Wirecard files for insolvency after financial hole laid bare
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dw.com
What makes it even worse, in case of wirecard, their auditor EY had audited and certified wirecard's balance sheet for years with no objection. They were satisfied with a clumsy fake audit certificate for 2 billion euros in a Philippine account! For how many companies EY did the same? How superficially do they check their customers?
Unfortunately audit work, where the company decides on their auditor, has an in-built conflict of interests. If the auditor is too harsh/rigorous, then they risk losing the audit. If they're too lax and miss something material, then they risk lawsuits and regulator attention.
Then for large companies there's further complications liket doing the audit may preclude a company from doing other (more lucrative) consultancy work, or that large companies essentially only use one of 4 companies to do their audits, which leads to people rotating through that but little effective competition.
Does it ever pan out the way? I'm speaking of the liability on the partners. There have been a number of these in recent times involve pretty much all of the big firms.
How is this a thing ?
Disclaimer: work for Big 4 but in tech consulting, not audit.
So there's an incentive to audit correctly.
The race-to-the-bottom/die-at-the-bottom reward structure only prevents disaster if the racers are invested for the long term. The agents in charge will have a high tolerance for that kind of risk if they hope to retire/sell before the money train jumps the tracks. I don't know if that's a hazard this industry is currently falling into, but it's a likely failure mode if nothing sufficiently enforces agents taking a long view.
https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...
Seems like the two companies weren't very close even before that, the name change was required as part of a legal settlement with Arthur Anderson.
https://en.wikipedia.org/wiki/Accenture#Split_from_Arthur_An...
A lot.
Like a lot a lot.
The entire* commodities sector is built on promises like this.
The entire shipping and freight sector.
The entire commercial paper market.
Its promises, redundancies, assurances, and credit.
It usually doesn't go wrong. As long as bond holders get their 2% and common stock shareholders get wiped out, everything is A-OKAY.
(entire is hyperbole, the point is clear, don't be that guy)
Edited for spelling
Do the companies pick their own checkers?
this is how the whole world works! on relationships and clout, not technology and verifications. everyone at the bottom has to deal with those pesky assurances of credibility. others are just getting random people with law degrees to provide attestations saying that their client's document is legitimate.
OTOH, why does a German company keep 2 billion euros in a Philippine account, that’s strange.
>For how many companies EY did the same? How superficially do they check their customers?
Public perception of audits is basically a giant example of survivorship bias. All the stuff that auditor do catch generally gets fixed without it making the news. Cause you know confidentiality.
It's not a widget factory where six sigma is possible. It's a messy imperfect process, because well the global economy & most businesses are. 100% is about is plausible as demanding that all programmers globally write bug free code. It's just not happening.
That said...2 billion is like 1/3rd of the company assets. That's one hell of an oversight even in light of the above.
Worked for a fintech company a few years back that used Wirecard as the processor for one of their products. Somehow they managed to lose the PK/FK relationship between accounts and transactions (or something like that). A whole lot of our customers suddenly started getting other people's transactions on their accounts. It was the final straw that shutdown the entire product line and we moved on to other providers for new projects.
So, not at all surprised they don't know where their money is.
Something to do with using floats to indicate cardinality briefly plummeted, but was summarily dismissed.
Regardless, losing track of the numbers to accounts reminded me of this one place I worked where the transaction geese weren't recorded as explicit callouts on the transaction ledger, but rather had to be cross-referenced with final transaction amounts and the fee configuration for time period, but where the changing of fee configurations were not tracked with a granularity sufficient for resolving all ambiguity come audit time.
And I thought that was bad.
Typedef int64_t CAmount;
Static const CAmount COIN = 100000000;
Static const CAmount MAX_MONEY = 21000000 * COIN;
Just go give 2 ways of doing money storage in ints from Google's APIs...
For Google's Standard Payments APIs, we use micros: https://developers.google.com/standard-payments/v1/fops/bank...
> To represent a monetary value in micros, multiply the standard currency value by 1,000,000.
> USD$1.23 = 1230000 micro USD
Sadly, its different than other parts of Google with money/amount based APIs. GCP uses units + nanos: https://cloud.google.com/billing/v1/how-tos/catalog-api
> [UNITS] is the whole units of the amount. For example if currencyCode is "USD", then 1 unit is one US dollar.
> [NANOS] is the number of nano (10^-9) units of the amount. The value must be between -999,999,999 and +999,999,999 inclusive. If units is positive, nanos must be positive or zero. If units is zero, nanos can be positive, zero, or negative. If units is negative, nanos must be negative or zero. For example $-1.75 is represented as units=-1 and nanos=-750,000,000.
