What happened to Wirecard? | CNBC Explains

What happened to Wirecard? | CNBC Explains

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in 2005 a little known startup called wirecard joined the frankfurt stock exchange the payments processing company soon became a unicorn eventually surpassing deutsche bank germany's biggest bank in value and attracting notable investors such as softbank despite allegations of accounting irregularities over the years wirecard grew to become europe's largest financial technology company worth 28 billion dollars at its peak former ceo of wirecard has been arrested on suspicion of falsifying accounts this after the german payments firm
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disclosed a 2.1 billion dollar hole in its balance sheet then in june 2020 it filed for insolvency finding itself at the center of one of the biggest financial scandals in history [Music] in the autumn of 2018 munich-based wirecard was added to a stock index of the 30 leading german companies also known as the dax index displacing the country's second largest bank in the process it was a huge moment for the fintech industry to see a european company with
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the means to compete against the tech titans of silicon valley it was in 2008 that the first allegation of accounting irregularities was lobbed at wirecard in the wake of the attack wirecard appointed ey one of the world's biggest accounting firms to conduct a special audit it soon became wirecard's chief auditor and would sign off the company's accounts for more than a decade following the first allegations german authorities prosecuted two men who stood to benefit from wildcard's stock performance as more allegations of financial misconduct surfaced over the next few
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years a pattern began to emerge first wyoka would aggressively deny any accusations of malpractice when the german regulators investigated those officials sometimes focused their sights on the accusers instead of looking into the claims against wirecard as a result some financial analysts and investors continue to heap glowing praise onto the tech darling while germany's financial regulator denied that it was protecting wirecard the company continued to emerge unscathed after each attack and it became emboldened
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some critics of wirecard were harassed and threatened with legal action claiming that they in collusion with short sellers had published damning stories to manipulate its share price undeterred by the negative coverage wirecard's share price doubled in 2017 after reporting significantly improved revenue streams by the summer of 2018 wildcard's share price hit a peak of 191 euros valuing the company of more than 28 billion dollars it claimed to have 5 000 employees and processed payments for 250 000 merchants and its clients included major
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european supermarket chains and airlines despite wirecard's meteoric rise troubling reports that its books couldn't be trusted continued to stalk it an independent research company said its asia operations were far smaller than claimed in an attempt to quell suspicions of financial impropriety wirecard orchestrated a tour of its asia offices to impress the investment bank analysts as allegations of accounting fraud mounted why did barfin the german financial regulator not investigate the claims against wirecard many analysts believe that
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wirecard was seen as a rare homegrown tech champion that needed to be protected and that any attack was an affront to germany and its finance sector in february of 2019 baffin even announced an unprecedented two-month ban on investors betting against wirecard as its share price fell below 100 euros citing wirecard's importance for the economy and the serious threat to market confidence some also point to germany's corporate culture which tends to be wary of foreign speculators and the fact that many of these allegations were made outside of germany
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like british newspaper the financial times accusations which baffin have denied critics have argued that the country's regulatory system is not equipped to deal with a payments company like wirecard unlike regulators in other countries barfin doesn't have the power to bring criminal charges or the oversight to investigate potential accounting malpractice barfin along with the european and german central banks also considered wirecard a technology company even though it owned a bank german politicians have questioned that decision as barfin the local government munich
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prosecutors and the country's accountancy watchdog frep have tried to shift blame for the fallout huge questions i mean is it an emerald type situation well yeah because europe has got massive egg on its face they wanted a big tech giant they ignored a lot of the facts what about the regulators what about the auditors wirecard is a payment processor that facilitates debit and credit card transactions its payment systems collect money from the consumer's bank that issues the card and then delivers that money to the merchant so that it arrives in their account wirecard makes money by taking a
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percentage of every transaction they process there are hundreds of payment processors doing the same thing so how did wirecard become so successful well it marketed itself as the leader in payment processing systems and claimed it used a superior technology as more of the world started to shift towards a cashless society wirecard seemed well positioned to capitalize on this trend however it was its rapid expansion particularly in asia that caught the attention of investors according to hedge funds and independent analysts such as j capital research and
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zotaro research wirecard bought shell companies that acted as third-party payment processors which could handle transactions in territories its licenses didn't cover in return for wirecard bringing them business these companies paid commission into escrow accounts which was claimed to total more than two billion dollars but in reality these third-party businesses which accounted for all of wirecard's operating profits were allegedly much smaller and in some cases weren't real the relationships there are all authentic have been checked and we can at 100
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reject these allegations following more accusations of fraudulent practices wirecard hired kpmg to conduct a special audit however it couldn't verify whether these escrow accounts were genuine then when ey went to complete its 2019 audit it found that the escrow accounts that held all of the company's operating profits were fake and the two billion dollars didn't exist cnbc reached wirecard which declined to comment on the accusations or the investigation itself one of germany's biggest accounting scandals has only created more questions than
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answers regulators are under the spotlight as investigators worldwide tried to work out how wire cub was able to portray itself as a highly profitable business for so long wirecard's auditor ey is also facing scrutiny for failing to check wirecard's bank statements for three years the fallout has also impacted softbank whose reputation as an astute tech investor has taken another hit following the failed ipo of wework but it's likely that german business will be hit hardest as trust in the country's authorities has been eroded
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dealing a heavy blow to its reputation as a financial center hi guys thanks for watching our video we'd love to know your thoughts on any future story ideas you may have comment below the video to let us know and remember subscribe see you next time

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