Latest / Follow the Lies: Fraud & Deceit Uncovered / Episode 18: Wirecard's Missing €1.9 Billion — How Germany's Fintech Star Faked Its Fortune
Transcript
- riverside kevin kevin barrows's stu (19): It's june twenty twenty. The world is shut down by a pandemic and markets are reeling. In a Munich suburb, a company that processes card payments for airlines and discounters is supposed to publish its audited results. The auditor will not sign. 1.9 billion euros, a quarter of the balance sheet, is supposed to be sitting in two banks in the Philippines. The auditor asks the banks directly. Both say the same thing. These documents are not ours. Within a week, the CEO resigns. The number two boards a private jet to Belarus and vanishes. And for the first time in history, a company in Germany's blue chip Dax Index files for insolvency. This wasn't a hack. It wasn't a bad quarter. It was cash the whole market had been told to treat as real, and it never existed. Today we follow the lives from Germany's FinTech champion to two bank letters that were never real. Welcome to Follow the Lies for and Deceit Uncovered. I'm Kevin Barrows. I've spent decades as an FBI special agent and then as a private investigator working fraud and white collar cases. I've sat in rooms where the story was that the money was in escrow overseas, and the only proof in the file was a letter the company itself had arranged. Wirecard is that case at national scale. There was a real payments company. There was a real stock in a real index. The profit that justified the price was sitting, we were told, in bank accounts far from Munich. When those banks were finally asked a direct question, The documents failed. A lot of people who believed those documents paid dearly. If you're getting value from these episodes, hit subscribe and turn on notifications so you don't miss the next one. Wirecard began as a small German payments processor. Marcus Braun, an Austrian former consultant with a doctorate and a public taste for big predictions, became CEO and the company's largest individual shareholder. Jan Marcelek, younger, less viable on earnings calls, ran operations in the overseas web. By the late 2010s, the company processed tens of billions of euros a year for merchants. Clients included discounters and airlines. The group was valued at more than 24 billion euros. In September 2018, it replaced Commerce Bank in the DAX 30. Pension money that tracks the index now owned a piece of Wirecard automatically. Braun told investors sales and profits would double. The story was that Germany finally had a tech champion that could stand next to Silicon Valley. According to reporting by Reuters and the AP, Chancellor Angela Merkel raised Wirecard's China deal with President Xi during a 2019 visit, and she later defended it before a German parliamentary inquiry. That's how far the brand had traveled. Underneath the listing was a structure that should have made any investigator slow down. In countries where Wirecard lacked a license to acquire card payments itself, It said it outsourced that work to third party acquiring partners. Investigators later focused on three partners: Al Alaam Solutions in Dubai, operating out of a barely staffed office suite, PayEasy Solutions in Manila sharing space with a tour bus company, and Senjo in Singapore. KPMG later reported that these three partners generated the vast majority of sales at three wirecard subsidiaries, and much of the group's profit. From 2016 to 2018, Wirecard reported about 4.5 billion euros in group sales from processing hundreds of billions in payments. The profit, in other words, was not coming from the German shop everyone could see. It was coming from partners almost nobody could visit. The cash from those partners was not supposed to sit in Wirecard's operating accounts. Trustees were said to hold it in escrow. By 2019, that escrow line had grown to 1.9 billion euros. Described as sitting at BDO Unibank and the Bank of Philippine Islands under a Manila trustee. That is an extraordinary claim, but it sounds responsible. The cash isn't sitting with us. A trustee has it at real banks. Escrow itself is not the problem. Companies use it all the time. The problem was the loop. The partners, the trustees, and the bank letters all ran through the same people, and the money was never there. Little of what KPMG later tried to trace had ever landed in Wirecard Bank. The special auditor still could not verify the arrangements that were supposed to be producing most of the profit. As early as 2018, internal lawyers in Singapore found money being sent out and brought back so it would look like real customers. That's called round tripping. And invoices and contracts being fabricated so Ernst Young in Germany would see business that wasn't there. A law firm, Raj Antan, Brought in former prosecutors. Their preliminary report described forgery and a wider problem. Names that appeared in answers drafted for EY, including a new client, said to have generated millions for Wirecard Malaysia, did not match a verifiable relationship. Backdated sales agreements did not look real. Then the internal investigation was shut down. Whistleblowers later told the Financial Times it had been squashed. Two years later, the escrow cash failed the audit. Here's how it worked. The European payments business was real. The profit that justified the stock price was not being proven at the banks. The auditor was given documents that looked like bank paper. Anyone who wanted to verify those documents at the source was treated as the problem. Oliver Bellenhouse ran an important piece of the Overseas Partner Network. He later cooperated with Munich prosecutors. He has told investigators the structure went back years. Offshore companies and money moved into accounts that could be made to look like they belonged to a partner with a similar name. Prosecutors say CEO Marcus Braun signed books that were not true, so Wirecard could keep getting loans. Braun denies it. He says he was deceived by people inside his own company, especially Jan Marsalek. That dispute continues to this day in a Munich courtroom. What is not in dispute is the cash. It did not exist. The bigger the company