The Phoenix from Aschheim

Launched in a Munich suburb, Wirecard's online payment business became a stock market darling - until its share price tanked. The story of the company and its market misfortune is a veritable whodunit about hubris and speculation in the digital age.

19 Minuten Lesezeit

By Christoph Giesen, Klaus Ott, Nicolas Richter, Jan Willmroth and Nils Wischmeyer

Ringing in the new year in Asia has become a big source of revenue for the Germans. In places like Singapore, Taiwan and Hong Kong, families gather around tables overflowing with steamed fish, rice cakes, dumplings and mandarins to celebrate the occasion. Cooking all that food used to take the better part of a week, but these days, more and more people are simply ordering their banquets via app. They let the restaurants do the work for them and have the food delivered to their homes. Payments are made digitally, using a credit card. Handling pots and pans - and bills and coins - is a thing of the past.

Cash-free payments, whether online or via smartphone, are Wirecard's business. Credit cards, debit cards, prepaid cards, payment apps like Apple Pay or Boon - wherever money changes hands without anyone actually having to lay a hand on it, the Germany-based company sees a potential profit. Wirecard delivers the payment software to the merchants, ensures they receive their proceeds quickly and even assumes the risk that a customer might not pay. In return, Wirecard collects a fee for each transaction. The margins may be tiny, but taken together, they promise an attractive business.

Headquartered in the Munich suburb of Aschheim, Wirecard logs 1.4 billion euros ($1.6 billion) in sales and hundreds of millions of euros in profits. That number could also soon increase as cashless transactions become more common around the world - especially in Asia. Whether people order a new pair of shoes online, pay for their groceries with a debit card or whip out their smartphone to buy some street food, companies like Wirecard are always involved, taking their cut. In fact, business is going so well that last autumn, the company ousted the venerable German lender Commerzbank from the DAX, the country's blue-chip stock market index, which includes the top 30 German companies traded in Frankfurt. Wirecard is Germany's biggest success story in the computer age since software giant SAP.

But on Jan. 30, 2019, just a few days before Asia ushered in the Year of the Pig, Wirecard's winning streak came to an end. Early in the morning, an email arrived at company headquarters, an inconspicuous administrative building nestled between Munich's exhibition grounds, an urban gardeners' colony and a highway feeder road. "Good morning, Iris," a journalist with the British Financial Times wrote to a Wirecard spokeswoman. The reporter informed her that he had become aware that a senior Wirecard manager had been involved in “suspicious transactions” that included forged documents. He asked for comment. When the article was published later that afternoon, Wirecard's share price tanked, at times trading almost 25 percent lower than it had been earlier in the day. Those who had invested in this promising company lost nearly a quarter of their stake - and there were many small-scale investors among the losers. The market's reaction to the newspaper article seemed so excessive that suspicions began to emerge that speculators had conspired against Wirecard. This was also the view of the stock exchange supervisory authority in Frankfurt. In mid-February, regulators restricted trading in Wirecard shares and the Munich public prosecutor's office began investigating possible market manipulation.

Reporting by the Süddeutsche Zeitung (SZ) has exposed the details of this economic crime thriller, which lays bare much about spectacular success stories in the digital age - and their pitfalls. Internal emails and chats tell the story of a company whose transformation from a startup on the outskirts of Munich to a globally active, DAX-listed company was breathtakingly fast. Perhaps too fast: Especially in Asia, where the company's local financial departments seem to have lost control over the complex transactions and, moreover, resorted to extremely questionable methods.

Singapore: Has Wirecard's finance department lost control of its complex business in Asia? One of the company's senior managers in Singapore, Edo K., an industrious Indonesian, has come under suspicion of having cooked books and encouraging other employees to do the same.

imago, Editing: SZ

Singapore: Has Wirecard's finance department lost control of its complex business in Asia? One of the company's senior managers in Singapore, Edo K., an industrious Indonesian, has come under suspicion of having cooked books and encouraging other employees to do the same.

When suspicions arose that a Wirecard manager in Singapore was cooking the companies' books, a rift emerged between Wirecard's corporate headquarters and employees keen on resolving the matter. Details of that row didn't just wind up in the press – they also apparently fell into the hands of stock exchange speculators. They placed bets that the company's share price would fall, hoping that by shorting the stock, they could earn a windfall.

The case of Wirecard raises two questions. For one, how truly dire is the situation at the company's Asia operations? The company insists that nothing is amiss, but SZ reporting has exposed sloppiness and failures. Authorities in Singapore are investigating a number of local Wirecard employees and have conducted several searches of the company's local branch office. The second question is: Are the irregularities uncovered by the SZ sufficient to explain the sharp decline in Wirecard's stock price? The public prosecutor's office in Munich is investigating the possibility that criminal speculators were at work.

