reaching back to, as far as I remember, the 90s.

"Bank of America", anyone? (Just talking how that name could also be misunderstood, I have no idea if they're scumbags or not).

> Also last year Deutsche Bank gave the CEO a €150 million personal loan using his Wirecard stock as collateral.

That kind of stuff is pretty common though, Elon Musk has about 15 billion dollars, 100x that amount (!), of his Tesla stocks posted as collateral for personal loans: https://www.theverge.com/2020/5/8/21252487/elon-musk-persona...

And Deutsche Bank is a big player in this kind of business, remember their involvement with Trump?

Honestly why do banks accept this collateral when underwriting a loan? Stocks are known to be volatile, aren't there more stable assets you should collateralize (e.g. inventory, real estate)?

Depends on advance rate. Loaning 20% of the value of the collateral seems pretty safe on average.

It's common, but the problems at Wirecard have been public for a long time and will be even more well known in the industry so you would imagine that due diligence would have questioned the potential value of his collateral against such a loan.

Regulators were definitely not asleep at the wheel. They were apparently actively defending them, for instance by attempting to sue the Financial Times for reporting on the irregularities.

Being asleep at the wheel would be an improvement. Last year, BaFin -- the german regulators -- investigated Financial Times for market manipulation (ie, reporting on Wirecard's suspicious accounting practices).

https://aboutus.ft.com/en-gb/announcements/ft-statement-on-w...

Agreed. Ignorance would be more ideal than corruption.

You can hide a lot of things in an international crime organisation.

IPO'd via reverse merger, according to MSN article linked to from other post https://news.ycombinator.com/item?id=23573350 :

"Wirecard's origins date back to 1999, when its Berlin-based predecessor InfoGenie was founded. Wirecard listed its shares on Frankfurt's stock exchange through a reverse merger with InfoGenie in 2005."

ft's reporting on this story has been great throughout. I would recommend anyone looking to get more background to read the solid investigative pieces Olaf Storbeck and Dan McCrum have done over the past few years1[1]. they deserve a lot of credit for pursuing this likely enron level accounting malfeasance story to the top.

[1] https://www.ft.com/content/d080c3fc-c561-11e8-8670-c5353379f...

When the $WDI scandal is viewed in the context of many German banking frauds & the VW stock rigging by Porsche, investors can rightly ask whether German financial regulation is anything but a fig leaf.

The same could be said for many financial regulators all over the world -- clubby relationships with financiers, vulnerable to lobbying, "looking the other way" when there are signs of problems, letting the big fish off the hook while coming down hard on small players, etc.

In some countries it's much worse, with outright fraud involving the regulators themselves.

This also shows how inefficient government legislation is when the potential risk and impact punishment of being caught is low. These companies and all the people (not only few) should receive a substantial penalty. I think it is was not really sufficient in the VW case. We will see how it is going to be with WD.

The common thread in all of these are post-hoc discoveries of irregularities. In many cases, these are carried over many years and months without being detected. If one needs to address this issue, a near real-time approach would be needed. Otherwise, such operations will continue to take place.

Way too expensive to regulate in real time and the sample size for regulating is pretty low. What you need to do is make the punishment for bad behavior strong enough to minimize fraud. I would like to think most actors are good actors and we take the bad actors and make an example to the rest of the industry what to expect if caught. It will always be a cat and mouse game.

If the chance of getting caught is low, I'm not sure stronger penalties make that much difference. See the drug war for example.

General criminology finds that the certainty of punishment so long as it is non-neglible relative to the rewards is what matters more than the magnitude as most criminals don't think they will get caught unlike others.

It’s almost impossible to do that in real time. The problem is fraudulent activity can often be hidden behind a smokescreen of legitimate behavior, and stratigraphic investments can look overpriced. Apples acquisition of NeXt must have looked all kinds of shady at the time.

Like Madoff and his financial regulation friends in the US...

But the difference is that the US has harsh punishment and a system that learns from its mistakes. In Germany, bad actors are usually involved with the highest political circles and nothing ever happens. See the "cum ex" scandal, which cost the tax payers something like $36b and Germany just let it continue for years after taking notice.

The U.S. is one of the few countries that actually prosecutes financial fraud. Here in Canada we've quietly become the world's money laundering leader, or at least second only to Switzerland and there's essentially zero resources dedicated to any kind of enforcement.

North Dakota is now the worlds capital for hiding money.

North or South Dakota? Have heard a lot about South Dakota trusts, but nothing about North.

Judging by the variety of answers on this thread alone, I'm going to assume that if random internet commenters all know that a place is the most secure, secret place to do something illegal, it probably isn't really.

The first rule of tax shelters...

When you see Citi 'headquarted' in Sioux Falls you know something is up. ND, SD, NV, AZ, UT, FL, TX--one seldom gets a warm and fuzzy feeling of reassurance from these business addresses.

Banks it makes sense. SD doesn't have usury laws, and multi-state banks can charge interest based on their home state's laws.

