Wednesday, July 8, 2020

German fintech startup missing $2 billion sees its CEO arrested for fraud

Wirecard AG, a financial technology investment firm based in Germany, is reeling from audit findings that have uncovered over $2 billion in missing cash from its balance sheets, the arrest of its CEO on suspicion of deceitful business practices, and plunging shares.

The financial startup’s admission on June 18 that it could not produce audited financial proof of its balance sheet substantiating the existence of over two billion dollars of deposits in its trust accounts has sent its stock plunging to over 80% of its value since the announcement.

Snapshot of Wirecard AG’s stock at closing on June 23, 2020 | Image: MarketWatch

The management board of the German fintech says it is now working closely with Ernst & Young (EY) GmbH, its auditor, to clarify the situation while it also considers various measures aimed at sustaining its business operations that could include:

  1. Restructuring: As have firms hit by similar scandals previously, this would involve massive layoffs through perhaps the termination of entire business units.  CEO Markus Braun’s abrupt resignation and arrest by German authorities on charges of market manipulation and false statements signal this is likely with chief compliance officer James Freis taking on the interim CEO role of the scandal-hit financial group.
  2. Cost-reduction measures: The firm is certain to strategically reevaluate several of its operating expenses and seek to better align them with its critical activities while avoiding to cripple further growth.
  3. Infusion of brand new funds: This could come in the form of new capital should the German fintech be able to secure additional investments or a takeover by another firm as has been rumored over the last few days by some media outlets.

Read Also: Adjuvants to help HIV patients in prolonging immunity for the long-term

The developments come after the firm repeatedly failed to publish a consolidated statement of its 2019 financial year since March despite reassuring its investors EY’s review would result in an “unqualified audit opinion”.  EY’s examination of Wirecard’s financial statements revealed instead it could not account for a significant portion of the fintech’s consolidated balance sheet total or $2.1 billion due to lack of audit evidence.

Wirecard had initially suggested it held deposits of $2.1 billion in two Filipino banks: BDO Unibank Inc and Bank of the Philippine Islands (BPI).  However, Benjamin Diokno, Governor of Bangko Sentral ng Pilipinas (Central Bank of the Philippines) refuted these claims last Sunday. He stated these sums never made their way into the country’s financial system and that documents purporting their existence at BDO and BPI were fake.

The international financial scandal used the names of two of the country’s biggest banks – BDO and BPI – in an attempt to cover the perpetrators’ track.

Benjamin Diokno, Governor of Bangko Sentral

Wirecard AG’s admission of these false cash balances also came with the caveat that its creditors could terminate over $2.2 billion of loans to the company. Due to regulatory restrictions governing the use of cash held at regulated entities for general corporate purposes, the German payments firm will unlikely be able to access money from its remaining verified cash balance for loan repayments.

Indeed, Germany-based Wirecard Bank and UK-based Wirecard Solutions, two regulated bodies, hold nearly all of the German payment processing firm’s remaining verified assets.  Once hailed as one of Germany’s top tech companies, Wirecard AG now faces a liquidity crunch and an uncertain future as a result of its financial mishaps.

Do you want to publish on Apple News, Google News, and more? Join our writing community, improve your writing skills, and be read by hundreds of thousands around the world!

Comment Below

Featured Stories

Modest alcohol consumption can bring a healthier brain, new study says

The trend towards alcohol is fast growing at the time. It is one of the most popular...

Coronavirus-infected cells grow more branched extensions than normal, new studies reveal

A recent study published in the scientific journal Cell found that infection with the novel coronavirus can...

Latest Stories

Manchester United looking to add three new signings in addition to Jadon Sancho

Manchester United manager Ole Gunnar Solskjaer is considering signing three more new players in addition to Jadon...

The Bubonic Plague is resurfacing, first case confirmed in China

The world is already suffering from a great pandemic, which is affecting us badly. In addition to...

Can Holloway overcome Volkanovski at UFC 251?

UFC 245 didn't end the way Max Holloway would have expected it to end. Volkanovski won the...

Related Stories

Mastercard continues diversification with billion-dollar fintech investment

Mastercard announced Tuesday it had acquired Finicity, a Salt Lake City-based fintech. The acquisition will help with Mastercard's continued foray into open banking systems as recentlydone by its rival Visa.

Best credit cards of 2020 with maximum benefits during this difficult time

As our country faces the COVID-19 pandemic, many students, small businesses, and day-to-day workers face financial problems...