How much real substance can a company have if it only offers software and services?

In the digital age, such occurrences could repeat themselves at any time. Emerging tech companies can create huge sales figures in an instant - but they can also burn through their investors' money just as quickly. At Wirecard, the most important question is: How much substance does the company's business model really have? Wirecard doesn't build electric cars or battery factories, it offers software and services that are hard to understand. Does Wirecard really embody the opportunities of the new digital world? Or is the Aschheim-based company just a startup from a Munich suburb that grew too quickly and in which investors placed too much hope?

For Wirecard's executives, Asia is a dream come true. An increasing number of people there want nothing to do with cash, instead preferring to pay for their shopping, lunch and parking with their smartphones. The Wirecard branches in this part of the world are a testament to the business acumen of the company's managers back in Munich. The future arrived long ago in Chennai, Jakarta, Kuala Lumpur and Manila. Wirecard's Asian headquarters is in Singapore, a sterile business city with a view of container ships on their way out to the Strait of Malacca. As with most tech companies, Wirecard is home to a casual atmosphere and flattened hierarchies.

Some employees joke about the fact that Wirecard abbreviates itself as "WD" - "WC" is not an option, since that acronym is already reserved for "water closet" in most countries. Employees communicate with each other, and even their superiors, via messaging apps, conversing about professional and personal matters or the best restaurants and clubs in Bali or Shanghai.

A member of the company's executive board asked a colleague in Singapore: "Hi Edo, do you have this under control?"

One of Wirecard's top men in Singapore is Edo K, an Indonesian man in his early 30s who is industrious and seemingly always in a good mood. In the office, people say he comes from a wealthy family but wants to prove himself. As one of Wirecard's finance chiefs, Edo K. occupies a key position in the company and is responsible for the company's finances in Asia. Edo K. is regarded as a confidant of the top managers in Aschheim, where he worked until mid-2017, regularly communicating with the bosses via phone, Skype and email - even discussing relatively minor things, such as a severance payment for an employee of just a few thousand dollars.

But Edo K. seems to have lost track of the books at some point. Auditors complained repeatedly that documents were missing or that figures didn't add up. On one occasion, a co-worker in Germany told Edo K. he had better have "a good explanation" for a balance sheet total. On a different issue, a colleague warned the auditor might "not accept the story." Another time, a member of the executive board became involved. "Hi Edo," the boss in Germany wrote, "do you have this under control? This seems quite worrying."

Wirecard's business in Asia does, in fact, make a chaotic impression. At one point, employees complained the figures appeared to just be "flying around." At then they warned it would soon become impossible to continue paying the employees of a subsidiary. In June 2017, an employee wrote Edo K. that at least two Wirecard companies were "in operative deficit and technically insolvent." Were these just symptoms of the company's extremely rapid and uncontrolled growth? Or was there more at play?

Things grew even worse in early 2018. A whistleblower claimed to have watched as Edo K. used a whiteboard to explain to half a dozen employees how money could be moved back and forth between various subsidiaries - presumably illegally. The whistleblower turned to two legal advisers, who reported the suspicions back to Aschheim. A team of lawyers from corporate headquarters then flew to Singapore, secured the email inboxes of several local employees and hired the law firm Rajah & Tann to investigate the allegations.

People on the Munich-end of the business had apparently recognized the threat the developments could pose to Wirecard and that the company was in a vulnerable position. The value of fast-growing tech companies is often difficult to comprehend – and then there were the peculiarities of the company's history: Wirecard has never managed to fully overcome the shady reputation it earned itself in its early years when it primarily handled electronic payment transactions for porn and online gambling sites. Wirecard continues to earn money in those sectors to this day. If balance sheet manipulations were to come to light in Asia, it would be toxic for Wirecard's reputation as one of Germany's leading innovative companies.

Jan Marsalek, an Austrian national born in 1980, has worked for Wirecard since 2000. In addition to being a member of the company's board, he is also responsible for Wirecard's Asian operations.


Jan Marsalek, an Austrian national born in 1980, has worked for Wirecard since 2000. In addition to being a member of the company's board, he is also responsible for Wirecard's Asian operations.

And so, in spring 2018, Wirecard appeared to have its fair share of problems. The two lawyers in Singapore who were tasked with figuring out what was going on in the local branch, were unsettled after their initial review of the emails from members of Edo K's team. On April 20, one of them wrote to company headquarters that the issue was "bigger than previously thought."

