The day on which Raimund Bau and Sebastian Gabel suspect that they will lose their company begins with the usual meeting marathon. It’s June 18, 2020, and the founders of the big data start-up SO1 are sitting with a small team in the offices in Berlin to plan the future. Three months ago, Bau und Gabel sold SO1 to the payment service provider Wirecard, and now they are to turn it into an ambitious advertising business within the Dax Group: finally gild the treasure trove of data from the billions of Wirecard transactions. Actually.
The plans are very promising, but they both feel uncomfortable. For a few days now, your contacts at the headquarters in Aschheim near Munich have hardly been reached. Something, they think, is in the bush. In the previous weeks, Wirecard had postponed the presentation of its consolidated financial statements several times, and CEO Markus Braun’s board of directors is due to do so on June 18 – and finally to silence all the critics.
Shortly after 11 a.m., the Berlin group heard the news that there would be no annual financial statements. Instead, the auditors announce that they have found a € 1.9 billion hole in Wirecard’s balance sheet. “There was a standstill and total horror,” says one who was there.
The news marks the end of one of the most amazing stock market fairy tales that Germany has ever seen: the fairy tale of the rise of a small, windy online payment provider to a Dax heavyweight, the story of the supposedly highly innovative tech group Wirecard. Its soaring ends in the bankruptcy filing the following week, the share plummets within days by a good 98 percent.
Old technology, hardly any money
There are many losers in this crash, small investors and fund managers, business partners and employees – and many who wonder how it got this far. In order to trace the less than glamorous inner workings of the former stock market star, Personal-Financial.com spoke to some high-ranking current and former employees and partners of the company. None of them had direct insight into the alleged fraudulent activities of CEO Markus Braun and COO Jan Marsalek, with which assets, income and profits were apparently inflated for years. But many of them recognize afterwards evidence that should have made them suspicious.
And above all, they describe a company that had little to do with what Braun sold to the outside world. Instead, they report on a corporation that processed payments on a large scale, but hardly made any money with them and also largely had to fall back on outdated technology; from a team with many good people, but in which the management set the wrong priorities; and by a management that was increasingly desperate to somehow build a real business with real income with acquisitions like SO1.
Wirecard in a hurry
For Bau und Gabel, the sale to Wirecard was actually something like the happy end of a long, tiring journey. In 2012, the two founded SO1 and developed software that retail chains could use to calculate individual discounts for their customers. But the market turned out to be stiff. In 2019, they were faced with the decision to either take another large round of financing, for which the chances were bad – or to look for a buyer.
There were several interested parties, but Wirecard put the most pressure on. They were obviously in a hurry: the first discussions in December 2019, and the signature in mid-March 2020. Then the start-up with its three dozen employees belonged to the payment group with over 5000 employees. The purchase price: a respectable double-digit million amount.
Wirecard didn’t score with the highest bid, but with a vision. A completely new business area was to emerge from SO1: an advertising network that could soon compete with Google or Facebook thanks to the mass of transaction data. The SO1 founders should manage the acquisition of additional companies, expand the team to around 100 employees by the end of the year – and thus create the nucleus of a new Wirecard.
It all sounded pretty good. And so the SO1 round quickly picks up again even on June 18th. While the exchange is caught by the news, the team goes to lunch at the Korean restaurant. It discusses ways out of the chaos, everyone knows about their unique technology – it would be negligent not to make anything of it. You think of the strong sales force in Aschheim. Maybe you can at least use it for yourself?
Only a few days later do they have to realize that this will not happen. Bau travels to Munich to discuss the future of SO1 with the remaining board member – just, if you explain to him, it no longer makes sense. For Wirecard, it’s all about survival.
Wirecard AG then had to file for bankruptcy on June 25th, followed by Bau a day later. The founder mourns his “baby, which we had with great effort and against resistance in the market and from investors”, he describes it to Personal-Financial.com. “We would not have imagined the end that way.” But much more is not being elicited from his Wirecard adventure.
Others are more open. For example, when it came to Wirecard’s core business: processing various payment methods for merchants for a fee and responding to failures. Not a bad business idea – only nowadays the whole thing is hardly technically demanding and therefore chronically low-margin. There is an “uncanny price war” in the industry, says an insider, and Wirecard has also won its customers primarily “through pig prices in the market”. There are better margins if you can set yourself apart technologically (which Wirecard did not succeed in), or if you get involved in dirty business.