As to what the other states get you, I'm not sure.

How is it better (or worse!) than Delaware? Reporting requirements for Delaware C Corps are pretty lax from what I have seen. I even recall reading somewhere that few Americans were ensnared by the Panama Papers scandal [1] because they could just register in Delaware.

p.s., Sorry any Delaware residents. You live in a very nice state.

[1] https://en.wikipedia.org/wiki/Panama_Papers

You mean the one that nails people driving on interstates with toll booths for driving about 20 miles in the state?

This state should be called the "land of trolls"

s/Canada/Vancouver; #or maybe Toronto

Not a lot of money laundering coming through NL or SK

"harsh punishment and a system that learns from its mistakes"

... what?

But that's when you make most money. Regulators are salaried individual, what's the incentive for them to do their job properly?

Think about if a regulator looks the other way, he is seen as incompetent - many times you'll not be punished for incompetence at work. But this benefits the corporate player and he can offer benefits to the regulator like private jet (for his family/friend use), maybe access to a resort where the regulator's family can stay during vacation or maybe an apartment in some posh locality where the regulator's kid can study abroad.

People are acting in their self interest.

You've salary and ethics Vs luxuries and loyality from the rich man who is unlikely to go bust.

Thing is you can choose to not coperate but that only increases the price and the rich man goes for your boss then you get in trouble as boss is cooperating with them and he may fire you.

I once dated a very rich and powerful lady in Asia and she could solve all problems with just 1 phone call - that was amazing, she new everyone everywhere it felt.

With respect, I do question whether an auditor overlooking financial irregularities is actually acting in their self-interest.

Do you know any regulators?

Yes I know a few guys in customs who are paid to look other way and they use CHA to benefit from such thing (so they aren't directly involved by indirectly involved through CHA) when caught they blame it on people working under them

That seems illegal. Who's looking the other way on that?

In most countries customs is a law enforcement agency (exercising the government’s policing power) not a regulatory agency (exercising the government’s policy-making power).

Late stage capitalism in a nutshell.

Are there any honest, reputable operators in the financial industry?

Between Enron, S&L, Lehman, WorldCom, AIG, Wirecard, Madoff, VW, gold price fixing, 1MDB, and all the "lost" BTC stories - among so many others - it seems like a question that needs to be asked.

I mean not all of those companies you listed are in the financial industry. VW didn't even commit financial crimes, it was regulatory fraud. I don't know if the 1MDB is in the same league either, that's plain government corruption.

I feel like if you're going to ask that question then focus on dishonest financiers and not every business that has broken the law.

You forgot HSBC

+Countrywide, Indymac, and Bear Stearns

There are degrees of this issue; any business handling money is going to attract fraud, the question is how well the internal controls deal with it and whether management are in on it.

At one end is Lehman, which was incredibly over-leveraged and only slightly fraudulent ( https://www.accountancyage.com/2010/12/21/ey-sued-over-lehma... ), but set out to be a legit investment bank. AIG is in a roughly similar category. There was some fraud: https://www.sandiegouniontribune.com/sdut-gen-re-aig-trial-0... - but the collapse was due to leverage.

At the other end are Madoff and 1MDB, which were intentionally fraudulent from the beginning.

The "lost" BTC stories are just off in outer space; the bitcoin ecosystem doesn't acknowledge fraud or accounting control as a concept, because that goes against "code is law" and transaction irreversability.

> the bitcoin ecosystem doesn't acknowledge fraud or accounting control as a concept,

Neither do banks. Transferred means transferred. They had to be regulated into KYC. I don't recall the reason, wether it was fraud or terrorism.

> I don't recall the reason, wether it was fraud or terrorism.

Interesting question to procrastinate with :) Apparently it was both, it started with measures to prevent money laundering by the mafia, with the Federal Deposit Insurance Act of 1950[0]. The current regulations are a result of 9/11 and came as part of the Patriot Act[1].

[0] = https://authenteq.com/the-evolution-of-kyc-part-2/

[1] = https://en.wikipedia.org/wiki/Know_your_customer#Laws_by_cou...

You can get it back with a court order (or less) most of the time for domestic transfers. IBAN transfers are more of a problem.

(In the UK a lot of bill payment stuff is done by direct debit, which has a better "guarantee" agreement on getting your money back)

Real people lost a lot of BTC on Mt Gox, so I'm not sure how the BTC stories are in outer space.

Apart from that, the second half of your first sentence is exactly the question - is fraud endemic to this industry, and actually central to its operation?

The popular perception is that the industry is somehow fundamentally honest with a few bad-actor exceptions.

Considering how regularly fraud happens, how damaging it is, and how rarely it's flagged by auditors and regulators, I think it would be useful to question that view.

Or to invert the polarity - how many significant potential frauds have been prevented by auditors and regulators, or by paperwork theatre like KYC?

Are there any? If so, how do the numbers compare with the number of frauds that blow up into real financial and reputational damage?

