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The logo of Germany's Federal Financial Supervisory Authority BaFin stands outside an office in Bonn, Germany, on April 15, 2019.

WOLFGANG RATTAY/Reuters

In the elite corridors of corporate Germany, Markus Braun had become a legend.

A little-known entrepreneur until just a few years ago, Mr. Braun had forged an obscure Bavarian company called Wirecard into a German tech icon, winning a coveted spot on the benchmark DAX stock index. Wirecard provided the invisible financial plumbing that, with a wave of plastic over a card reader almost anywhere in the world, made transactions happen. Hedge funds and global investors scrambled to buy shares.

When critics raised red flags about the company’s seemingly miraculous success, questioning murky accounts and income that could not be traced, Mr. Braun, a methodical executive from Austria who was the company’s biggest shareholder, hit back repeatedly, and the stock price skyrocketed.

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But Thursday, Mr. Braun’s empire came crashing down after Wirecard filed for insolvency proceedings, days after the financial technology company acknowledged that 1.9-billion euros ($2.9-billion) that it claimed to have on its balance sheets probably never existed. Its long-time auditor, EY, formerly Ernst & Young, said the company had carried out “an elaborate and sophisticated fraud.” Mastercard and Visa said Friday that they were considering cutting ties.

Wirecard, which owes creditors 3.5-billion euros ($5.37-billion), said its survival was not assured, sending its battered shares below 2 euros Friday from more than 100 euros a week ago. The European Commission on Friday opened an investigation into Germany’s financial regulator for failing to catch the problems, despite numerous reports of wrongdoing.

How one of Germany’s most feted companies fell from grace – it is the first listed member of the 30-year old DAX to go bust – is something investigators in several countries are still trying to piece together. German prosecutors arrested Mr. Braun on Monday on accusations of inflating sales volume with fake income to lure investors, and authorities are searching for Jan Marsalek, his former chief operating officer, who was fired Monday and may be in Asia.

The Philippine government is investigating the missing 1.9 billion euros, which Wirecard claimed to have held in two Philippine banks; the banks said last week that they had never dealt with Wirecard.

But one thing is sure: Anyone paying attention should not have been surprised. Since 2008 Wirecard attracted skeptics who wondered how the company could generate the worldwide revenue it claimed. The questions, raised by analysts and investigated in a series of articles in The Financial Times, were repeatedly waved away by Mr. Braun, whose global ambitions grew with the stock price.

Wirecard and lawyers for Braun did not respond to requests for comment. Braun did not enter a plea before he was freed on bail because he was not charged.

Although Wirecard was smaller and less known globally than rivals like PayPal, the criticism was seen as an attack on a homegrown success story. It drew the attention of Germany’s financial regulator, BaFin, which investigated the people asking the questions – often short sellers, who stood to gain by falling shares, and journalists – rather than the repeated allegations of financial shenanigans.

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Critics said they were subject to a harassment campaign, including phishing attacks by hackers to gain access to e-mail accounts and intimidating surveillance outside their homes and offices. Wirecard has denied any wrongdoing.

Scrutiny of BaFin has intensified since the president, Felix Hufeld, acknowledged this week that officials had failed to prevent a calamity. “The situation is a complete disaster,” he said.


Britain’s financial regulator Friday ordered Wirecard’s U.K. subsidiary, which handles e-payments and prepaid cards, to suspend activities.

And EY, which faces litigation from distressed shareholders and bondholders who say it didn’t do its job, now says it was duped: “There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world.”


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Mr. Braun, 50, who lives in Vienna, joined the Munich-based company in 2002 when it was a fledgling startup and on the verge of collapse. A computer science expert and self-described “pathological optimist,” he had previously worked for KPMG’s consulting business.

He built up Wirecard by initially offering its services to pornography and gambling sites – growing businesses that other online payment companies tended to avoid. By 2005 the company was listed on the Frankfurt Stock Exchange, and Mr. Braun opened a banking division, which issued Visa and Mastercard credit cards.

Questions about Wirecard’s finances began surfacing in 2008 after the head of a German shareholder association alleged the company’s 2007 consolidated accounts were incomplete and misleading. Wirecard hired EY to conduct an audit, which showed no irregularities. An author of the association’s report was prosecuted and briefly jailed for not disclosing short positions he held in Wirecard stock, from which he profited when the share price fell.

Wirecard continued to prosper by making contactless payments seem effortless and attracting what it said were thousands of new merchants. Between 2011 and 2014, the company raised 500-million euros from shareholders and began an aggressive international expansion. It bought up small third-party payments companies called merchant acquirers around Asia, luring more investors and lifting the share price.

The accounting scandal centres on escrow accounts set up by several of those businesses, which allowed Wirecard to operate in countries where it didn’t have a licence, including Singapore, Indonesia, Malaysia, Dubai and beyond.

The merchant acquirers, which provide retailers with credit card payment terminals that were then plugged into Wirecard’s payments system, generated a large chunk of revenue and profit for the company over years. They were supposed to have deposited revenue for Wirecard into the escrow accounts. But the company said this week that the funds might never have existed.