Wirecard: chronology of a scandal
@imago images / Dean Pictures
October 2, 2018: “Financial Times” surcharge
In a portrait of Wirecard and its rise to the Dax, the British “Financial Times” reports on open questions that the group has raised. Wirecard has expanded by buying smaller companies, but analysts have reported difficulties in finding evidence for these companies. The analysts from Citi and Barclays cited in the article see no basis for doubts about the company, but note that the reasons for Wirecard’s growth are not easy to understand.
January 30, 2019: Allegations against Wirecard managers
According to a critical report in the “Financial Times”, Wirecard shares have now plunged by more than 20 percent. According to research by the British newspaper, a senior manager in the group’s Singapore office allegedly forged and backdated contracts. By means of the contracts, money is said to have been illegally shifted between several subsidiaries. A whistleblower had disclosed the information in a presentation. Wirecard denied the allegations.
@imago images / Schöning
January 31, 2019: Bafin announces investigations
The financial regulator Bafin announced that it will examine the case with a view to possible market manipulation. The Munich public prosecutor’s office starts preliminary investigations. Only in December 2018 did the public prosecutor apply for a penalty order against the publisher of the so-called “Zatarra” report, who had made serious allegations against Wirecard. The public prosecutor’s office concluded at the end of 2018 that it was about market manipulation.
@imago images / Lackovic
February 1, 2019: New allegations
The Wirecard rate crashes for the second time within a week, again because of an FT article. According to the newspaper, Rajah & Tann law firm has identified serious violations and financial inconsistencies in the Singapore office. The results of the investigation were presented to the Wirecard top in a presentation on May 8, 2018, writes the newspaper. Wirecard denies the allegations and calls the reporting “misleading and defamatory”. Three days later, the company stated that Rajah & Tann had not found any evidence of criminal misconduct in Singapore.
@imago images / Westend61
February 7, 2019: allegations in the Singapore case
The “Financial Times” adds again. In another article the newspaper writes that the CFO responsible for Asia showed six employees in Singapore how to manipulate their own books using a payment carousel. So you can convince the authorities in Hong Kong to give Wirecard a license. This system may have been in operation across the region for years, the report said.
@imago images / Xinhua
February 8, 2019: Raid in Singapore
Events come thick and fast: while Wirecard is announcing legal action against the “Financial Times” and its reporting, the police in Singapore are investigating the company’s headquarters there. Wirecard announced that they had handed over documents to the police and were cooperating with the investigators. The FT’s allegations are unfounded, the company says.
Mid-February 2019: Lawsuits threatened in the USA
The law firm Bronstein, Gewirt & Grossman is filing a class action lawsuit against Wirecard for damages in a Los Angeles district court. Your clients are Wirecard shareholders and are misled by the misleading statements about the group. According to the “Süddeutsche Zeitung”, several German law firms are also examining legal steps against Wirecard.
@imago images / Blickwinkel
February 18, 2019: Ban on short sales
The Bafin prohibits so-called short sales of Wirecard shares until April 18. This is the first time in history that financial regulators are banning short sales for a single share. Accordingly, new net short positions in Wirecard shares and the increase of existing net short positions are temporarily no longer permitted. The Munich I public prosecutor’s office is also initiating an investigation against an FT journalist “for an offense under the Securities Trading Act”.
@imago images / Schöning
March 15, 2019: Investigators focus on India
The authorities in Singapore are also targeting Wirecard’s India business. As the “Handelsblatt” reports, citing court documents, several employees and companies of the group are being investigated – among other things for money laundering and forgery of documents. This also includes the Indian company Hermes I Tickets of the Great Indian Retail Group. Wirecard bought the group in 2015.
@imago images / argum
March 21, 2019: Allegations of transactions of two billion euros
According to the FT, there are documents according to which senior Wirecard employees have supervised a total of four transactions that are now the focus of the investigations in Sinagapur, it says. The total of the transactions amounts to 2 billion euros. The FT also raised allegations against the then board member Jan Marsalek.
@imago images _ Olaf Schuelke
March 26, 2019: Results in the Singapore case
Wirecard announces the results of the investigation by the law firm Rajah & Tann. According to the ad-hoc announcement, the law firm had “found no significant effects on the financial statements of the Wirecard Group” in its report. However, there may have been crimes by individual local employees. The share price then shoots up temporarily by 30 percent. The full report will not be published.