>Real people lost a lot of BTC on Mt Gox, so I'm not sure how the BTC stories are in outer space.

That was the fault of Mt. Gox, not bitcoin. Also the fault of uneducated users, don't leave your bitcoin sitting at an exchange.

^ This is what I meant by the bitcoin community defining fraud as "not fraud, also your fault"

You clearly don't understand how bitcoin works.

Saying Bitcoin is flawed because Mt. Gox got hacked, is like blaming the manufacturer of your car because it was stolen when you left it in parking garage with no attendant, and left the keys in the ignition with the window down.

There was no technological flaw with bitcoin itself, there was plenty of technical flaws with Mt. Gox web site.

Right, and Enron, E&Y style frauds were the fault of those companies, not fiat money.

But ask a BTC True Believer and they will talk about how inherently flawed money is with respect to this because of how people act, and yet BTC is not inherently flawed despite how people act.

Fraud like this isn't common, is it. I think there's a question of scale. There are tens of thousands of banks in the world, and hundreds of thousands of financial firms in general. Perhaps more. Money goes missing on this scale once in a blue moon compared to how much is processed.

Yes, but they are usually considered lame and boring.

And aren't in the news for that reason. So most of the news is about the exciting people doing exciting things, often with other people's money.

I searched for the name of (IIRC) the third biggest Swiss bank on HN now. No stories ever, one comment, and that comment was basically a list of banks. That bank exists, though, it just isn't named when people talk about scandals.

Then there's systematic fraud between those players. Two that come to mind are the Libor manipulation (in the $ trillions) around 2006 and the subprime lending fiasco in 08.

The rats will cooperate if it lets them steal more.

Given that there's tens of thousands of such companies, and you can list a handful of bad ones, I suspect the vast majority do reputable and honest business.

Seems more likely that those who run financial services are motivated primarily by money, and that all such institutions are corrupt to the core because they're always prepared to break regulations/laws/ethics of there is sufficient monetary gain. All the big name financial companies have recent irregularities AFAICT.

Well, there's two kinds of people - those that are happy with what they earn (saving under a mattress or (maybe) in a bank), and those that want to have more unearned profits and invest their savings / pensions in the stock markets (or other businesses).

You mainly hear about the latter kind, and finance is in particular an industry that's targeting them. When people want something (profit) out of nothing (little to no work carefully picking investments, instead just give your money to someone else), there's a lot of people willing to sell them "something" that's really "nothing".

The gold market is too large for anyone to fix the price. Not even central banks are capable of doing that. It's a paranoid fantasy concocted by incompetent traders looking to blame someone else for their losses.

Err https://www.reuters.com/article/us-barclays-regulations-gold...

Massive fraud? But an independent auditor just confirmed their financial position is 4x better than Tether. /s

Hey, massive does not mean the biggest out there :). I can't wait to see how the Tether story ends.

Tether's story ends only if the owners get too greedy and exit scam OR if a large minority of people holding tether decide to cash out -- which shouldn't happen since such whales benefit from tether and other cryptocurrencies money laundering operations.

Also, given that there are days when tether issued 3bln dollars to prop bitcoin, I'm sure the owners have made a lot of money by manipulating other legitimate cryptocurrencies prices.

Actually didn't catch much of a summary at all there. Just winners and losers?

same. not really a very good thread.

It's less a summary of "what happened" (which is already quite familiar to most of the shorts and FinTwit types who follow DonutShorts), and more of an accounting of who dropped the ball and who was on the right side of the Wirecard fraud.

Try this, it's the entire thread in one page: https://threadreaderapp.com/thread/1273690362608078848.html

Still doesn't help. It doesn't say at all what actually happened, expect for a vague mention of made-up cash.

The original link was already the entire thread on one page. The problem we're complaining about is that the thread very clearly isn't intended to say what happened. No effort is made in that direction; there is not even a hint that it was a goal. It's about as appropriate of a recommendation as an unrelated article in National Geographic.

> > "Only when the tide goes out you find out who has been swimming naked" - Warren Buffet

What does this mean?

The emperor’s clothes exist in a super-position of both existing and non-existing. When the tide goes out, this results in the wave function collapse of the super-positional state of the emperor’s clothes, thus demonstrating the observer effect on textile systems.

Just a joke. It means that you can’t tell who lost their shirt til all the bubbles are drained from the pool, and we’re left with ourselves, each other, and our new shared reality.

It means that it's easier to cheat when times are good. But when there's an economic downturn (tide goes out, in the metaphor), that's when concealed problems can't be hidden any longer.

Assuming naked swimmers wouldn't continue to swim as the tide goes out, you would find them laying on the sandy beach with their no-nos hanging out.

Unless the swimmers are to comfortable in the water to see the tide going out. In which case they are caught with their pants down, well without pants to begin with. The smart swimmers are drinking cocktails by then, courtesy of SoftBank more often than not.

