Why Germany’s Wirecard Is No Stranger to Controversy

(Bloomberg) -- Shares in German payments company Wirecard AG have whipsawed this year after a series of reports alleging accounting fraud in Asia. The company has repeatedly denied wrongdoing, but investors remain concerned. Germany’s financial regulator temporarily halted short sales of Wirecard’s shares in February, and authorities in the country, as well those in Singapore, are investigating the business. Wirecard has also been drawn into a London lawsuit between former minority shareholders of an Indian business it bought in 2015. From its start, Wirecard has drawn unusual scrutiny.

1. What is Wirecard and what does it do?

Wirecard is a developer of software and systems for online payments and fraud protection used across the internet. Its technology helps process smartphone payments, issue credit cards, and detect suspicious activity. The firm’s revenue almost doubled to 2.1 billion euros ($2.4 billion) in the two years to 2018, following acquisitions of at least 18 other companies in an expansion masterminded by Chief Executive Officer Markus Braun. In September 2018, Wirecard replaced Commerzbank AG in Germany’s 30-company DAX stock index alongside titans such as Volkswagen AG, Siemens AG, and Deutsche Bank AG.

2. Why has Wirecard been controversial?

The company got its start as a provider of financial services to the gambling and adult entertainment industry, operating in murky waters. While it’s now focused on more mainstream clients, Wirecard’s business model remains complex and it has had to defend its reputation repeatedly. The shares dropped -- but later more than recovered -- after past claims were published about accounting irregularities in 2008 and fraud allegations in 2016, which Wirecard denied. Those accusations led to a market manipulation conviction against a journalist in 2012, and a fine against one of the suspects behind the 2016 report.

Why Germany’s Wirecard Is No Stranger to Controversy

3. What are the recent claims against Wirecard?

In a series of articles starting on Jan. 30, the Financial Times reported allegations of accounting fraud by employees at the company’s units in Singapore and other Asian countries. The stories cite a preliminary report from Singapore law firm Rajah & Tann, which Wirecard had hired to look into the allegations. A deeper follow-up investigation by Rajah & Tann is expected to be published in March 2019.

4. What is the company’s response?

Wirecard says the allegations are baseless, possibly brought forward to damage the company or profit from short sales. CEO Braun said he’s confident that findings from the follow-up report by Rajah & Tann will clear Wirecard and its employees of wrongdoing.

5. Why is Wirecard being watched so closely?

Concerns about the company have taken on increased urgency with its ascent to the DAX -- Germany’s benchmark stock index that’s a popular investment vehicle for everyone from large pension funds to private investors. German financial regulator BaFin on Feb. 18 banned short sales of Wirecard for two months, saying the affair poses a serious threat to market trust in Germany.

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