Wirecard has seen a steep decrease in share price after insider news broke that they have been defrauding investors with misleading and shady accounting tactics. Yet some investors think it’s still a worthy investment.
It’s been noticed since way back in 2008 that Wirecard has been committing accounting fraud. The company may have used a method called “round tipping,” the likes of which a lump of money would leave the bank Wirecard owns in Germany, show its face on the balance sheet of a dormant subsidiary in Hong Kong, depart to sit momentarily in the books of an external “customer”, then travel back to Wirecard in India, where it would look to local auditors like legitimate business revenue.
Apparently this scheme has been going on for a long time, in reaction to the news of the preliminary inquiry, Wirecard initially said there had been no reports of substantive compliance. The organization told the Police this week that it had not made any definitive findings of criminal wrongdoing while its inquiry was underway, and it would be unfair to draw conclusions from the preliminary study.
Accusations of suspect accounting were leveled in 2008, 2015 and 2016. Each time Wirecard has alleged market manipulation, sparking investigations by the German market regulator, BaFin.
Wirecard: The events that unfolded
- German fintech Wirecard filed for insolvency in June following a $2 billion scandal, which saw its former chief executive Markus Braun get arrested and resign.
- Wire card’s share price tanked 97% from $117 to just under $4 in less than three weeks.
- But even as it slumps, the stock is too toxic for the highly speculative world of day-trading.
- Business insider spoke to 5 Robinhood traders to gauge their buying interest in the battered stock.
- But Robinhood day-traders are mostly unmoved by Wirecard’s price crash, with most of them saying they will avoid investing in the stock.
The coronavirus pandemic can shine a spotlight on more companies like Wirecard
The implosion of Wirecard, a digital payment firm, has set off a major controversy in Germany, where financial authorities, auditors and the supervisory board of the firm are asked how they overlooked a $2 billion scam.
The auditor of the firm, EY, is scrambling to contain his reputation’s harm. “Collusive fraud aimed at deceiving investors and the public also requires concerted attempts to create a false trail of documentaries,” he said in a statement. “Technical norms accept that a collusive crime can not be detected except by the most stringent and prolonged audit procedures.”
Brian Fox is Confirmation ‘s founder, a company validating financial and other confidential data, and a certified public accountant who’s cutting his teeth at EY. He told CNN Business that the Wirecard case is most likely an example of “confirmation fraud,” a criminal category that dates roughly back.
Confirmation fraud takes different forms, but at the basic level it involves a company inflating its revenue either by intercepting and falsifying documents that an auditor wanted to send to a bank, or by coercing an employee inside the bank to send back false documents to auditors.
Examples include the Parmalat scam that brought down one of Italy’s most profitable businesses, the Japanese Olympus accounting scandal and the US hospital chain HealthSouth scam.
Many market participants says the coronavirus pandemic can aid in exposing more fraud.
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