WSJ _ Fintech Star Needs Better Answers to Accounting Allegations - https://on.wsj.com/2DVDXpl
Germany’s Wirecard says that no criminal conduct has been found so far in a probe sparked by a whistleblower
For a relatively simple business, German payments company Wirecard attracts a lot of questions. Now investors need answers quickly.
The company was fending off allegations Monday of potential criminal misconduct centered around its Singapore operations, which could have inflated revenue in the region. The claims were first reported in the Financial Times.
Wirecard has previously faced questions over its accounting and been targeted by short sellers. But its has grown quickly and—at least until the latest upset—its market value has risen inexorably. Even after losing more than €5 billion ($5.7 billion) in value since the allegations surfaced last Wednesday, it is worth more than €15 billion, roughly the same as Deutsche Bank, one of Europe’s largest lenders.
The company, which runs the mobile-payments app Boon among other businesses, has boosted its growth through acquisitions, which have complicated its accounting. It has done six deals in three years, including the takeover of Citigroup’s prepaid card unit in 2017 and an Indian payments business in 2016.
Wirecard’s latest problems spring from an internal whistleblower, who said last April that members of a finance team in Singapore had falsified documents and backdated commercial agreements, potentially to inflate revenue.
Wirecard called last week’s story “inaccurate, misleading and defamatory”. On Monday, it admitted a full investigation was ongoing, but said no conclusive findings of criminal misconduct had yet emerged. Wirecard CEO Markus Braun said he expected the Singapore law firm Rajah & Tann to formally complete the probe quickly and that there would be no material impact or any revenue restatement as a result.
This would be quite a change from a preliminary report prepared by Rajah & Tann in early May 2018, before it was mandated to perform a full investigation. The preliminary report, a copy of which has been reviewed by The Wall Street Journal, was based on interviews with the whistleblower and a review of documents and email archives of the people involved.
The lawyers said they could “draw strong and irrefutable inferences from the documentary evidence there has been at the very least several accounting irregularities that take the shape of forged agreements”. They recommended further investigation to verify evidence and trace money involved.
Mr. Braun said that the lawyers’ preliminary review didn’t have the benefit of full access to Wirecard’s accounts. He said that the vast majority of a string of transactions in the preliminary report weren’t identified in the company’s accounts as ever having taken place.
Until the lawyers are finished and Wirecard’s regulators and the police have reviewed it all, it is impossible to be sure this will go away. The shares have endured a roller-coaster ride since the allegations surfaced, and that won’t stop until they are fully addressed.