Wirecard; Ever Heard Of It?
Recently, I was giving a virtual ethics keynote speech on fraud and a participant raised an important virtual question: “Chuck, when a huge company commits fraud, like an accounting scandal, how do they work together to get away with it?”
My response was initially a simple one: “Have you ever heard of Wirecard?”
He hadn’t, and it became an interesting topic of discussion.
About Wirecard
Based in Germany, Wirecard AG is considered a major player in the world of financial technology. They are a banking payments processor, and supply their services in the areas of mobile payments, e-commerce and for other banking services. They address a world-wide market. In fact, they have more than 250,000 accounts including 250,000 including Allianz (the Minneapolis-based insurance company), Qatar Airways, KLM and Transport for London. In 2018, the company boasted revenues in the billions and it was ultimately valued at more than $22 billion. My questioner in the virtual seminar agreed that by all standards, Wirecard AG represented a major organization.
Their growth was meteoric and, of course, attracted a great deal of investment.
Wirecard AG is publicly traded, but last June 2020, the value of their shares lost about 80 percent after the auditing team suddenly realized that they could not account for more than the USD equivalent of $2.2 billion.
As the investigation grew, it led straight to the palatial home of the CEO who has since resigned – and is currently behind jailhouse bars with all of the other crooks.
No Surprises
There are many ways in which organizations rise and prosper. However, in the case of Wirecard, the route was always suspect. A Reuters news story (June 23, 2020) broke the news about CEO Markus Braun turning himself in when he learned there was a warrant for his arrest:
“Germany’s financial regulator also filed a fresh complaint against Wirecard with the prosecutor, saying the company’s belated admission that billions were missing showed it had mis-stated its financial position between 2016 and 2018…This also strengthens the suspicion that the information contained in its financial reports sent false signals for Wirecard’s share price and in so doing violated a ban on market manipulation.”
Under the CEO’s watch, the stock was intentionally manipulated. In 2019, London’s Financial Times published an article accusing the organization of fraud and that it kept producing false documentation mis-stating its performance. The accusations were repeatedly denied.
It should come as no surprise that Braun was the largest shareholder. His participation in the fraud and resignation came after he served the company for nearly 20 years and the board also demanded the removal of Braun’s COO, Jan Marsalek.
The Whirlpool
As the CEO was held on nearly $5 million bail, the whirlpool of fraud and deceit Braun (and possibly Marsalek) created sucked in unsuspecting, large investment groups. This included a group of executives from SoftBank and an Abu Dhabi fund. The latter invested as much as $1 billion, believing the company’s stock was worth its trading price. In fact, it was worth hundreds of millions less.
Obviously, other investors (people like you and me) were also sucked in and as with everyone else, they lost about 80 percent of the purchase of their stock.
The CEO had orchestrated the scam for years. As large as the organization was, he had virtually no oversite. He (possibly with the benign neglect of the COO) operated in an arrogant vacuum. It wasn’t that he was without suspicion, it was that he had operated without oversite for so long that he didn’t care. His need for money and power drove him and in the end, that need cost many people and institutions billions.
How does Markus Braun rationalize such behavior? It may have simply been a matter of familiarity breeding contempt. If there are no ethical expectations, and no one to whom an executive need answer, he was free to behave unethically. After working for the same organization for 20 years, he was given a rubber stamp by the board. Sadly, the rubber stamp made great sums of money for Braun but none for anyone else.
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