Wirecard Drawn Into Investor Lawsuit Over Role in India Deal

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Wirecard AG has been drawn into a London lawsuit between former minority shareholders of an Indian business who claim they were cheated out of money before the embattled payments company bought the firm in 2015.

Hermes I-Tickets Private Ltd. was sold to a Mauritius-based buyer and then resold just three weeks later to Wirecard for at least $200 million more, according to the 2017 suit brought by Prashant Manek and Sanjay Chandi.

While Wirecard isn’t directly accused of wrongdoing in the original lawsuit, Manek and Chandi filed a separate case against the German company last month in London. No documents regarding this case are currently available.

In the 2017 suit, the former minority investors claim they were duped into selling their shares in the first transaction and are seeking compensation from the previous owners, according to legal filings, which became public this week.

“The true position was that a sale of Hermes had been agreed” with Wirecard, the investors said in the legal filing. “This transaction was fraudulently concealed.” The German company disputed the allegations contained in 2017’s lawsuit, and said it wasn’t aware of the new case from February.

Share Volatility

The claims revive concerns about the German company’s business practices after it was rocked by a series of Financial Times reports over alleged fraud at its Singapore office. The concerns prompted wild swings in the share price, with its value falling at times almost 50 percent. The volatility prompted Germany’s financial regulator to take the unprecedented step of banning new short sales.

Wirecard shares extended early losses and dropped as much as 10 percent in Frankfurt on Friday, to the lowest since Feb. 15.

“The allegations concerning the Indian transaction are not new and have already been refuted several times,” Jana Tilz, a spokeswoman for Wirecard, said in a emailed statement. “It is obvious that there is a constant attempt to generate negative reporting on Wirecard from a speculative point of view.”

Wirecard bought Hermes, which specialized in selling travel tickets, for 216 million euros ($244 million) upfront with an option to pay a further 110 million euros. The purchase took place just weeks after the company had been sold for $40 million, according to the filings. Manek and Chandi allege that they were convinced to sell their stake in the business by the former majority owners, Ramu Ramasamy and Palaniyapan Ramasamy.

The Ramasamy brothers controlled 90 percent of Hermes and haven’t yet filed a defense statement in the case.

At the time of the deal, Wirecard Chief Executive Officer Markus Braun hailed Hermes’s parent company as “one of the region’s leading payment groups,” with revenue set to exceed 45 million euros in 2015.

But concerns have been raised about the deal in the past. In December 2016, Morgan Stanley analysts expressed doubts about the Indian unit’s business. The Analyst, a London-based independent equity-research firm, found in a November 2017 report that Hermes changed auditors at least three times between 2015 and 2017.

Sale Pressure

Hermes is also the focus of a probe by Singapore police in its investigations of the Wirecard allegations, according to a Singapore court document seen by Bloomberg. The unit was also involved in the alleged fraud, according to a preliminary report by Rajah & Tann in its inquiry for the German company. Wirecard said its internal report refuted all allegations related to its Indian operations, and said Rajah & Tann’s final report is “imminent.”

Aside from the Ramasamy brothers, the lawsuit also named Amit Shah as a defendant. The claimants allege Shah represented the original Mauritius-based buyer Emerging Markets Investment Fund 1A. Shah claimed he was only a “go-between” and that his firm had “no involvement in the transaction whatsoever.”

Shah is represented by Rajah & Tann, the same Singapore-based law firm conducting an external investigation on the FT allegations on Wirecard’s behalf. His lawyer said he considered the lawsuit to be "unmeritorious." Shah "will be vigorously defending the claims," he said.

In the filing the plaintiffs alleged that the terms of the sale to Wirecard had been agreed before the negotiations to sell the firm to EMIF had been completed.

Manek and Chandi were “told that Hermes had been performing poorly; that if their shares were not sold then Hermes would be stripped of its assets, thus rendering their shares worthless,” the court filing said. “The true position was radically different.”

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