looked, the The harder it became to admit the cash wasn't there. Softbank announced a nine hundred million euro convertible bond investment in april twenty nineteen, after the Financial Times reporting had already begun, an apparent vote of confidence that boosted the stock. Softbank later restructured the investment so it was no longer fully exposed that the stock fell. McKinsey, the consulting firm, was hired by Wirecard. In twenty nineteen it warned that controls over the third party business were effectively non existent. And that partnership risk needed immediate action. There was even a plan, later reported as Project Panther, to study a takeover of Deutsche Bank. Fold Wirecard into a much larger bank, and the missing cash might get lost in the merger. That idea required KPMG to sign off on Wirecard's books, which KPMG would not do. By late twenty nineteen and into twenty twenty, the notes and the loans were still real. Creditors were real. The Dax ticker was real. The escrow was the fiction that held the rest up. The scheme did not break because a German regulator walked into a bank in Manila. It broke because reporters, a special auditor, and finally Wirecard's own auditor stopped taking the cash line on faith and demanded proof. A team at the Financial Times, including reporter Dan McCrum, spent years publishing documents and whistleblower accounts. Wirecard called the stories false. In January 2019, they reported forged and backdated contracts in Singapore and an internal investigation. In February, German's financial regulator, Baffin, did something it had never done with a single stock. It banned investors from betting that Wirecard's share price would fall, a short selling ban for two months. Baffin said the stock slide threatened market confidence and pointed to the company's importance to the economy. Germany's central bank, the Bundesbank, had warned that those grounds did not justify the ban. Boffin issued it anyway. In April, Boffin filed a criminal complaint that named Financial Times journalists and short sellers for suspected market manipulation. After Wirecard collapsed, prosecutors dropped the case against the journalists. Think about that. The first aggressive move by the state was not a demand that Ernst Young confirmed the cash at the banks. It was a trading ban and a complaint aimed at the people publishing the documents. In February 2019, Singapore police raided Wirecard's offices. Wirecard sued the Financial Times and fought the Singapore investigation. In october twenty nineteen, the Financial Times published internal documents showing an organized effort to inflate sales and profits and to mislead Ernst Young. Clients listed in the auditor's files could not be found. Under pressure, Wirecard commissioned KPMG to do a special audit. The report published on april twenty eighth, twenty twenty. Did not give the clean bill of health the stock needed. KPMG said it could not verify that the arrangements responsible for the lion share profits from 2016 to 2018 were genuine. Trustees and partners did not cooperate the way a real escrow arrangement cooperates. KPMG cited obstacles. In a real escrow, the bank and the trustees can confirm balances to an auditor who writes to them. When they cannot, you do not have an escrow. You have a story about an escrow. Ernst and Young had signed Wirecard's accounts for a decade. On june sixteenth, two Philippine banks, BDO and the Bank of the Philippine Islands, told EY the documents describing 1.9 billion euros were not genuine. On june eighteenth, the day the audited results were due, EY refused to sign off on the 2019 financial statements. Wirecard announced that 1.9 billion euros was missing. The stock collapsed. Marshallek was suspended. James Fries had been hired as chief compliance officer and was not even supposed to start yet. He walked into headquarters that night. By morning he was telling the board that trustee cash appeared not to exist. On june nineteenth, Braun resigned. Fries became interim CEO. On june twenty second, the company said the money, with prevailing likelihood, did not exist. It withdrew recent results and warned that earlier years might be unreliable. It also said Marcelek had been fired. By then he was already gone. Reporting later reconstructed Marsalek's getaway, a car to an airfield south of Vienna and a charter jet to Minsk on the evening of June nineteenth. He paid the pilots in cash and declined a receipt. Interpol later issued a red notice. German authorities issued a warrant for his arrest. He has not been caught. Reporting has since placed him in Russia. Braun turned himself in. was arrested, released on five million euro bail, and then taken back into custody on an expanded warrant. He has remained in pretrial detention for years. The criminal trial in Munich began in December 2022 with Braun, Stefan von Erfa, and Bellenhaus as defendants. Prosecutors describe gang type fraud, false accounts and bank lenders damaged in the billions. Braun denies every count. Years later, the trial is still going, one of the longest in postwar German history. A verdict has been discussed as possible by year end. On june twenty fifth, twenty twenty, Wirecard AG filed for insolvency in Munich, the first DAX insolvency in the index's history. EY called it an elaborate, sophisticated fraud involving multiple parties with a deliberate aim of deception, and said even robust audit procedures may not catch collusion. The Philippine Central Bank said the money had never entered the Philippine financial system. That is the sentence that ends the escrow story. You cannot misplace nearly two billion euros in two banks if the money never crossed the border. Munich prosecutors have described debt raise from twenty fifteen onward in the billions as lost, including large, unsecure loans to opaque Asian partners. Insolvency administrator Michael Jaffey has pursued managers in civil court. In 2024, a Munich court ordered Braun and two others to pay 140 million euros in damages. Over unrepaid loans to a Singapore partner. That judgment was separate from the criminal case and was not the last word. Investors sued. The auditor's reputation took a huge hit. Boffin and Germany's audit