That it's easy to hide or overlook financial problems in a good market. Once the market is tougher, those problems come to light.

> Losers con’t: E&Y – One word: cash. If your audit can’t confirm the cash in the bank, you need to find another business. Full stop. E&Y is the auditor of record in two other major suspected frauds

Not sure I get this. The news reports also seem to claim that E&Y rejected to sign the balance sheets. Or was that just after everything went haywire?

EY had been WDI's auditor for well over a decade. They only now refused to sign after KPMG wouldn't give the company a clean bill of health in April. Obviously, these shady practices didn't just start in the last few months, so there are clearly things that EY should have flagged much earlier, but failed to do so. And for that, they will be on the hook.

Thanks for clarifying. Confusing story if you’re just starting to get into it

> A very good thread summarizing what happened in this massive fraud:

> https://mobile.twitter.com/DonutShorts/status/12736903626080...

Huh? I read the thread. It calls out a bunch of people who were involved; it doesn't discuss what happened at all.

Wirecard's massive fraud has been documented for over a decade, but the German financial oversight group BAFIN refused to do their job and investigate the fraud claims: https://valueandopportunity.com/2020/06/19/wirecard-the-germ...

There are some real lessons here about journalism, efficient markets, govt oversight, and truth prevailing in the very long run.

Not only that, the German financial regulatory response was to ban short selling of Wirecard’s stock.

The German financial regulators also launched a criminal investigation into the journalists investigating and reporting on the fraud: https://www.ft.com/content/8e1948be-6060-11e9-b285-3acd5d435... Their handling of this was nothing short of asounding.

And some people claim that EU is so much better than the rest of the world in terms of governments and legislation.

Oh my. I thought Germany was a shining star in the EU, but not any more.

In finance and fintech, many in Germany like to think of themselves as a bit of an underdog compared to London, New York and so on. This can be a dangerous source of moral licencing.

Yeah, just look at Deutsche Bank and the trouble they managed to get themselves into.

https://www.theguardian.com/business/2019/apr/17/deutsche-ba...

Berlin Brandenburg Airport[1] makes Boston's Big Dig and San Francisco's Central Subway look good in terms of infrastructure efficiency.

[1] https://en.wikipedia.org/wiki/Berlin_Brandenburg_Airport

No paywall at: https://archive.is/ysED2

In the BaFin's defense:

- The accusations of FT journalist McCrum as well as the initial "bombshells" of shady "researchers" (that no one ever heard of before or thereafter) weren't really red-flags but rather came across as construed (the contents of those bombshells are not necessarily tied to the missing billions)

- some of the outspoken short sellers have a shady history as well

- What else should the BaFin as well as prosecutors do if there are witnesses that claim to know about FT, or someone connected, offering them future dates of incriminating articles to be released? Banning short-selling for a limited amount of time was the reasonable thing to do.

- Simultaneously the prosecutors started investigating against WDI and the BaFin opened investigations weeks/months ago against WDI CEO and its leadership for cases of market manipulation (due to their communication in recent months), so they aren't exactly biased

OTOH:

- the aforementioned paints BaFin at least as slow to respond (I've had contacted them about other ponzi's in the past and it often took years (5+) until arrests were made).

What is clear:

- there is a high degree of criminal activity involved

- it can't be a single person pulling this off

- and at least one of them must be in the upper-echelons of WDI

Whether or not Braun is that one will make all the difference for shareholders.

What is beyond me:

How the hell do you as a CEO manage to not see missing billions and/or not inform shareholders, clients and employees about that until the very-last day legally possible?!

If you're extremely guilty you keep going until the music stops.

They were probably attempting to weasel their way out of it by raising extra cash (which they did recently) and stuff like that. However at some point their lawyers probably told them they will go to jail unless they come clean now so they did. What I don't understand is why nobody has been put in pretrial custody up to now.

I may be falling victim to Braun's non-existing aura, but I wouldn't be surprised if it was one of his buddies capitalizing on his trust.

It was repeatedly bemoaned that in the case of WDI, a blue chip prime standard stock, worth more than any German bank (as of yesterday morning) was managed like a Mittelstand family business.

It is really weird that WDI's management board was almost completely staffed with former fellow students (or people who are affilliated with people he knew) from Austria, people who often outside of WDI had no job experience.

In the best case this is just due to unicorn-growth. In the worst case, they are all in this together. Probably, it is something in between, that they we're unfit for the big game and one/some of them took advantage of it.

Usually, when reports are wrong journalist retract them. That you get sued over it by government authorities is, AFAIK, a first in Germany.

There's a difference between "getting sued over by government authorities" and government authorities investigating suspicions.

The "getting sued over" part didn't happen. Public prosecutors investigated – and didn't filed suit. At least for now (I doubt they will).

This misrepresentation of such a small but important distinction (sueing vs. investigating) is one that was also repeatedly seen in short-sellers tweets in the anglo-sphere.

One of the short sellers called BaFin's whistleblower hotline to report them the proof they had of the fraud.

