Larger events often have mundane origins. In the summer of 2014, Dan McCrum, an aspiring journalist for the Financial Times (FT), met Australian hedge fund manager John Hempton. He asked, “Are you interested in some German gangsters?” McCrum did. In his book, House of Wirecard, he described what happened next.
The Briton studied for seven years, after which Wirecard’s house collapsed. Balance sheet fraud, initially apparently on a relatively small scale, has acquired a dimension over the years that could end in bankruptcy only if it was discovered. “How I Discovered the Biggest Economic Fraud in Germany and Toppled the Dax Group” is a self-confident subtitle that is by no means a boast. McCrum was not alone, he had helpers, good informants, whistleblowers, all of which appear in his book. The more he wrote about Wirecard, the more he learned.
[Wenn Sie alle aktuellen Nachrichten live auf Ihr Handy haben wollen, empfehlen wir Ihnen unsere runderneuerte App, die Sie hier für Apple- und Android-Geräte herunterladen können.]
If McCrum and the Financial Times had not been so persistent, they would have been swept off their suspicions early if attempts to prevent the discovery of fraud had been successful – who knows what would have happened to Wirecard. After all, the leadership managed to find support even in the federal government. However, the German authorities initially did not investigate German gangsters (the two probably largest are Austrians), but McCrum and his colleague Stefania Palma. The Wirecard affair is something like the David and Goliath affair. McCrum tells them in an exciting way.
Even the company’s beginnings were disastrous. Early advances in the payment processing industry were mainly achieved through transactions in the “high risk area” of gambling and pornography. Wirecard has never been a true technology company. They were especially inventive when it comes to building complex business relationships to hide financial flows. Finally, Deputy Chief Jan Marsalek (according to McCrum, he moved “smoothly between investors, oligarchs and spies”) outlived his talent. That’s one of the reasons the crazy growth story was sold – which was largely based on imaginary sales, recently in the billions.
McCrum quotes stock market pro Leo Perry with whom he worked: “When you fake a sale, you have a problem with counterfeit money. At the end of the year, the auditor expects to find a balanced bank balance – this is the first thing he checks. So you have to spend bogus money on bogus assets. ” Wirecard did this mainly in Asia. The auditors did not check whether the purchased companies actually existed or whether they were worth the purchase price.
One purported partner company lived in the fisherman’s private home, while another shared the address with a small bus company. McCrum and Palma noticed such quirks as they flew to see them. One of the most beautiful passages from the book is how Wirecard managers tried to lead even those auditors who eventually went to Asia for spruce. However, Wirecard not only cheated with vague company acquisitions to pretend to be a sale.
The company also used business contracts with third parties to counterfeit commission payments sent to alleged fiduciary accounts somewhere in Asia – counterfeit money that strained the balance sheet. Marsalek’s ever-expanding wheel relied heavily on cash flow from just three companies in Dubai, Singapore and Manila. It was thanks to him that most of the alleged profit of the group was made.
Insight into investigative journalism
House of Wirecard gives you pretty good insight into investigative financial journalism. Anyone who is having fun there shouldn’t be too pious and too moral – and be prepared to feel uncomfortable. “If you want to investigate it, be careful,” said Hempton in 2014. In the course of his research, McCrum actually felt uncomfortable more often because he felt that he was being watched, spied on, and followed. Another advantage is a good in-house lawyer.
Part of this investigation activity is working closely with short sellers. This species is not always transparent and clean. But people who bet on falling company prices in order to achieve high profits not only lower prices with the help of rumors and more or less reliable analysis. To be truly successful, they must also have solid facts or at least strong opinions supported by research. McCrum used it extensively.
His boss, Paul Murphy, also had a useful and questionable “resource pool” in the London underworld and underworld that the Wirecard people used against FT because they wanted to portray journalists as corrupt. Most importantly, however, McCrum and Palma stumbled upon an informant named Pav Gill, Wirecard’s general counsel in Asia, who provided key guidance and paperwork. Working painstakingly and in detail, McCrum – sometimes working in a protected area at the FT editorial office – assessed the material. As always in life, so here: Discovering the Wirecard scandal was a mix of luck and hard work.
Little has been read about the responsibility of German authorities and politicians, and if so, the surprise of the British at the slightly different situation in Germany cannot be overlooked. His impressions of the Wirecard Bundestag inquiry committee that heard him: “excessive and disordered”. The Federal Ministry of Finance, headed by Olaf Scholz in the key phase of 2018-2020, is rarely mentioned.
However, McCrum mentions one of the craziest events in the story: the “Panther Project”, the Wirecard takeover of Deutsche Bank. In fact, in 2019, Braun and Marsalek came up with the idea of taking over Germany’s largest bank. “At this scale, Wirecard’s balance sheet problems will disappear in the catacombs of Deutsche Bank and will never see the light of day again,” writes McCrum. This would be “the greatest bank robbery in history.”
Consulting firm McKinsey also wrote a feasibility study. According to McCrum, PR consultant Marsalka – in the book he is only referred to as “Mr. Samt” – contacted the Swiss bank UBS, which was to support the transaction. In Berlin, the then CDU CEO Annegret Kramp-Karrenbauer (a potential successor to Merkel) and the Secretary of State for Finance Jörg Kukies, former Goldman Sachs manager who has now moved to the firm with Scholz, were followed.
What was happening in Berlin?
At Wirecard, they would both likely endorse the project. In a footnote, McCrum adds that Kukies said he was not contacted and agreed to the acquisition. Shortly before that, an attempt by the Ministry of Finance to convince Deutsche Bank and Commerzbank to merge failed. At that time, the Scholz department wanted to create a “national champion” in the financial sector. During this time, there were also two management-level discussions between Deutsche Bank and Wirecard.
[Lesen Sie dazu auch bei Tagesspiegel Plus: China, Fusionsideen, Geheimdienstliches]
So, in 2019, something was happening that would not have happened without the approval or involvement of the government. How this influenced the political perception of Wirecard in Berlin can only be speculated. The detection of an accounting fraud definitely ended everything that was considered, what was expected, what was prepared or difficult.
McCrum mentions in the introduction that Olaf Scholz thanked him for his commitment. In his laudatory speech at the presentation of the German Reporters’ Award in December 2020, Scholz said that McCrum had “made a great contribution to the rule of law, our community and – and I want to say it very clearly here – also to Germany as a financial location.” on 450 pages.