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Analysts and short sellers said they had quickly noticed irregularities.

Mark Hiley, a founding partner of London-based independent research provider The Analyst, which makes recommendations for short sellers, was among a handful of outspoken critics. Since 2014, he has written 43 reports highlighting why Wirecard was what he called “a house of cards” as it dished out hundreds of millions of euros to acquire such operations throughout Asia.

“When you looked at the local companies’ financial filings, you could see they were very small businesses, with very low revenue and limited profitability,” Mr. Hiley said. “We were concerned: Why were they paying so much money for these small, barely profitable companies?”


The mystery deepened when Wirecard reported the merchant acquirers were suddenly raking in big money. “They literally went from unprofitable businesses to highly profitable ones in the first year,” Mr. Hiley said. “It just didn’t pass the smell test.”

The businesses provided Wirecard monthly reports of combined revenue from merchant transactions but no detailed breakdown, according to Mr. Hiley. While Wirecard said such income eventually accounted for around half its total revenues – making Wirecard look ever more profitable to investors – the arrangement prevented Wirecard’s auditors from being able to verify the accounts.

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Scrutiny grew when Wirecard bought an Indian payments business for 340-million euros ($522-million) in 2015, its biggest deal to date. That year, J Capital Research, which provides investment advisory services, published a report stating that Wirecard’s Asia operations were smaller than the company had led investors to believe. Wirecard accused short sellers of paying for the report.

The following year, Financial Times journalists who had begun running a series of articles raising similar questions – as well as analysts, hedge funds and short sellers who had been critical of Wirecard – reported becoming targets of prolonged hacking campaigns.

Among them was Matthew Earl, an investor and co-author of a report by Zatarra, a financial research and investigations firm that claimed to have identified alleged money laundering inside the Wirecard empire. Earl said he suspected that Wirecard was falsifying its profit and balance sheets, partly through buying companies at high prices – including the Indian firm – where the purchase money went to related parties and was then returned back to Wirecard.

Soon after the reports were published, Mr. Earl said he started being followed and watched at his home and office, and became the target of a phishing campaign featuring sophisticated e-mails that included extensive personal details about him and his family.


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“I estimate I received a total of 3,000 phishing e-mails, while e-mails were also fabricated and circulated to discredit me,” Mr. Earl said in an interview. He said he had also received “extremely aggressive letters” from Wirecard’s lawyers that threatened a libel suit and a police complaint.

Mr. Hiley of The Analyst recounted a similar experience when he sent an investigator to India last year to verify his suspicion that the business was not bringing in as much money as Wirecard claimed. When the investigator went to the address listed for the local affiliate in Chennai, India, he found a small office in a dilapidated building.

The investigator called Mr. Hiley immediately. “There is no real business here,” Mr. Hiley recalled the investigator telling him. “There’s a few employees, a few broken laptops, but I can’t find any customers,” the investigator added. When the investigator left, Mr. Hiley said, he was followed in his taxi “by a couple of guys in tuk tuks” and was so spooked that he changed hotels for safety.


Despite the critical reports, Wirecard was becoming part of Germany’s corporate elite. It leapt into the DAX index in September, 2018, knocking out the stalwart Commerzbank and causing a sensation in the country. In April, 2019, BaFin filed a criminal complaint against several short sellers and two Financial Times journalists after Wirecard accused them of negative reporting to drive down the share price.

Mr. Braun was moving more into the spotlight, becoming an A-list speaker at technology and payment conferences, where he was hailed as a “hero” and “rock star,” and eventually began wearing Steve Jobs-style black turtlenecks. He promoted the concept of a fully cashless society from which players like Wirecard stood to benefit and predicted that all retail payments would be digital within a decade.

“The aim of the board is to conquer the world in a powerful, organic way,” German newspaper Welt reported him saying in 2018.

But late last year, as more reports of suspected wrongdoing emerged, the company delayed EY’s annual report for 2019 and hired KPMG to provide an independent assessment of its books.

The audit, released in April, did little to douse the growing fire. In the most serious finding, covering 2016 to 2018, KPMG said it was unable to verify the existence of 1-billion euros ($1.53-billion) in revenue that Wirecard booked through three third-party acquiring partners.

As institutional investors called on him to resign, Mr. Braun remained defiant, saying the audit had found no evidence of wrongdoing. He refused to restate Wirecard’s accounts for those years.

German financial regulators redirected their scrutiny from critics to the company itself. On June 5, prosecutors raided Wirecard headquarters and opened proceedings against management on suspicion of releasing misleading information that may have affected Wirecard’s share price. On June 17, EY said it would not publish its long-delayed annual report and audit because it could not account for the missing 1.9-billion euros ($2.9-billion).

Mr. Braun and the board said the company was the victim of fraud. But two days later, Mr. Braun was out.

By Friday, Wirecard had all but crumpled into insolvency.

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