Wirecard scandal: BaFin first believed in a conspiracy against Wirecard

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The Federal Financial Supervisory Authority (BaFin) examined the origin of the Wirecard shortsellers and informed the Ministry of Finance about suspicious activities involving British and Israeli short bets against Wirecard. That reports the “Financial Times”. BaFin sent the Ministry of Finance a memo in May 2016 – two and a half months after anonymous shortsellers published the controversial “Zatarra Report”. In the report, Wirecard was accused of criminal behavior, whereupon the course slipped. In the memo, BaFin focuses in particular on the cultural background and nationality of Wirecard skeptics. This raises new questions about how BaFin dealt with and clarified the Wirecard scandal.

BaFin’s controversial memo

The six-page BaFin document highlighted a “large number of suspicious market players” who are said to have traded Wirecard shares in a “conspicuously profitable manner”. In addition, the BaFin refers in the memo in particular to the allegedly same cultural background of the suspects (individuals and hedge funds). These were “mainly British and Israeli nationals.”

The BaFin is said to have rated this connection as a conspiracy against Wirecard, according to the report of the “Financial Times”. “It cannot be overlooked that it resembles a network-like structure,” said the memo.

Politician demands: “We need stronger financial supervision”

“The BaFin statement shows the deep-rooted aversion to the American capital market and its structures,” said Danyal Bayaz, member of the Bundestag for the Greens. Bayaz is also a member of the Wirecard investigation committee of the German Bundestag.

He calls for a “cultural change”: “We need stronger financial supervision that thinks criminalistically.” However, he does not believe that cultural backgrounds or nationalities were relevant for the Wirecard investigations by BaFin. “The choice of words used by BaFin was very unfortunate and can easily be misunderstood,” he told the Financial Times. Wirecard was worth 24 billion euros at peak times. In the summer of 2020, Wirecard collapsed due to one of the largest fraud cases in Europe. Investors and creditors lost billions in investments. But the scandal was not over yet.

BaFin supported Wirecard against publications on discrepancies in the balance sheets

Because as early as the summer of 2017, BaFin subjected Wirecard to a special audit. Another special audit followed in mid-2019, which focused on possible money laundering. Apparently no violations were found in either of the audits.

In any case, there have been signs of unfair business at Wirecard for a long time. The Financial Times published articles in January 2019 reporting discrepancies in the company’s balance sheets. The reporting had the consequence that the price of the Wirecard share fell by more than 20 percent. At that time, Wirecard defended itself against the “false” and “misleading” accusations from the company’s point of view and accused the “Financial Times” of market manipulation – with the backing of BaFin. The financial supervisory authority defended Wirecard despite various reports against the newspaper’s reporting and even filed a complaint against the British journalists of the Financial Times in spring 2019. On the other hand, there were no studies at Wirecard.

It wasn’t until April 28, 2020 that the ball started rolling in the Wirecard case in Germany. KPMG auditors gave the company a bad report. There is no evidence for certain sales revenues, alleged payments into trust accounts amounting to around one billion euros have not been adequately proven, according to a special report. BaFin then reports the entire board of directors on suspicion of market manipulation.

On June 18, 2020, auditors from EY Wirecard then refused to certify the 2019 balance sheet because receipts for more than 1.9 billion euros were missing from trust accounts in the Philippines. How the billion-dollar Wirecard financial scandal came to light can be found here in chronological order.

Didn’t German supervisory authorities investigate Wirecard more closely out of solidarity?

Many critics accuse the German supervisory authorities of having defended Wirecard against criticism from abroad in an attempt to further promote the national success story. Felix Hufeld, President of BaFin, dismissed the accusation that the actions of the supervisory authorities were part of the “Frankfurt versus London” battle as “nonsense”. Likewise, the assumption that the supervisory authorities wanted to protect the young German company from “foreign intruders”, reports the “Financial Times”.

For Bayaz, politics and authorities failed not only in the supervisory work of the “Zatarra Report”, reports “Capital”. There is also “the suspicion that not only the control mechanisms have failed, but that for industrial policy reasons the company has been put in front of the company in order to nip any suspicion in the bud”. Fahmi Quadir, an American shortseller, shares this view. In a podcast, she reports how she unsuccessfully protested at BaFin at the beginning of 2019 against the ban on short selling Wirecard shares and now describes Wirecard’s machinations as a “money laundering machine”.

Bayaz sees a need for reform in the financial supervisory authority BaFin in particular – he calls for a “cultural change”: “We need a stronger financial supervisory authority that thinks criminalistically”, reports “Capital”. The US Securities and Exchange Commission is a good example. It should be immediately clear to possible fraudsters: “Guys, don’t even try, otherwise you’ll come across us!”



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