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Monday, July 6, 2020

Wirecard flameout may threaten third parties

Bankruptcies may be common among make-it-or-break-it fintechs, but the massive scale of Wirecard's demise sparked legal actions and discussions across the payments sphere. Financial analysts noted that Wirecard's public filing in German courts, comparable to a U.S. bankruptcy petition, shows the dark side of payments industry interdependence.

Media outlets reported that SoftBank is trying to distance itself from Wirecard following the arrest of Markus Braun, Wirecard founder and CEO, who is being investigated for fraud. A July 2, 2020, article by Paul J. Davies in the Wall Street Journal, "How Wirecard Went from Tech Star to Bankrupt," describes Wirecard's fictionalized earnings as an "Enron-like scandal."

"Wirecard revealed on June 18 that $2 billion it had told its auditors was in a pair of Philippine banks wasn't there at all," Davies wrote. "The sum is equivalent to the company's entire profit over more than a decade."

Missing money, fleeing perps

Speculating that Wirecard's missing money had probably never existed, Davies noted that auditors are trying to determine if the company made up sales numbers to fool investors. Braun is out on bail while another executive, last seen in the Philippines, remains at large, he added.

Additional reports circulate as Wirecard's downstream channel partners and affiliates seek compensatory damage relief. SoftBank told Caitlin Ostroff and Margot Patrick, reporters for the Wall Street Journal's London bureau, that it issued convertible bonds as part of a billion-dollar cash infusion for Wirecard, a deal completed several months before Wirecard crashed. These allegations are further detailed in "SoftBank Seeks to End Partnership With Wirecard," published July 1, 2020, in the journal.

"The convertible bond and the [five-year] partnership with SoftBank were seen as a stimulus injection for Wirecard," Ostroff and Patrick wrote. "In early 2019, its stock price was under pressure after a Financial Times article aired a whistleblower's allegations of questionable accounting, which the company denied at the time."

Pollution flows downstream

Agnė Selemonaitė, deputy CEO at ConnectPay, an online banking service provider and Wirecard channel partner, issued a statement on July 2, 2020, demanding restitution from Wirecard.

"We've reached out to the Wirecard team, which has assured us that they are planning to resume operations this week, stressing that the basis for temporary operating issues is only related to the FCA inventory count of the existing card balances," Selemonaitė stated. "Though card issuing and operations were successfully restored on Tuesday, we are negotiating various back-up options to ensure our clients are not affected by similar situations in the future."

Selemonaitė expressed hopes that her press release will encourage other affected parties to come forward and engage in meaningful discussions about damage repair and fraud prevention. When the dust settles, we may see more backlash against third-party service providers as payments companies strive to become more self-reliant, she added.

"In case of a third party error, companies cannot avoid difficulties within their own service, because of how integrally linked both parties are," Selemonaitė stated. "That's why currently we are analyzing various long-term options to remove any third party supply from our corporate card services provision, and to ensure that [the] current situation does not occur in the future." end of article

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