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Following the arrest of Markus Braun, former CEO of Wirecard on the alleged missing of $2 billion, the German-based company has filed for insolvency. WDI stock is 75% down today.
Wirecard AG (ETR: WDI), an established German Payment Company, is experiencing the worst season in its history and has filed for insolvency following a $2 billion loss discovered by auditors a week ago. The management of the European payment service firm opened a proceeding it said was imperative “due to impending insolvency and over-indebtedness.” This also follows the arrest of Markus Braun, the company’s former CEO who was arrested on account of the falsification of accounts.
The current state of affairs has spiked one of the worst trading development seen this year. The company’s stock has plummeted by over 75% today. The embattled company has experienced a series of changes in the past few days and future continuity though in doubt will show how resilient the company is. A sign that may impress investors which can have a huge impact on the future growth of the company.
Anything Shaky about Wirecard?
A major question that comes to mind remains whether there is a questionable loophole in Wirecard’s foundation that can permit its subsequent exposure to such a huge scam. Taking a peek down the company’s history, the predecessor company of Wirecard regarding the was InfoGenie AG based in Berlin, whose shares had been listed in the Neuer Market stock market segment since October 2000. This company was active as an information service provider offering telephone advice hotlines on various topics.
When the shares became penny stocks following price losses, the stock exchange operator Deutsche Börse wanted to exclude InfoGenie from the Neuer Markt, which was prohibited by a court in April 2002. In mid-December 2004, an extraordinary general meeting of InfoGenie decided to transfer the non-listed Wire Card, whose core business was real-time payment processing on the Internet including risk assessment, to InfoGenie AG by way of a capital increase against investment in kind on 1 January 2005, and to rename InfoGenie to Wire Card. Thus, Wire Card became a stock corporation listed in the Prime Standard stock market segment through a reverse IPO. In 2006, Wirecard was included in the TecDAX and in September 2018 in the DAX.
Wirecard has an extensive international presence with subsidiaries in the United States, United Kingdom, United Arab Emirates, South Africa, New Zealand, and a host of other countries. Wirecard AG through its history and its successful M&A activity shows the company has a good foundation with a great framework for growth.
Backdrop of This Current Controversy with Wirecard and $2 Billion
Wirecard AG became the subject of the London-based Financial Times report in January 2019. The media outlet reported that a senior executive was suspected of “falsification of accounts” and “money laundering” in the company’s Asia-Pacific operations. As expected, the company refuted the claims and sued Financial Times “unethical reporting” and market manipulation.
The buried claim by Financial Times is now resurfacing to the limelight with the $2 billion which can be linked to the inflated balance sheet charges levied against Wirecard ex-CEO Markus Braun. This accounting loophole may eventually lead to the downfall of this well-celebrated tech company.
The Wirecard’s situation is such that it calls for a complete overhaul of the company’s internal processes and records. More investigation is needed to address every fraudulent damage which is imperative before any resuscitation strategy is devised. For what it’s worth, a great job lies ahead of the new CEO James H Freis.