EY Auditor Says You Must Double Check Custody Accounts And Shares Plummet
The promise of the German fintech companies, Wirecard, informed its shareholders that it cannot publish its annual accounts for the 2019 financial year. It is the third time that the publication of these results has been postponed for reasons related to a six-month investigation carried out by the KPMG auditor. According to the concise note to shareholders, the company indicates that the EY auditor informed it that it must proceed to new audit procedures on a certification because the two banks that were to notify the existence of “funds in custody accounts affirm that the numbers of those accounts don’t match. ” The note states that “the trustee in charge of the custody accounts is in continuous contact with Wirecard and the banks.” Both the trustee and the banks were appointed in 2019, according to the company, but omits to say in the note that this is so because the previous trustee disappeared. “Wirecard’s respective subsidiaries have paid substantial security deposits of € 1.9 billion in those escrow accounts to ensure risk management of participating merchants. Custody accounts are managed by two Asian banks with a high ‘rating’. The trustee who has been in charge since 2019 has numerous mandates in Asia, ”says the company. In other words, the banks in which the custody accounts are supposed to be say that the accounts do not exist and, as a result, 1.9 billion euros are missing.
Wirecard CEO Marcus Braun notes that: “We are in contact with the trustee present on the site. Confirmations previously issued by banks are no longer recognized by the auditor. All parties involved strive to clarify the matter as soon as possible. It is not clear now whether fraudulent transactions have been made to the detriment of Wirecard. Wirecard is going to file a lawsuit against unknown persons (SIC). ” A six-month investigation carried out by KPMG last year failed to establish the operations that bear part of the benefits that the company attributes to itself between 2016 and 2018. According to said investigation, part of the profit obtained in the suspicious operations has gone to stop custody accounts held by a trustee. KPMG said in its special audit published in April that it was unable to establish the existence of € 1 billion in such accounts and that the trustee in charge of them severed its relationship with Wirecard when the audit began.
The announcement of the new postponement of the accounts that should have been published in March, together with the unknown whereabouts of 1.9 billion euros, precipitated a 70% drop in the bank’s shares. The capitalization of the same went from 24,000 million euros two years ago to 5,000 million this week. The hope of German fintech companies has left their survival in a shadow cone. The payment company channels operations with credit cards for tens of billions of euros and participates in the payment systems of the Visa and Mastercard networks. One of the benchmark shareholders of the bank-licensed payments company, Deka Investments, had already requested the removal of Marcus Braun from his position and from the board of directors. Given the current situation, some shareholders have redoubled their call for a renewal of the company’s controls and council. However, independent analysts consider the company’s situation to be extreme. Creditor banks can claim the return of financing lines of up to 2,000 million euros if the annual accounts are not published today, June 19.
Sources with access to the company’s internal documentation and aware of its operations, have leaked incriminating data last year against the procedures used by Wirecard to inflate its results. Last October the Financial Times analyzed documentation from which it was deduced that the company had illegitimately inflated profits in Dubai and Dublin through intervening companies that at least apparently lacked relevant activity. The data suggested that the company had misinformed and misled its auditor, EY, for a decade. In December, the same media reported that the so-called custody accounts managed by trustees were used to increase the company’s cash positions on its balance sheets. The observation by KPMG that it had not been able to verify the existence of the balances that would exist in those accounts and that, according to its verification procedures, there would be an imbalance of 1,000 million euros, triggered the alarms. The observation now by EY that the certifications requested from the banks seem to demonstrate the absence of 1.9 billion euros has underlined suspicions about Wirecard’s accounting.
The bank faces multiple investigations. About their accounting practices. On information to shareholders. On the operations in shares of the company by its CEO Braun. Markets supervisor BaFin said this week that it will take the latest developments into account in its investigation into the potential manipulation of the market in the value of shares by Wirecard. Suspicions about the manipulation of the company’s accounting sparked downward speculation about the company’s shares, operations in which the hedge funds were primed and made strong profits. Last year Wirecard’s offices in Singapore were searched by the police, and its executives were required to testify for operations suggesting that money had been put into capital accounts to strengthen local financial positions, and then went out to do the same at other affiliates of the company in Asia. Following the incident, BaFin suspended the shorts on Wirecard’s shares. Observers believe that the surprises about the company’s accounting practices have not yet come to an end.