Wirecard CEO Resigns Amid a Crushing Stock Price Plunge as the Company’s Auditor Failed to Find Evidence for Over $2 Billion in Funds
Wirecard (ETR:WDI), a German payment processor and financial services provider, has become emblematic of the dreaded road to perdition when it comes to running a fintech business. After having lost track of funds worth over $2 billion and a stock price in a tailspin, the embattled company’s CEO Markus Braun resigned just moments ago.
In a brief statement released today, the company announced that James Freis has been appointed as the interim CEO. Moreover, the Management Board member, Jan Marsalek, has also been suspended on a revocable basis.
The nail-biting drama began yesterday when Ernest & Young – Wirecard’s designated auditor – revealed that it could not find audit evidence pertaining to €1.9 billion or $2.1 billion.
Wirecard’s now-resigned CEO, Markus Braun, said in a statement on Thursday:
“Previously issued confirmations by the banks were no longer recognized by the auditor. All parties involved are endeavoring to clarify the matter as quickly as possible. It is currently unclear whether fraudulent transactions to the detriment of Wirecard AG have occurred.”
As a refresher, Wirecard went public back in 2006. It attained substantial cognizance when it was included in Germany’s benchmark DAX index 2 years ago.
In what many have interpreted as an attempt to deflect blame, the company clarified on Thursday that there were indications that a third-party had tried to “deceive” the auditor regarding the existence of the funds in question.
Barry Norris, the manager of the Argonaut Absolute Return Fund, which holds a short position in the stock, crucified Wirecard yesterday:
“Even today Wirecard’s long-standing CEO Marcus Braun has brazenly tried to portray the company as a victim of fraud and instead tried to focus investors on apparently strong reported revenue growth.”
Bear in mind that Wirecard transacts with major payment gateways across the globe, including American Express, Diners Club, AliPay, WeChat, Apple Pay, and China UnionPay. The company has asserted that it is "working intensively together with the auditor towards a clarification of the situation".
The situation has become critical for the German payment processor. As an illustration, should Wirecard fail to file its 2019 financial statements and accounts by Friday, it would risk having banks terminate €2 billion in loans. The company had scheduled the announcement of its fourth-quarter earnings on Thursday but was forced to delay the pronouncement following its auditor’s revelations. Wirecard is yet to announce a new date for the earnings announcement. The payment processor has already delayed its 2019 results three times since March, all the while claiming that it "expects an unqualified audit opinion".
Predictably, Wirecard’s stock price is in a tailspin. The stock crashed by 60.9 percent on Thursday, ending the day at €38.90 relative to the opening price of €99.50. On Friday, the stock has resumed its downward trajectory and is currently down another 33.96 percent to €26.24, as of 08:15 a.m. ET.
Of course, Wirecard appears to have committed a litany of alleged fraudulent activity. For instance, a report by the Financial Times in October 2019 alleged that Wirecard fraudulently inflated the top-line and bottom-line metrics of its subsidiaries. Moreover, the German stock market regulator is currently investigating Braun over insider-trading allegations. This is a significant charge given that Braun is one of the largest shareholders in the company, holding a stake of over 7 percent, as per the FactSet data.