- "[short seller] Do you speak english?"

* "[BaFin] Sure of course.

- "[short seller] I have proof of Wirecard's fraud..."

* "[BaFin - interrupting] Wirecard? Oh sorry no we don't speak english. [hang up]"

And that right there is indeed BaFin's fault. They are at best negligent and at worst a malicious entity, that has scammed many investors out of a lot of money.

TBF: I know enough German to answer the phone and give some answers to basic questions, but not enough German to make on-the-record statements about some important legal issue.

I mean, I ultimately agree BaFin is shady as hell here, but I can at least imagine a scenario where someone thought "wait I thought we were going to talk about something routine my language skills are not good enough for something this sensitive".

> "wait I thought we were going to talk about something routine my language skills are not good enough for something this sensitive".

On the international whistleblower hotline of the financial regulatory agency? At least they could have connected them with somebody, or tell them to send an email somewhere, but hanging up doesn't sound shady to me, it just sounds lazy :P

It doesn't sound shady? Shouldn't they be very interested in the information?

> Shouldn't they be very interested in the information?

Yes, public servants should be interested in doing their job properly.

In Germany at least, they are un-fireable, so it isn't unusual for many of them to just being counting the days until retirement. Some "harder" task arrives? Sorry can't do that - what are you going to do about it? I can't be fired.

They should have translators on call for any of the official spoken languages in the EU.

However, considering it's a department that deals with complicated legal issues, my experience living in Germany tells me there's a decent chance the person answering the phone knows formal English better than the person that called.

If they didn't listen they didn't want to listen.

Interesting, you got a link? In my dealings with BaFin they were rather open and capable (but slow to act).

https://www.npr.org/transcripts/868001948

thanks. tbf the original quote is:

"EARL: I phoned the whistleblower line there, and I said, do you speak English? Yes. Then as soon as I mentioned Wirecard, they then said, oh, actually, I don't speak very good English. Could you call back? Or then another time, the phone just went dead."

Which kind of confirms trowawaygh's spitballing.

Anyways, this specific short seller's account sounds more like its going to be part of a movie.

The handling makes perfect sense if you assume that they have been compromised. Compromised in the sense that their primary job is optics, not regulation.

That's common though, the SEC did a lot of short selling bans in the 2008 financial crisis.

The SEC had stock bans on companies accused of fraud?

Don't forget the messed up incentives. The only people that did their jobs were the short sellers (who have their incentives set up correctly). Everyone else involved in this story deserves to be fired, bankrupted, or thrown in jail.

> only people that did their jobs were the short sellers

And the whistleblower and the journalists.

It's tempting to wonder if perhaps elements in the German political and financial establishments were profiting from this, and the CEO will be the fall guy.

It seems extremely organised and well-protected for alleged fraud.

Usually fraud relies on personal/corporate reputation. But when you have both lawyers and hackers being employed to take down critics and investigators, it's reasonable to ask questions about regulator collusion and political influence.

Being outside the Anglosphere omits a considerable amount of accountability in the west.

I call Hanlon's razor: "Never attribute to malice that which is adequately explained by stupidity".

The problem was that German politicians were extremely desperate for at least one large-scale German "new tech business" success story, and Wirecard seemed to be the only candidate that on the face of it appeared to fit the bill. That blinded them to the obvious and made them see an anglo-saxon conspiracy to keep German tech down behind every reasonable story about Wirecard.

In my opinion, it shows the dangers when national protectionism and picking winners intrudes in the supposedly neutral business of regulating critical businesses.

You should also never attribute to stupidity that which is adequately explained by greed.

There is also a saying usually when discussing stock trading: "Gier frisst Hirn". Greed eats brains.

When fraud is too brazen it becomes difficult to believe the accusations because the claims are so outrageous. Especially when a company looks respectable and employs many people the natural instinct is to dismiss the naysayers and critics.

Short sellers and investigative reporters are natural contrarians. There just aren't many people willing to invest years into proving that everybody else is wrong, especially when the victory -- if you get one at all -- will be pyrrhic.

When you make claims that are outside the overton window of the listener they can't hear what you're saying because to them you sound unhinged. I think that's what happened here.

>A Pyrrhic victory is a victory that inflicts such a devastating toll on the victor that it is tantamount to defeat.

I don't think that term applies to short sellers or investigative reporters. When they win, they profit. John Carreyrou's career and reputation have surely seen a boost from his work on Theranos, no?

Yes, I believe the point was more toward BaFin and German authorities or investigators.

It's interesting thing to realize, short sellers might be good control for the market.

From the Twitter thread by @DonutShorts linked in another comment..

> In summary, the $WDI fraud has all the features of today’s highly evolved art of corporate financial fraud. Its scale, duration, and brazenness (faked cash!) highlight just how free a hand financial fraudsters enjoy to ply their trade.

> It also exposes just how deep the rot is in the realms of regulation, accounting, securities exchanges, and (with important exceptions) almost all of the financial and business media.

