Which is the most amazing data structure

Accounting fraudMock giant Wirecard

The day on which Raimund Bau and Sebastian Gabel suspect that they will lose their company begins with the usual meeting marathon. It's June 18, 2020, and the founders of the big data start-up SO1 are sitting with a small team in the offices in Berlin to plan the future. Three months ago, Bau und Gabel sold SO1 to the payment service provider Wirecard, and now they are to turn it into an ambitious advertising business within the Dax Group: finally gild the treasure trove of data from the billions of Wirecard transactions. Actually.

The plans are promising, but they both feel uncomfortable. For a few days now, your contacts at the headquarters in Aschheim near Munich have hardly been reached. Something, they think, is in the bush. In the previous weeks, Wirecard had postponed the presentation of its consolidated financial statements several times, and CEO Markus Braun's board of directors is due to do so on June 18 - and finally silence all the critics.

Shortly after 11 a.m., the Berlin group heard the news that there would be no annual financial statements. Instead, the auditors announce that they have found a € 1.9 billion hole in Wirecard's balance sheet. “There was a standstill and utter horror,” says one who was there.

The news marks the end of one of the most amazing stock market fairy tales that Germany has ever seen: the fairy tale of the rise of a small, windy online payment provider to a Dax heavyweight, the story of the supposedly highly innovative tech group Wirecard. Its soaring ends in the bankruptcy filing the following week, the share plummets within days by a good 98 percent.

Old technology, hardly any money

There are many losers in this crash, small investors and fund managers, business partners and employees - and many who wonder how it got this far. In order to trace the less than glamorous inner workings of the former stock market star, Capital spoke to some high-ranking current and former employees as well as partners of the company. None of them had direct insight into the alleged fraudulent activities of CEO Markus Braun and COO Jan Marsalek, with which assets, income and profits were apparently inflated for years. But many of them, in retrospect, recognize clues that should have made them suspicious.

And above all, they describe a company that had little to do with what Braun sold to the outside world. Instead, they report on a corporation that processed payments on a large scale, but hardly made any money with them and also largely had to fall back on outdated technology; from a team with many good people, but in which the management set the wrong priorities; and by a management that was increasingly desperate to somehow build a real business with real income with acquisitions like SO1.

Wirecard in a hurry

For Bau und Gabel, the sale to Wirecard was actually something like the happy end of a long, tiring journey. In 2012, the two founded SO1 and developed software that retail chains could use to calculate individual discounts for their customers. But the market turned out to be stiff. In 2019 they were faced with the decision to either start another large financing round, for which the chances were bad - or to look for a buyer.

There were several interested parties, but Wirecard put the most pressure on. They were obviously in a hurry: the first talks in December 2019, and the signature in mid-March 2020. Then the start-up with its three dozen employees belonged to the payment group with over 5000 employees. The purchase price: a respectable double-digit million amount.

Wirecard did not score with the highest bid, but with a vision. A completely new business area was to emerge from SO1: an advertising network that could soon compete with Google or Facebook thanks to the mass of transaction data. The SO1 founders were supposed to manage the acquisition of additional companies, thus increasing the team to around 100 employees by the end of the year - and thus creating the nucleus of a new Wirecard.

It all sounded pretty good. And so the SO1 round quickly picks up again even on June 18th. While the exchange is being captured by the news, the team goes to lunch at the Korean restaurant. It discusses ways out of the chaos, everyone knows about their unique technology - it would be negligent not to make anything of it. You think of the strong sales force in Aschheim. Maybe you can at least use it for yourself?

Only a few days later do they have to realize that this will not happen. Bau travels to Munich to discuss the future of SO1 with the remaining board member - just, if you explain to him, it no longer makes sense. For Wirecard, it's all about survival.

Wirecard AG then had to file for bankruptcy on June 25th, and construction one day later. The founder mourns the loss of his "baby, which we raised with a lot of effort and against resistance in the market and from investors," he describes it to Capital. “We wouldn't have imagined the end that way.” But that's all he can get out of his Wirecard adventure.

Others are more open. For example, when it came to Wirecard's core business: processing various payment methods for merchants for a fee and responding to failures. Not a bad business idea - only nowadays the whole thing is hardly technically demanding and therefore chronically low-margin. There is an “uncanny price war” in the industry, says an insider, and Wirecard has also won its customers primarily “through pig prices in the market”. There are better margins if you can set yourself apart technologically (which Wirecard did not succeed in), or if you get involved in dirty business.

Wirecard: chronology of a scandal

@imago images / Dean Pictures
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October 2, 2018: "Financial Times" surcharge

In a portrait of Wirecard and its rise to the Dax, the British "Financial Times" reports on open questions that the group has raised. Wirecard has expanded by buying smaller companies, but analysts have reported difficulties in finding evidence for these companies. The analysts from Citi and Barclays cited in the article see no basis for doubts about the company, but note that the reasons for Wirecard's growth are not easy to understand.

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January 30, 2019: Allegations against Wirecard managers

According to a critical report in the "Financial Times", Wirecard shares have now plunged by more than 20 percent. According to research by the British newspaper, a senior manager in the Group's Singapore office allegedly forged and backdated contracts. The contracts are said to have illegally shifted money between several subsidiaries. A whistleblower had disclosed the information in a presentation. Wirecard denied the allegations.

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January 31, 2019: Bafin announces investigations

The financial supervisory authority Bafin came to Wirecard's aid in February 2019 with a short sale ban. The authority saw the group as a victim of a "short attack"