The two Wirecard lawyers in Singapore considered finance chief Edo K. to be a charlatan

The lawyers weren't only diligent, they were meticulous, persistent and quarrelsome. One, Royston N., dealt with the issue of compliance - legally and ethically sound business conduct. He used to be a public prosecutor in Singapore, where criminal justice is feared for its relentless severity. His colleague, Pavandeep G., wasn't known for being quite so pugnacious, but he too took his work extremely seriously.

Early on it became clear that the two lawyers considered Edo K. to be a charlatan and wondered why the head office in Munich seemed to trust this man so blindly. Gossip in the Singapore office holds that Royston N. once confronted Edo K. with the accusation that one of his family members was close to the Indonesian mafia and that Edo K. apparently got extremely upset. According to the story, Edo K. then told Royston N. he could go ahead and ask the relative and see what would happen. Royston N. then apparently told some colleagues that Edo K. had threatened him. Word of this encounter made it all the way back to company headquarters in Aschheim.

After less than two weeks of investigating, the law firm Rajah & Tann presented its "preliminary report" in early May 2018. It didn't pull any punches: The initial suspicion against Edo K. had been confirmed, the report stated. In addition, further potential misdeeds had been identified: Edo K. and two of his employees had allegedly forged documents and made questionable payments; they had apparently been using the payments to try and obscure the poor financial situation of several Wirecard subsidiaries. According to the lawyers and auditors, however, it was also possible that far more serious offenses had occurred, including fraud, corruption or money laundering.

The company's Munich headquarters now dismisses the preliminary report as premature, insubstantial and defamatory.

But in May 2018, the auditors from Rajah & Tann created a written record of all sorts of suspicious activities. One of them involves a subsidiary in Hong Kong, through which Wirecard hoped to conquer the prepaid market there. The subsidiary needed a minimum level of capital, which it got in the form of a wire transfer from Germany, a capital increase made by the parent company in a subsidiary. Auditors suspect this was a phony entry; they claim that 2 million euros only briefly appeared on the books of Wirecard's Hong Kong subsidiary only to disappear just as quickly.

Rajah & Tann identified more than a dozen of these suspected phony entries, which gave rise to a serious suspicion: Did Wirecard in Asia have dubious money flows, in which a given amount of money was used in more than one place to patch up holes in the company's books? This suspicion could give the devastating impression that the DAX-listed company shone brighter on the stock exchange than it did in reality.

The two lawyers in Singapore, Royston N. and Pavandeep G., were looking forward to a May 7, 2018, meeting of senior executives in Aschheim. An internal chat between lawyers in Aschheim and Singapore revealed that the two investigators in Asia were eagerly awaiting the date, even hoping to be able to fly to Munich and personally present the results of their investigation to the board. Royston N. put together a nine-page presentation titled "Project Tiger." Originally, it was supposed to be called "Project Phoenix" - like the mythical bird, Wirecard would rise from the ashes, freed of all accusations against it. But Aschheim preferred "Tiger," a reference to Singapore, one of Asian tiger economies. The presentation's slides include diagrams with company names and arrows indicating money flows. They show millions of dollars that had purportedly been transferred from one company to the next before finding its way back to the original company. There was also an excerpt from Singapore's penal code covering accounting fraud, corruption and money laundering.

"If (this) is not a genuine transaction and gets paid, this is money laundering."

But what followed was a bitter disappointment. A board member wrote to one of the lawyers saying that the problems in Asia would now be dealt with at the highest levels within the company. Jan Marsalek, a member of the executive board and the man responsible for the company's operations in Asia, would coordinate everything going forward with a manager in Asia and an external law firm. In other words: The tenacious Singapore lawyers were out.

Nevertheless, the two investigators in Singapore didn't give up and they didn't back off. Royston N. complained personally to Wirecard's chief financial officer in Aschheim. In a long email, he pointed out that Marsalek had been named in the preliminary investigation report and as such, was potentially involved in the dubious events himself - making him unfit as a potential investigator. His protest, though, was in vain. To this day, Wirecard only states that Marsalek was in no way responsible for the investigation nor was he implicated in any wrongdoing.

Shortly thereafter, the lawyers' suspicions grew: A Wirecard subsidiary in Singapore was about to make a one-million-dollar transfer to a business partner that had been explicitly identified in the Rajah & Tann report as being involved in suspicious activities.

"I don't understand. What is going on?" one of the two lawyers wrote in a group chat with the German compliance chief in Aschheim. "Is it that the Board doesn’t understand?" His colleague in Singapore backed him up: "I do not understand how a few individuals can commit a variety of extremely serious financial crimes and continue to operate with impunity." The German participant in this chat - one of the most important people responsible for legal matters in the company - seemed to agree with his Asian colleagues. He, too, suspected that powerful people within the company were covering up for each other. “They don’t shit in each others bed”, he wrote.