> BaFin – their reputation as a financial regulator lies in tatters. The entire leadership of the organization should resign immediately. Merkel should launch a sweeping investigation.

> Taken as a whole, the ‘circling of the wagons’ by the German regulatory, business and media establishment around a long running and obvious fraud casts a large shadow on the integrity of the German economy.

> A fraud this big and blatant can only persist for this long with the assistance, either active or passive, from a wide range of enablers. They all need to be named, shamed and suffer the consequences of their complicity for the good of the financial markets.

> BaFin – their reputation as a financial regulator lies in tatters. The entire leadership of the organization should resign immediately. Merkel should launch a sweeping investigation.

We have a bunch of oversight organs that don’t do much overseeing and opt for overlooking instead :/

I believe the easiest explanation here is that the group was heavily invested in the stock under question.

As I mentioned in another submitted story: SoftBank really knows how to pick them. It invested 1 billion about a year ago [1].

[1] https://www.bloomberg.com/news/articles/2019-04-23/softbank-....

But not directly. WSJ wrote "Funding came from personal accounts of a group of SoftBank employees and an outside investor."

Doesn't make it better, does it?

Who knows whether that investment actually happened at this point...

It's definitely better for SoftBank.

Got a file not found with the link above, but this [1] is a few hours ago: "SoftBank Support for Wirecard Under Scrutiny After Meltdown"

[1] https://www.msn.com/en-us/finance/companies/softbank-support...

Do we consider a softbank investment to be a red flag at this point?

corrected link: https://www.bloomberg.com/news/articles/2019-04-23/softbank-...

Which has me a little bit worried about Flexport... SoftBank seems to be a good indicator or trouble.

What a strange situation. WireCard immediately looked dubious when I did some research about it last year (as a regular stock investor) and I often stumbled over opinions like this one https://www.deraktionaer.de/artikel/aktien/markus-krall-luft... (German, sorry) where somewhat reputable people said they would never consider investing into WireCard, without giving a specific reason. The business model of a payment provider is straightforward and ought to be hard to get completely wrong, "what's there to be afraid of that nobody wants to speak about?", I was wondering. In hindsight it's like everybody knew or had a gut feeling something was fishy but decided not to talk about it.

Not much recent HN discussion on this. Some here: https://news.ycombinator.com/item?id=23438323.

But this, from a year ago, reads interestingly now: https://news.ycombinator.com/item?id=19737344.

Looks like the fraud was even worse than what last year's FT investigation was suggesting.

Originally it was just a few million transferred between multiple subsidiaries to fake sales figures to meet quarterly projections. Now actually "losing" billions of dollars sounds much worse.

I guess where there's smoke there's often fire.

Wirecard has been accused before of fraud by so called "short sellers". The document published (2 years ago?) showed a tremendous, extraordinary complex network of international corporations. Such complex setups have a very limited purpose. It can basically be only tax "optimization", hide fraud or hide ownership (UBO). After having seen this PDF I would not touch the Wirecard stock.

By the way, I think Alibaba is opening two new corporations. Per day. You may also want to read at Bronte Capital about Alibaba.

Can you remember any keywords to find that pdf or link with the multiple company set up about this?

Thanks for the alibaba tip.

No I dont. Wirecard went very aggressively against the accusations. The discussion board where it was discussed removed the link since Wirecard were suing everybody.

Could have been this one, but I am not sure. Just peaked into it and did not see the page with all the interrelated companies.

https://www.scribd.com/document/301557004/Wirecard-pdf

And there's Masayoshi Son and SoftBank, plowing $1 billion into Wirecard a year ago, for a 5.6% stake.

Mr. Enabler seems to have secured a prime seat for many of the big frauds & scandals in tech from the past few years.

At this point regulators should just be tracking SoftBank to watch where they've stuffed the Saudi money (or in this case, it's a very unusual UAE & SoftBank financing arrangement).

Bloomberg story out right now:

"The meltdown at Wirecard AG is raising questions about the company’s complicated relationship with the troubled SoftBank Group Corp."

http://archive.is/ipWck

My favourite SoftBank investment was the automated pizza van thing.

I can only hope SoftBank had shares in a failing robotics company that it needed to funnel money to

The pizza van guy was active here on hacker news right? I remember seeing posts from a robot pizza guy. Shame they got caught up with softbank.

I don't think being caught up with SoftBank is the issue. More that SoftBank have a subset of very negative indicators in their selection process

It seems that lack of a remotely viable businesses model and trying to scale things that don't are are common SoftBank flaws. Like WeWork and the countless scooter and ride share at a loss companies with little true barrier to entry and can hardly pay for themselves while infamously underpaying their workforce.

"Pizza robot makes 300 pizzas per hour" https://news.ycombinator.com/item?id=21127795

"SoftBank’s $375M bet on pizza went bad fast" https://news.ycombinator.com/item?id=22337057

Either SoftBank is some brilliant money laundering scheme or them investing in something is sure sign it would fail.