March 28, 2019: Wirecard sues
Because of the significant price losses, Wirecard is filing a lawsuit against the FT and the author of the Wirecard-critical texts, Dan McCrum. The Dax group wants to achieve an omission of the reporting as well as a compensation of the shareholders. In July, the Financial Times hired the London law firm RPC to investigate Wirecard’s allegations. The investigations will be completed at the beginning of October. According to RPC, they did not provide any evidence that there had been collusion between reporters and speculators in the Wirecard reporting.
@imago images / Sven Simon
March 29, 2019: Inconsistencies in partner companies
The FT responds to Wirecard’s lawsuit with another report. The Dax group makes an unexpectedly large amount of revenue through external payment services. When checking some partner companies one encountered inconsistencies. At the beginning of 2018, the DAX company had planned sales of transactions with partner companies of EUR 931 million. That corresponds to half of the revenue targeted for the entire year. Wirecard describes the article as “false and misleading”.
@imago images / Schöning
April 17, 2019: Bafin files a complaint
The Bafin intervenes in the dispute between Wirecard and the FT and reports about a dozen people to the Munich public prosecutor’s office. According to their research, the financial supervisory authority sees a connection between the reporting against Wirecard and the fluctuations in the price of the group’s share. The FT rejects the allegation of market manipulation.
July 22, 2019: allegations against FT
Wirecard raises serious allegations against the “Financial Times”. According to an insider, the company is said to have confirmed suspicions that stock speculators are working with the newspaper. The company handed over evidence to the Munich I public prosecutor. This includes a recording of a conversation between two investors in which a critical FT article was discussed. Thereupon one investor advised to speculate on the price decline of the Wirecard share. The group demands that the newspaper no longer publish articles about Wirecard. The FT defends itself against the allegations.
@imago images _ Arabian Eye
October 15, 2019: Research leads to Dubai
In a new article, the FT is targeting the partner company Al Alam Solutions. The company, based in Dubai, made up half of Wirecard’s profits in 2016, they say. Internal documents show that Al Alam transactions were fabricated. This indicates the attempt to “fraudulently inflate Wirecard’s sales and profits,” writes the paper. In Ireland, too, sales and profits could have been reported too high, it said. Wirecard calls the article “defamatory”.
@imago images _ Scanpix
October 21, 2020: Wirecard commissions KMPG
Wirecard commissions the auditor KPMG to carry out an independent special audit. The investigation should investigate the allegations of the FT and begin immediately. KPMG will present an investigation report in due course and is solely obliged to the Supervisory Board.
@imago images / Dean Pictures
December 9, 2019: “FT” targets cash flow
A new article in the “Financial Times” criticizes the calculation of liquid funds at Wirecard. Accordingly, the Dax group also counts funds in trust accounts in addition to its cash reserves. The “Financial Times” sees evidence for their allegations, among other things, in the high cash flow of the Dax group. Wirecard denies the allegations and emphasizes that the cash items correspond to the IFRS accounting standard. Another article on December 11 reported that the group had hired a Libyan secret service employee to target Wirecard investors in London. He should reveal whether they were trying to manipulate the Wirecard rate. Wirecard rejects the allegations.
@imago images _ Marcel Lorenz
April 28, 2020: KPMG special report published
KPMG publishes its special audit report. The publication had already been postponed several times. The conclusion is restrained. The report states that it can neither confirm nor refute the sales from the third party business. In addition, KPMG will point out documents that have been delayed and, in some cases, not delivered at all, which have inhibited its own investigation. Wirecard CEO Markus Braun, on the other hand, emphasizes that KPMG have “clearly found no evidence” for existing allegations. According to its own information, the Bafin analyzes the KPMG report and whether there were misleading information from Wirecard in advance.
@imago images / Sven Simon
May 8, 2020: Group restructuring planned
Wirecard announces that it will reorganize the management board. CEO Markus Braun should hand over competencies, a compliance department should be set up. It is intended to ensure compliance with laws and regulations. The new department will be headed by James Freis, who is due to start work on July 1st. There are also two new positions on the Management Board: a newly established sales department and the Chief Commercial Officer.
@imago images / Sven Simon
May 26, 2020: Annual financial statements delayed
The publication of the consolidated balance sheet for 2019 has been postponed again. The auditor EY has not yet completed all the exams, the reason is. Significant changes to the key data published in February are not to be expected, according to the group. One expects an unqualified certificate.