I keep imagining a Monty Python-esque skit:
"Was it stolen? We don't know."
"Was it spent? We don't know."
"Was it lent? We don't know."
"Was it transferred? We don't know."
"Was it burned? We don't know."
Coincidentally, or maybe not, the company's last fictitious balance sheet, which was published in November of last year, right before the scandal was revealed, reports approximately $2B in long-term debt.[a]
So, as much as Wirecard was in the business of processing financial transactions ($124B last year!), it was also secretly performing a magic act of borrowing money and making it disappear into thin air. In a way, it's been an "impressive" performance.
On a more serious note, I hope Wirecard's failure is not seen in hindsight as a "Creditanstalt moment."[b]
--
[a] https://ir.wirecard.com/download/companies/wirecard/Presenta...
[b] The failure of Creditanstalt, an Austrian bank, in 1931, marks the beginning of the Great Depression in Europe: https://www.bis.org/publ/work333.pdf
I’ll hazard that we’re seeing only the firsts in a wave of [cooked up] companies imploding.
[0] https://www.wsj.com/articles/massive-forgery-helped-hide-3-b...
https://news.ycombinator.com/item?id=23611347
https://news.ycombinator.com/item?id=23573386
https://news.ycombinator.com/item?id=23598824
https://news.ycombinator.com/item?id=23438323
This, from a year ago, reads interestingly now: https://news.ycombinator.com/item?id=19737344
It left me confused and unsatisfied.
It's going on, with a variety of companies, every day. The entire system is beyond corrupt. Regulators are siding with frauds instead of investigating them.
A major red flag of corporate fraud is attacking journalists and blaming "short-sellers". Have these entities ever caused the demise of a legitimate company?
Based on more recent photos, it was just a phase. Maybe the company fixed its issues before it got caught?
You realize that they probably have literally zero money?
The fact that you need something doesn't mean you'll get something.
Though when it comes to a buyer, hard to tell how they'll be able to get to a fair valuation given the fairytale numbers they have in their books.
I always pictured the court auctioning off assets in a firesale to the highest bidder. Is that not how it works?
Was just thinking of the people that rely on Wirecard for transactions at the moment, switching them off doesn't seem sensible for any outcome.
Bafin (german bank watchdog) just froze the accounts, incl. cards of Boon, which is a wirecard subsidary.
In Germany shortselling has an incredibly bad reputation. I think this is a problem.
If every man, woman and child in Germany chipped in $1,000 that still isn't a billion dollars.
In French we use Milliard for billion and Trilliard for Trillions (and millions for millions).
I guess I'm not rich enough, ahah.
N'ah! When it comes to big banks, big industry, big infra projects, German state institutions are super corrupt, it makes Wall Street and the City of London look like saints.
Nobody went to jail for any of those and in some cases it was never investigated. If you're on the DAX, you're untouchable in Germany.
[Translated from German] Christian Schwarz-Schilling had been Post Minister under Helmut Kohl since 1982 and launched the German mobile phone network at the end of the 1980s. His political understanding of infrastructure can be seen in a disturbing fact: Until a few hours (!) before he was sworn in as Post Minister - Schwarz-Schilling was involved in a copper cable company. He sold his shares to Nixdorf. The company was then "one of the most important newcomers in the cable business". Contrary to most expert advice, Schwarz-Schilling pushed the extensive investment in copper cable instead of fibre optics during his term of office, in other words: politically, he acted entirely in the interests of the buyer of his shares. In any case, exactly 30 years ago, SPIEGEL called the mobile phone licensing for which Schwarz-Schilling was responsible "a festival of lobbyists".
The fact that nobody got jailed for this obvious corruption is staggering to me and German politicians dare lecture Southern Europe on corruption.
That being said - we will certainly see a lot of fraud in other countries too. The fraud cycle follows the business cycle.
The broad classifications are probably alright, but I wouldn't pay much attention to the specific rankings.
€1.9bn is pocket money compared to Wall St's and the City's more creative frauds.
The UK is currently dealing with a government minister who was involved in questionable planning oversight for a single development scheme worth £1bn - and that's barely even a footnote in the news here.
Especially compared to - say - the suppressed Russia report, or the non-existent disclosure about the true sources of funding for Brexit, or the fact that the government wasted £12m on an app that does nothing, or the sum total of various other Brexit- and Covid-related contracts to various government cronies, donors, and associates, and which appear to have supplied nothing of value to taxpayers.