I haven't heard of any good investment they have made.

Alibaba? They turned $20 million into $60 billion with that one.

Broken clock is right twice a day.

There are 1.9 billion EUR missing, not sure if the implication is that they were stolen or never existed in the first place. I also can't really think of any possible explanation for this to go so far when the banks in question say that the account never existed at all. It doesn't seem believable that anyone seriously investigated the potential fraud in the last months or years, and the scandal has been public for a while now.

You cannot believe how sophisticated fraud can be. There was an amazing fraud scheme in Germany in the 1990s by a company called FlowTex. Their business was selling drilling machines for the oil and gas industry.

The amazing part about the fraud was that they sold 3000 drilling machines, but only about 300 actually existed. You would think it should be easy to simply count the existing drilling machines, but they changed the serial number plates and presented the same machines over and over again to investors and auditors. Just unbelievable that this worked for a few years.

https://en.wikipedia.org/wiki/FlowTex Saw a documentary with the founder the other day, served 7 of a 12 year prison sentence.

Interesting here is a documentary on this https://www.youtube.com/watch?v=fQ5m0Gv-xKM

It makes me wonder if a life of white collar crime is worth it... Before MEGA, Kim Dotcom was someone who took investor money and spent it lavishly (his website had a lot of photos of luxury cars, villas and parties), skimming his Wikipedia, it says he only got a suspended sentences from the German courts...

Wirecard is issuer of most crypto debit cards

https://cointelegraph-com.cdn.ampproject.org/c/s/cointelegra...

Slightly awkward tweet from him:

> We are overachievers. Wirecard’s business is going strong into the future and we are very much looking forward to a successful year.

https://mobile.twitter.com/_MarkusBraun/status/1228257269567...

Old tweet

Feb this year. Not old.

Well, he said pretty much the same thing today: https://mobile.twitter.com/_MarkusBraun/status/1273974132531...

Can someone please explain to me how 1.9B can go missing? I'm probably too naive, but I really don't how that much money can get "lost".

It was never there.

Bloomberg article from yesterday[1] phrased it as "[..] auditors couldn’t find about 1.9 billion euros ($2.1 billion) in cash [..]" and "[..] were unable to find accounts [..]"

I, too, was wondering what to think. How can I imagine to be unable to find an account?

[1] https://www.bloomberg.com/news/articles/2020-06-18/wirecard-...

As I understand it Wirecard had a written confirmation by two Phillipine banks that there is 2 biion in desposits. E&Y got suspicious, because the confirmations arrived really fast, much faster thank banks usually take to issue these papers. So they sent a guy in the Phillipines to the banks to investigate. The banks claimed that there are no deposits and the documents were issues by an employee without authorization.

Acquiring Chinese companies will do that.

The proof was bank statements about 2 accounts on philipinian banks. Those where bad fakes as E+Y noticed:

- arrived to early (usually takes month)

- issued in € not $

after calling up one of the banks:

- 2/3 signatures fake

- 3rd signature by a person not authorized to sign it

So someone definitely made these statements up in a criminal act. This account does not belong to wirecard directly, but to a trustee or something, which seems to be a normal practice. So in theory he could have stolen the money.

However even the choice of this lawyer is fishy, he specializes in family law...

More fishy stuff know even last year: https://www.ft.com/content/cd12395e-4fb7-11e9-b401-8d9ef1626...

Anyone remember L&H, the famous computer translation company that went bankrupt in 2001? At one point they had a whopping market capitalization of almost 10 billion US$!

IIRC they also claimed that a large sum of money somehow got missing in Asia (South Korea I think). But given that the management actually went to jail, it seems the fraud actually originated in their headquaters in Belgium.

I didn't when you wrote L&H, but on searching and finding it was

https://en.m.wikipedia.org/wiki/Lernout_%26_Hauspie

I do indeed remember them and their software.

I didn't remember them by name but after reading the wikipedia page, I remember they are the company which acquired Drangon systems in liu of a large number of stocks.

If I remember the story correctly the founders of Dragon Systems sued the bank that handled the acquisition. They claimed the bank convinced them to take stock and not cash at a point in time when the same bank already had been preparing for the inevitable bankruptcy of L&H. They lost because M&A was considered a different branch of the bank and not supposed to know about the imminent bankruptcy.

BTW: The founders of Dragon Systems are a married couple with an interesting bio too.

It’s a shame that this company is part of the DAX, Germany’s large cap index of its 30 largest companies. I hope they get expelled soon

They already are, their participation drives down with the market cap :D

On a more serious note - Merkel will have to do some serious firing and locking up in prison. At least I hope she does that, if not frauds will only multiply.

Merkels party CDU is very much the political arm of the corrupt old boys network. E.g. her former minister of finance, now head of the Bundestag, Schäuble, was deeply involved in a corruption scandal. Currently that same network seems to rear its head in the Amthor scandal.