@imago images / Sven Simon
June 5, 2020: Raid in Aschheim
Wirecard announced that the company headquarters in Aschheim had been searched by the Munich public prosecutor. The reason for the process is the suspicion that those in charge of the group had given “misleading signals for the stock exchange price” of the shares through ad hoc announcements in March and April. According to Wirecard, the investigations are not directed against the group, but against the four board members. In the two mandatory notifications on March 12 and April 22 – and thus well before the publication of the KMPG special report – the payment service provider stated that the auditors had nothing to complain about.
@imago images / Arnulf Hettrich
June 18, 2020: EY refuses the attestation
Auditor EY announces that he will not be able to audit the 2019 annual financial statements. The reason for this is the lack of evidence of bank balances in trust accounts totaling 1.9 billion euros. The certificate is postponed until further notice. The Wirecard share rushes down – and loses up to 66.5 percent at the top. Wirecard announces that they want to file a complaint against unknown persons and suspect fraud.
@imago images / Sven Simon
June 18, 2020: Braun resigns
Wirecard CEO Markus Braun announces his immediate resignation. The temporary successor is Jonathan Freis. Braun has been at the helm of the company since 2002.
@imago images _ Lackovic
June 22, 2020: Braun is arrested
The alleged balance sheet fraud at the payment service provider Wirecard is becoming a case for the courts. The first class action lawsuit has now been filed in the United States
When Wirecard was founded in 1999 at the height of the dot-com boom, the first customers came from the gaming and porn industries. Markus Braun, a former KPMG consultant, joined in 2002 and saved the company from bankruptcy when the internet bubble burst.
Wirecard went public at the beginning of 2005 by teaming up with a call center operator that was already listed, but virtually insolvent. Braun later obtained a banking license through another acquisition. It was the starting shot for an unprecedented growth story, which was always accompanied by mistrust – also because of the dodgy customer relationships.
Braun repeatedly stated that Wirecard hardly had anything to do with these customers, but according to the “Financial Times” documents, the AG was still serving 4,000 porn and dating websites in 2017 – and achieved such high margins with them that experts suspected it was would be about money laundering. According to one employee, the “digital goods” segment is still extremely important today, including porn portals and online casinos.
The importance of the industry is also underscored by an episode told by an insider with an insight into the Luxembourg porn empire Mindgeek: The company was a Commerzbank customer until the end of 2012, then the institute terminated the business relationship due to “reputational risks” – in addition to the fact that Mindgeek earned his money with sites like Youporn, the founder was also involved in a tax scandal at the time. They turned to Wirecard.
In Aschheim, Mindgeek was “welcomed with open arms”, according to the insider. From then on, the Wirecard account details were emblazoned on the official letters of the important German Mindgeek offshoot. According to the insider, Wirecard remained the house bank until at least 2015. The account manager responsible in Aschheim made many things possible for Mindgeek that other banks did not want to do for compliance reasons.
The vision that Wirecard represented to the outside world, however, was a lot more impressive than looking after customers who no one else wanted. At the Personal-Financial.com Markets Day in London in 2018, for example, Braun outlines the shopping of the future: from sellers who, thanks to Wirecard, learn everything about their customers as soon as they enter a store – even the last Google search query. It is part of Wirecard’s “Strategy 2025”, and Braun promises that his company will make all of this possible by then. Then, by the way, 10 billion sales and an Ebitda margin of 30 to 35 percent would be realistic, so Braun. Product manager Susanne Steidl sounds at her appearance at the same event: “We set the pace.”
After appearances like this, many in the company ask which planet the executive board lives on. You know a different reality. About when the payment infrastructure failed for days at the beginning of 2016. A breakdown that Wirecard never publicly communicated. A technician who was there during the work said that the failure did not surprise him: “There was hardly any investment in the infrastructure. We had to achieve a lot with few resources. Sometimes the sales department sold technology to customers without even asking us whether that was possible. ”
An open secret of the fintech industry was that even the core system of the Wirecard bank was not an in-house development, but came from the IT service provider of the cooperative banks. A separate replacement was planned according to Personal-Financial.com information, but did not make progress.
A Wirecard connoisseur makes a harsh judgment: “There is nobody who understands how to build software. I didn’t see anything innovative there. ”Even as a DAX group, Wirecard still largely functioned like an unorganized start-up. “New projects are essentially based on a conference call and five PowerPoint slides,” complains one manager. “A great many processes were not defined or written down, but simply made,” says a former IT infrastructure employee.