One of the lawyers in Singapore replied: "That is not the right position for the Board … If (this) is not a genuine transaction and it gets paid, this is money laundering. And it will have happened with knowledge of … the Board. " The lawyer then got to the bottom line: "... My principles are not up for negotiation. … As a former prosecutor – let me be clear. We will bear direct criminal liability if we do nothing." The tenacious lawyer was obviously extremely determined, and could even imagine bypassing the executive board and going directly to the supervisory board. His colleague in the Singapore office backed him up: "The point here is that the board doesn’t give a shit and there’s nothing much internally that can be done if that is the case. There are too many actors and interested parties throughout the group and Edo is clearly protected."

A few days later, the controversial payment nevertheless went ahead unhindered.

Wirecard CEO Markus Braun: Last spring, the billionaire said the company's goal was "to conquer the world powerfully and organically." And what about those irregularities? For Wirecard, "the case is closed."

Matthias Doering

Wirecard CEO Markus Braun: Last spring, the billionaire said the company's goal was "to conquer the world powerfully and organically." And what about those irregularities? For Wirecard, "the case is closed."

By then, at the latest, it had become clear that the relationship between Wirecard's executives and the two lawyers in Singapore was severely strained. Even the chief compliance officer in Aschheim began distancing himself from his two Asian colleagues. In June 2018, he wrote a withering critique to one of the two Singaporean lawyers: "As compliance we still need to be partner of the management. Our compliance role is to keep damage away from the company and ensure that we can control the ‘grey areas’. We are not prosecutors that try to make single people accountable and get them in jail (apart from real misconduct).” The critique continued: "I think the Board had lost confidence that we are only doing our investigation in favor of the company and that we are taking a neutral position." And then, the man in Aschheim became extremely explicit to his colleagues in Asia: "Compliance is always also to some extent politically driven." A legal adviser cannot give instructions to the executive board. "That way you don’t gain the trust and you’re not a reliable partner for management."

Company headquarters apparently thought the conflict could be contained with such admonitions. But if it worked at all, the respite was only temporary: Eight months later, on Jan. 30, 2019, Rajah & Tann's preliminary findings found their way into the public eye. Someone had leaked the internal report from May 2018 and now a journalist from the Financial Times was quoting from it. It's not clear who divulged the information to the London-based business daily, but within the company, it is believed that one of the two scorned lawyers leaked the Rajah & Tann report. Meanwhile, public prosecutors in Singapore have obtained many more internal documents from Wirecard. Corporate grievances, and disputes over appropriate resolution of such grievances, often lead outraged employees to become whistleblowers - and leak internal information to the outside world. Whether this was also the case at Wirecard remains to be seen.

Wirecard sees itself as the victim of a conspiracy by the media and stock market speculators

The two lawyers in Singapore have since left the company. At Wirecard, it is said that Royston N. and Pavandeep G. became overzealous in their investigation of finance chief Edo K, but there is no evidence that either of them went too far or wanted to harm their company. And it wouldn't be the first time that employees who ask too many questions or dig too deeply are no longer welcome in their company. Referring to his colleague, one of the two lawyers in Singapore once wrote in a chat: "The only thing he ever wanted to be assured of was that the company had a culture of compliance in which wrongdoers would be held accountable."

Nine months later, the escalation reached a preliminary climax: On Jan. 30, 2019, the Financial Times reported on the case and Wirecard's share price plummeted. Shortly thereafter, company COO Jan Marsalek received a chat message from a confidant containing a rather dubious offer. A businessman, who was said to be well-connected with journalists, claimed that a second influential media outlet was also planning to publish a devastating report about Wirecard. The report would hold that the scandal went all the way to the top of the company and Wirecard could expect its share price to lose half of its value, the man said. "Yes but what can you (do) about it? They are not going to stop the article?", Marsalek's confidant wrote. To this, the businessman replied, "I can get my guy to stop it. I have a proper connection ..."

Wirecard said the irregularities wouldn't have a major impact on its balance sheet

Upon further discussion, it became clear that the businessman apparently had even more up his sleeve. He wasn't only able to prevent negative press reports, he could just as successfully plant positive articles about Wirecard in the media and spread rumors of a takeover bid that would then drive up share prices. For these services, he asked for 2.2 million British pounds (2.6 million euros). He had even prepared a fictitious invoice backdated to May 28, 2018, suggesting that Wirecard was paying him as part of a sponsorship deal for a racing car team so that the company's logo would be clearly visible on the car and the pilots' uniforms.