Therefore I doubt very much that a lot of firing and locking up will happen, just some token amount with a sprinkling of shuffling positions and failing upwards...

We really do need some process where by the accounts of large companies are reconciled with reality. I understand completely that this is not possible for all the numbers investors want to see (Profit is made up after all). But there should be a requirement to report certain hard numbers (cash revenues and cash held for instance) that should be audited and correct to the penny on a given day. If a business claims to have received 1m $/£/E in cash sales, they should be able to show their accountant credit transactions for that amount and 0.1% of those should be checked by calling the customer and confirming they paid the money. The same applies for cash on hand on a historic day.

Nothing will make fraud impossible, but right now it's just so easy...

They basically do this now (or are supposed to) but only once a year for the annual audit. It gets complicated when you have related party transactions, where separate private companies that are secretly controlled by the CEO can claim that they owe money to the main company. Eventually these things get found out, like in this case, but by then a lot of investors can lose their money.

Which is exactly the usual audit procedure - a sample of account balances and turnover is tested (i.e., confirmed) with the counterparty as part of testing.

Can anyone recommend a good overview read of this whole thing? I seem to have missed it all.

There is none yet, but there is enough material for a Netflix mini-series.

The article didn't have more details on it but it seems like EY didn't sign off on accounts after KPMG report indicated fraud. Shouldn't the blame lie on EY as well, as they failed in their job as an auditor, shouldn't they have been the ones to found as they had all the internal info while auditing.

Sorry for my ignorance, according to the source, Wirecard hired KPMG last year to conduct an independent audit to address allegations by FT.

Why would anyone who run the fraud hired an auditor to expose their fraud? Do they think they can get away with it? Why not just ignore the allegations?

As reported by the German press:

https://m.dw.com/en/wirecard-ceo-markus-braun-resigns/a-5387...

Centralization and scale are amazingly efficient but when things go wrong it similarly scales all the way. But hey, at least it wasn't 2.3 trillion this time.

2 Billion? Isn't that just a regular burn rate for a fintech startup? I'll assume this company just gets some funding then continues on its way.

Who's gonna fund a company that just exposed itself as having fraudulent accounting?

SoftBank

When people think about a billion dollar exit for a startup founder, not exactly this picture comes up :-)

Ah, crypto and fraud, peas in a pod.

Someone explain to me why MS was forced to allow competing browsers and today Apple forces you to use their own browser engine?

Isn't that a double standard?

I mean, I can, but this is probably the wrong thread.

You're also slightly off about "allowing" competing browsers. MS never limited other browsers in Windows; you were always free to download another (and there were others). It just gave IE an absurd inside track by including it FREE with Windows and making it the default, which was hugely damaging to Netscape (which, at the time, was charging money for a browser; yes, this sounds bananas today).

This was a textbook example of monopolistic behavior, since at the time Microsoft OWNED computing. There wasn't another viable platform. The Mac was, at the time, circling the drain. Desktop Linux didn't exist. If you wanted a computer, you ran Windows, full stop. MSFT was leveraging their enormous monopoly power to give them a monopoly in another market (browsers), and that's a big anti-trust no-no.

Apple has nowhere near that kind of market power. The iPhone is a minority player in a huge market -- much bigger than the PC market Microsoft dominated in the 90s. Android holds a majority position there.

This means Apple doesn't have a monopoly. You can, and people do, buy something else that allows you do configure basically whatever you want. Apple isn't distorting or damaging the phone/mobile market with their behavior, as MSFT was.

Apple definitely DOES have enormous influence and power in mobile computing. That's very true. But because they are a minority player, they don't control the market. And so there's no real legal argument on antitrust grounds to compel them to do anything differently.

Desktop Linux definitely did exist. I distinctly remember running Slackware with a pirated AccelX server in fall 1997 and messing around with Red Hat (first released in 1995) around that time. The lawsuit was filed in 1998 and arguments were in 2000/2001.

I get that it existed, but it wasn't really an option for regular humans.

Was this an issue just because Netscape charged for their browser?

Microsoft includes a lot of stuff with the OS, from calculator, file manager, rudimentary word processor, ... How is a browser any different? I understand now we know that the ads and search engine control became vital but I doubt it was predicted at the time. Maybe the regulators believed MS was trying to get Netscape out of the business only to start charging a premium for IE.

Partly, because MSFT deliberately included a competing product in the OS for free to destroy Netscape's business, and doing this from a position of near-total control of the ENTIRE personal computing market is literally the definition of monopolistic behavior.

Is Google not doing the same thing as MS by not allowing plugins on mobile Chrome, and dropping APIs used by ad-blockers are they not using the dominant market share in one market (browser/ smartphone) to support their other market - ad revenue ?

But Google isn't a monopoly. That's the difference.

Using your market position to gain traction in secondary markets is okay, as long as you aren't in a monopolistic position. Then it's predatory, and will get you in trouble with regulators.

I think this is the wrong thread bub

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