Susanne Steidl, who has been on the board since 2018 and who was supposed to professionalize product management, is described by many as a clever and prudent manager. But the Austrian, who has been with the company since 2006, has little household power and was “at a loss,” says one employee. “She was never really able to take action, and with hindsight it becomes clear why.” The Braun / Marsalek clique ostracized her.
Braun, who also acted as CTO, has portrayed himself as a quirky but far-sighted nerd over the years – so successfully that he continued to be referred to as a “visionary” in portraits after the billion-dollar fraud had long been on record. Internally, however, little was felt of great ingenuity. “He has no idea about software,” says a senior employee. “But he always pretended that he could do everything.” Even Braun’s highly praised ideas have hardly any substance, says an insider: “Everyone sees that digital payments will be more important in the future.”
Braun’s “only vision was growth,” says another. In its rare appearances in front of the workforce – usually a few minutes before the summer party and Christmas party – Braun praised its sales team in particular. The CEO, himself the largest shareholder for a long time, was unchallenged in the company and was not questioned. “He only had disciples and believers,” complains one manager. In such a climate fraud can thrive.
Because employees could also have seen signs that something is wrong here. The unusual structure of the Asian business, for example, or the fact that the responsible department apparently had frequent staff changes on the agenda. “We had the impression that Marsalek had built a super-profitable construct there, that has to be somehow clever,” reports one manager. “And then you don’t just go to the CFO and ask him: Show your sales.”
That probably wouldn’t have worked at all. Because according to Personal-Financial.com information, the payments were not processed via a central system, but via almost 30 different servers with their own data structures that were distributed around the world. Gaining real-time insights into aggregated transaction data, as is common practice in other financial companies, was so impossible. Internally, such deficits were attributed to the rapid growth and the many international acquisitions – hardly anyone could or would believe that there could be a system behind them.
In January 2020, Markus Braun will be in a typical visionary outfit with a black turtleneck and jacket on a conference stage in Munich. He looks excited and paces the stage in quick steps. He is supposed to talk about the “second half of the Internet”, which he rarely does. In return he says two telling sentences: “I am a pathological optimist.” And: “In the long run you need some kind of business model.”
In fact, Wirecard had tried in recent years to become more independent from the payment processing business. The internal reason: “We cannot earn any money with payment in the long run”, as an insider puts it. He suspects the real reason to be elsewhere: “Braun was looking for a way out of the mess he had caused. He had to build something that generates real EBIT. “
This is how new products were created: Wirecard has developed several loan offers for its customers, for example, it made its banking license available to other fintechs for a fee, and the Berlin smartphone bank N26 also used “Banking as a Service”. In the meantime, there are apparently hardly any prominent customers left.
Braun also had high hopes for the end customer product Boonplanet, with an account and a modern smartphone app it was intended as an attack on N26. A bold step for a B2B company like Wirecard. But Braun was, as always, optimistic: “Hundreds of millions of bank customers” would be expected by 2025, he said in 2019. According to an insider, Boon currently only has 10,000 active users – and that at a cost of 6 million euros per year. The last major undertaking then was the advertising business plan using SO1. But it never came to that.
After the bomb burst on June 18, Braun and Marsalek disappear from the company. Chaos breaks out. Employees who were at the head office during those days describe the scene as “spooky”: the outside of the building is besieged by journalists, security guards shield it, and one fears angry shareholders. Orphaned corridors inside, many employees are in the home office anyway. One describes the mood in the few meetings as “angry to aggressive”.
The American James Freis, who is taking over as interim CEO, is frantically trying to forge plans to continue operations: for example, to shrink the company to health. It was “chaotic, completely chaotic”, reports one who was there. There was confusion on the supervisory board, an otherwise steadfast top manager burst into tears, while Freis tried to keep morale up. In a management meeting, say participants, he wanted to develop the managers: they should see what good they could have done with Wirecard. A manager replied sharply: Freis couldn’t have known that, he had no idea about the payment industry.
One week after the 1.9 billion euro hole was announced, Wirecard representatives were holding a conference call with the creditor banks when the historical news of the bankruptcy burst into the group. The first ever by a DAX company. Minutes later, employees find out about this by email – and they are instructed not to take any documents or devices out of the building.
One day later, SO1 founder Raimund Bau went to the Berlin-Charlottenburg district court. It only takes 15 minutes to open insolvency proceedings for the company he has built up over the years.
The article was published in Personal-Financial.com 08/2020. interested in Personal-Financial.com? Here is the Subscription shopwhere you can order the print version. Our digital edition is available at iTunes and GooglePlay