Markus Braun Arrested On Charges Of Inflating Company Value
It looks like Kylie Jenner isn't the only entrepreneur to
fudge her company's bottom line (allegedly, of course). Wirecard's former CEO
Markus Braun has been arrested. It seems $3.7 billion went missing from the
company's accounts and he's accused of inflating the value of the company, its
sales, and created fake transactions to make Wirecard more attractive to
investors.
That $3.7 billion is about a quarter of Wirecard's assets –
or, it would be if that money was, you know, real and not a total fraud (again,
allegedly). Braun was released from custody on $5.7 million bail. As a result
of this scandal, the company is now defunct and it also had to withdraw its
company results for all of 2019, the first quarter of 2020, and its profit
forecast for all of 2020.
The missing funds (you know, the phantom ones), were spotted
by an auditor a few weeks ago. As a result, the auditor refused to sign off on
the financial results for Wirecard. How could company regulators and previous
auditors miss so much money? That's what authorities want to know. Braun
resigned as CEO. Jan Marsalek, the COO and a member of the board of directors
was fired. Reportedly, two other executives are being questioned.
Wirecard was founded 21 years ago, in 1999. It was long
considered to be one of the best and up and coming tech companies in Europe.
Wirecard employs about 6,000 employees in 26 countries across the globe.
Wirecard processes payments for businesses and consumers. It also sells data.
In 2002, Markus Braun left his consulting job at KPMG to join Wirecard as its
CEO and CTO. He is the largest shareholder of the company, with just over 7% of
shares.
Braun was born in Vienna, Austria in 1969. He graduated from
the Technical University of Vienna with a degree in computer science. In 2000,
he earned his Ph.D. in social and economic sciences. He worked as a consultant
at Contrast Management Consulting GmbH until November 1998. From 1998 until
2001, he was a consultant at the Munich, Germany office of KPMG Consulting AG.
In 2002, Braun joined Wirecard as CEO and CTO. The company was one of the most
valuable companies on the German stock market. After Braun joined Wirecard, the
company turned its focus to online payment services, signing up pornography and
gambling websites as clients. A 2007 audit of the company was clean and gave no
cause for concern. That same year, the company moved into banking, issuing
credit and debit cards thanks to a licensing deal with Visa and MasterCard.
Wirecard grew rapidly due to its quick expansion into international markets by
acquiring local companies.
In 2017, Braun told Wirecard's investors that the company
was using the latest artificial intelligence to analyze data. This turned out
to not be true. In actuality, his staff was putting together normal old
spreadsheets to analyze data. In early 2017, Wirecard acquired City Prepaid
Card Services and relaunched it as Wirecard North America.
In 2018, Wirecard reported revenues of more than $2.2
billion, which was four times higher than the company's 2013 earnings. In
September 2018, Wirecard's stock hit an all-time high of $218. That same month,
Wirecard knocked Commerzbank out of the list of the top 30 companies in
Germany. At that point, the company's market cap was around $27 billion.
The company moved into the Chinese market in late 2019 with
the acquisition of AllScore Payment Service in Beijing.
In June 2020, the audit revealed more than $3.7 billion in
missing funds from Wirecard's accounts. There was a frantic scramble to try and
find the money but that went dead last weekend in the Philippines when that
country's central bank confirmed that those funds had never entered the
country's financial system. Shares of the company tanked more than 85% and
Wirecard's market cap plummeted to $1.9 billion. Wirecard tried to keep its
creditors at bay, to no avail.
Prosecutors now believe that Wirecard knew it had been
losing money since at least 2015 and its executives executed an organized,
thought out fraud to hide that fact.
It all started to unwind in January 2019 when it was
revealed that Wirecard forged and backdated contracts in Singapore. The company
denied this, but the whistleblower remained adamant that the suspicious
transactions were real. Then, late in 2019, it was revealed that profits and
sales had been exaggerated. The company is now being investigated for market
manipulation. The regulator who runs the European Central Bank's supervisory
board called the scandal a "total disaster."
Days after Markus Braun resigned, Wirecard filed for
bankruptcy. It is the first company on Germany's blue-chip DAX stock index to
go out of business.
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