Marsalek didn't bite. Instead, he informed the public prosecutor's office in Munich. Wirecard saw itself as the victim of a conspiracy between the media and market speculators and filed a criminal complaint on Feb. 1, 2019, against a possible manipulation of its share price. The public prosecutors took the suspicion seriously and initiated an investigation against unknown persons. They were alarmed. For one, there was an unambiguous offer to steer media coverage and manipulate the stock price. What's more, the man who made the offer was not seen as exaggerating, but as someone who could deliver. He was apparently in a position to influence what went on at the stock exchange.

In addition, there were inconsistencies in the trading of Wirecard stocks on Jan. 30. Apparently, several speculators had bet the company's stock would fall before the Financial Times article appeared. According to Wirecard, there could be an explanation for this: The company believed word had gotten out that a negative news report was coming. The German company cited a trader in London who had produced a written statement that on the morning of Jan. 30, there had been talk in trading circles about the forthcoming Financial Times article. The public prosecutor's office in Munich forwarded all of this explosive information to the stock exchange supervisory authority in Frankfurt. There, regulators reacted swiftly to the unusual events and on Feb. 18, Germany's Federal Financial Supervisory Authority (BaFin) banned bets that Wirecard's share price would fall. "In recent days, massive uncertainties have been observed on the financial markets," as a result of the strange development of the company's stock, BaFin explained, adding that it constituted a "serious threat to market confidence in Germany."

Wirecard sees itself as a victim and is suing the Financial Times for damages at a regional court in Munich, accusing the British newspaper of misleading reporting. "The present case is a prime example of the worst kind of coordinated action by journalists and criminal speculators to the detriment of serious investors," the lawsuit states. The London-based newspaper, for its part, has rejected the accusations as "baseless and false."

London: The Financial Times was the first newspaper to report on the explosive internal allegations at Wirecard. The German company's share price still hasn't recovered.

In Pictures via Getty Images

London: The Financial Times was the first newspaper to report on the explosive internal allegations at Wirecard. The German company's share price still hasn't recovered.

Are Wirecard's attacks against the press merely an attempt to deflect attention away from alleged inconsistencies in its books? And is the company trying to systematically discredit critics from within its ranks, as well as outside them?

It has not yet been proven that the drop in the company's share price at the end of January was the result of a large-scale attack by criminal speculators. Investors who seek to profit from falling share prices like to use a technique known as short selling. This specialty in equity trading is in fact commonplace; it's used, among other things, to hedge against falling share prices. On Jan. 30, 2019, the proportion of Wirecard shares being shorted was rather low by historical standards seemingly indicating that if anyone knew about the Financial Times article beforehand, there weren't many of them. Only after the first Financial Times report was published, the number of short positions increased rapidly. This ultimately lead Bafin to ban new short sales two and a half weeks later, according to internal documents. The share price drop was likely an expression of widespread mistrust of Wirecard. And it wasn't the first time shares in the company reacted sensitively to bad news. To date, Wirecard's share price still hasn't made a recovery; it is still less than two-thirds of what it was worth back at the end of January.

On March 26th, Wirecard tried to claim that the scandal surrounding its finance chief Edo K. had been resolved. The company said there had only been a few inconsistencies and that there had been "no major impact" on its balance sheet. No one had been implicated in Aschheim, Wirecard continued, citing further investigations by the law firm Rajah & Tann.

But the scandal is far from over for the German company. A specialist department for financial crimes within the Singapore police has conducted three searches of the company's offices and has confiscated more than 200 boxes of material. Several employees also apparently admitted to misconduct during questioning by the law firm Rajah & Tann. Wirecard itself hasn't ruled out the possibility that some local employees in Singapore may have committed criminal offenses and Edo K. apparently also admitted to irregularities, though he apparently claimed that he had the blessing of Wirecard's executive board. Company insiders claim this isn't true and that headquarters knew nothing. The SZ made several attempts to reach Edo K., but none were successful.

Wirecard and Edo K. have since parted ways and today, the company is that the problems are largely attributable to the failings of its ex-financial boss for Asia. History has shown that many economic scandals begin with a company insisting that only a handful of individual employees from middle management were to blame; but as time goes by, those stories tend to change dramatically.

So far, investigators don't yet know exactly what happened. Judicial sources say they don't yet have a sense for where the whole thing is headed. It turns out that in the new world of globalized digital companies, speculators and ruthless profiteers who sell insider knowledge, it is difficult even for seasoned investigators to see the forest for the trees.

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