Wirecard Adds to Roster of Short Sellers’ Victories in Europe

(Bloomberg) -- The unraveling of German payments firm Wirecard AG just months after the downfall of hospital operator NMC Health Plc has left short sellers betting against European stocks feeling vindicated.

Wirecard on Thursday said it’s filed an application for insolvency proceedings after last week revealing that 1.9 billion euros ($2.1 billion) of cash was missing. Short sellers had been criticizing Wirecard for years, but rather than investigate the company, German regulator Bafin said it would look into possible market manipulation and temporarily banned bets against the company’s stock.

“With the collapse of NMC, a FTSE 100 company, and now Wirecard, a member of the DAX 30, each within the space of a few months, this should present a monumental wakeup call to European investors and regulators that fraud remains prevalent,” said Matthew Earl, managing partner at ShadowFall in London and an early short seller in Wirecard. “When short sellers or journalists attempt to highlight it, the response should not be to either ignore or persecute the skeptics, rather to open-mindedly evaluate the allegations.”

Germany’s top financial regulator said this week his agency hadn’t been effective in overseeing Wirecard.

Of course, not every short bet has paid off. Here’s a round-up of some of the European companies targeted by short sellers over the past year, and where they are now:

NMC Health

Muddy Waters Capital in December said that Middle Eastern hospital operator NMC Health was understating its debt and overstating its cash. London-listed NMC denied wrongdoing, said it would hire an accounting firm for a review and would pursue regulatory action against third parties that tried to manipulate the share price. The company collapsed after uncovering $2.7 billion of hidden debt in March and saying fraud apparently occurred. A U.K. court placed NMC into administration in April and the stock is now worthless.

Eurofins

ShadowFall in October criticized Eurofins Scientific SE’s governance, accounting at subsidiaries and debt levels. Short sellers had begun stepping up their bets against the stock a year earlier, and in February 2019 the Luxembourg-based company came under scrutiny by accounting and valuation analysts at Exane BNP Paribas who queried the use of smaller auditors for many of its subsidiaries. The laboratory-testing firm defended its governance practices and rejected ShadowFall’s criticism as inaccurate and unfounded. The company has seen demand for tests tied to the coronavirus pandemic, and its shares have soared 82% since their 2019 low, closing at a record high on June 3.

Read: Hedge Fund’s Prophetic Wirecard Short Was a Big Money Loser

Burford

Shares in London-listed Burford Capital Ltd. tumbled after Muddy Waters in August said the litigation-finance company overstated the returns on its investments and had questionable financial reporting and governance. The stock is down 57% since the report. Burford said the short seller’s critique was “false and misleading,” though it named a new chief financial officer to replace Elizabeth O’Connell, who is married to Chief Executive Officer Christopher Bogart. Burford provided additional disclosures when it published its full-year results in April and is pursuing plans to list on the U.S. stock market.

Bio-On

Quintessential Capital Management in July accused Bio-On SpA of fabricating sales and said the value of its technology to make bio plastics was questionable. The Italian company denied allegations of mismanagement and communication of false information to the market. The stock plunged more than 80% before trading was suspended in October and its founder was arrested by the Italian finance police in a probe of false accounting. Ansa reported in December that a court declared Bio-On bankrupt. The company has said it acted correctly in managing the business.

Aurelius

Little known Ontake Research in January said Aurelius Equity Opportunities SE has overstated the proceeds it received from selling assets. The German investment manager called Ontake’s allegations incorrect and unfounded. The stock has fallen 60% since the report came out. It’s not the first time Aurelius has been targeted by a short seller -- Gotham City Research in March 2017 said the firm appeared to be overstating its results and understating its liabilities.

Casino

Casino Guichard-Perrachon SA’s complex shareholding structure, with Jean-Charles Naouri in control of the French retailer, parent Rallye SA and other holding companies on top of it, has been under scrutiny for years, leading to repeated short-seller attacks. A perceived lack of transparency and high debt levels have also been a cause of discontent. Casino has been selling assets in a bid to slash debt and its parent companies in March secured court approval for a debt-restructuring plan. Even amid protests in France and the coronavirus pandemic, the stock has risen 14% in the past year, outpacing the slumping broader market.

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