oversight were hauled through Parliament. Now let's go inside the investigation to see how a case like this actually gets made and why this one was late. The hard part was not understanding how card payments work. The hard part was getting a straight answer from the places that supposedly held the money. Profit sat with outside partners. Those partners did not have to open their books to a German auditor the way a wire card subsidiary would have. What arrived instead were documents sent through the company and a trustee, not a reply from a bank to the auditor's own request. I've worked bank fraud and securities cases where the entire file was we have a letter. A letter is not a balance. A letter the company handed you is not a confirmation. The confirmation that matters is the one the bank sent you. On its own channel, naming the account and the date. Wirecard hired KPMG to do a special review after the Financial Times reporting. On paper, hiring KPMG looked like a company opening the books. In april twenty twenty, KPMG said it could not verify those arrangements. That was not a delay. That was the answer. Wirecard's public answer was more time, more assurances, and more attacks on the Financial Times. Baffen's early moves told the market which side the state was on. I've seen companies do this. They go after the critic instead of producing the records. I've rarely seen a national regulator join in that loudly. The question that decides the case is who knew what? That's the difference between one defendant and a conspiracy. The people who ran the partner network had little reason to call it a fiction. The CEO could point to Asia and to Marselec. Marcelek was gone before anyone could sit him in a room. Bellinhouse Cooperating is how prosecutors got to the bottom of the Dubai and offshore entities. It's the key to deciding whether you can prove the people who signed the accounts and kept the loans coming knew what they were signing. The june sixteenth messages from the Philippine banks to EY are the breakthrough. Not a confession. A third party with no stake in Wirecard stock saying these papers are not ours. In an FBI case, that's when you stop debating the story and you start locking down accounts, devices, and travel. Wirecard spent days in board meetings instead. People present later said one idea on the table was simply not to publish. Then came the jet to Minsk, then insolvency. If you take one investigative lesson from this case, take this. It was not a hidden ledger in Munich. It was a bank, legal department answering a direct question, and a special auditor willing to write that it could not verify the profit. The fraud lasted for years on cash nobody independently tested. At the place the cash was supposed to sit. It ended as soon as somebody did. On the deception spectrum, Wirecard sits at a different place than a one man forged contract fraud and in a different place than a real company whose story merely outran the leases. There was a real processor. There was a real listing. The deception was the profit and the cash attributed to partners and trustees the market was told not to doubt. That is institutional deception. German tech champion, Dax, Softbank, a regulator that treated short sellers as the instability. Auditors who signed until they could not. Wirecard's cash was visible only if you treated a Philippine bank as a witness instead of a logo on a PDF. The damage was not only shareholders who wrote a 24 billion euros story to insolvency. It was every merchant and prepaid customer who discovered that a payments firm can fail in a week. It was a regulator that had used its power on the messenger. It was an index that had told the world this name was blue chip. Prosecutors say the point of the false accounts was to keep a weak business funded. Braun says he's the victim of a fraud inside his own shop. A court will decide that. What the banks already decided is simpler. The escrow cash was not there. Each episode I share a lie detector tip, drawn from real investigations. Today's tip is about what happens when the critic becomes the suspect. When an organization is under pressure, watch who it treats as the problem. If the energy goes into attacking the journalist, the short seller, the auditor who will not sign the financials, or the employee who asks for the bank letter, and not into producing the proof, stop. That is not a disagreement about matters. That is a company protecting a story instead of providing the records. Look at where the confirmation comes from. If the proof of the money arrived in a packet from the company, it is not proof. Proof is a bank answering a request that was not conveyed by the people who need the number to be real. Then ask what happens if the critic is right? If the whole valuation depends on that critic being wrong, the incentive to go after the messenger is enormous. Wirecard did not fall because short sellers exist. It fell because the cash could not be shown to exist. A trading ban did not put one point nine billion euros in Manila. If leadership cannot live with the critic being right, they are not looking for the truth. They're looking for a way to keep the story going. From a Dax listing and a story about cash in Manila to two banks telling the auditor the letters were fake, Wirecard is what happens when the money is treated as a story and the people asking questions are treated as the threat. If this episode hit home, If you've ever been told the money is with a trustee or in escrow and handed a PDF instead of a way to call the bank, I want to hear how that conversation went. Send it to Kevin at Follow The Lives Podcast dot com. The most interesting notes often shape later episodes. If you want practical tools to protect yourself from deception, download the free guide, seven proven strategies to spot lies and uncover the truth in any interview. You can find it at Follow The Lives Podcast dot com. While you're there, Join my Substack for deeper dives and extra lie detector tips. If you're getting value from these episodes, subscribe and turn on notifications. If you're on Apple Podcasts, a rating takes two seconds and it really helps. Thanks for listening. Until next time, follow the lies.