The mandate from the EU is that all kinds of stuff must be offered via tender europe-wide which is for many things a colossal waste of money and enviromental resources (e.g. a Polish company wins a tender for a construction project in Spain and now has to move all the machinery and staff through Europe and back, that's NOT sustainable!), and while government entities are allowed to judge bids by sustainability or profitability (i.e. purposefully offering an unprofitable bid in the hopes of making the profit with exploiting "change requests"), they rarely have the knowledge to do so.
If some costs aren't being priced in, then procedures should be changed to price them appropriately. I'm not sure the answer is to permit cosy deals between politicians and their patron companies, or depriving citizens of the services of best providers in the market.
Whilst you'd hope that lessons were learned, I'm not sure they were.
Don’t know if the OP is British or living there, but it’s possible that this is what’s happening and they don’t mean “all Germans ...” and just mean “The appropriate body in Germany the country ...
I don’t know how to explain it - you’d need to watch a World Cup with BBC and ITV coverage to see it in action. England have a special footballing history with Germany so it may be related to this.
Note: not implying this was what the original person meant, this is just a silly tangent :-)
In this sense, it's the Germans that need to learn something. It seems there is awareness of this[0].
Hopefully others will learn from it too, anyway.
[0]https://www.bloomberg.com/news/articles/2020-06-22/wirecard-...
When the FT and others started raising concerns about Wirecard's finances, BaFin took what I believe was an unprecedented step and sued the FT.
A better approach might have been to launch an earlier investigation into whether the allegations had any substance to them.
There also need to be lessons learned from an audit perspective. EY signed off on previous years accounts which now appear that they might have had issues...
Merkel might have to step in to clean this up -- it's embarrasing because of the number of German institutions that protected this fraud. The German Financial Regulator went after professionally accredited investigative journalists and seemed to indulge in other face palms.
The Munich prosecutor's office, which is already investigating Braun on suspicion of manipulating Wirecard"s accounts, said "We will now look at all possible criminal offenses."
The SEC had also data provided from professionals that Madoff is either fraud or a ponzi and always ignored it. The sentence above was enough that they did not further investigate him.
C'mon this is Europe... We are forgetting quickly here..
Trade on shares in the
company was suspended
If it only was suspended at the Frankfurt stock exchange which is mentioned in the article, it would be interesting to see how it is doing at other exchanges.
Google is still showing realtime Frankfurt prices. Currently at a market cap of about €350M.
And what is the reason behind that? Is it guaranteed that shares of a company that files for insolvency are worth 0? And therefore the exchanges want to save uninformed investors from buying them?
What actual percentage of the 100,000+ public companies around the world trade on another exchange?
Most of the DAX 30 in Germany don't even trade on another exchange. Adidas doesn't. BMW doesn't. Siemens doesn't (they were delisted by the NYSE in 2014.) Does any of the DAX 30 trade on an exchange outside of Germany?
As far as I can tell, only 8 companies in Germany trade on another exchange but maybe my source is wrong.
I said it was pretty uncommon, not that people couldn't name individual, rare examples.
That you can not trade the stock for now. Trading has been resumed. On many stock exchanges there are rules for this. Something very common.
> And what is the reason behind that? Is it guaranteed that shares of a company that files for insolvency are worth 0?
No. The company could recover, could get bought etc. As a stock holder you are the last in line. Should the company get liquidated, bond holders will have a higher priority for any money recovered.
> And therefore the exchanges want to save uninformed investors from buying them?
No. Please look up Hertz, the car rental company and what is happen recently the stock. They are bankrupt, people are buying the stock and Hertz was even allowed to issue more shares.
Eh, sort of. The bankruptcy judge said they could, but the SEC said they had some "questions" about the offering's prospectus and Hertz basically withdrew the offer after that. It's not clear whether the company actually sold any shares.
Since the company has filed for insolvency the shares can no longer be traded.
> Is it guaranteed that shares of a company that files for insolvency are worth 0?
When a company files for insolvency it means the companies total liabilities are greater than the total assets.
And when this happens the company is handed over to a liquidator and they then decide how to handle the companies future.
What the liquidator normally does is try to sell the company or parts of the company to other third parties.
With the proceeds of that sale they then pay back the debt.
Then if any money is left over they split that money between the shareholders.
But naturally since the debts are greater than the assets the shareholders will get very little of their original investment back.
Since the shareholders are last in the line for the money they tend to lose the most.
Trading had resumed by then. It was supended temporarily (for one hour) just before the announcement.