The head of Germany’s financial watchdog suggested Wirecard might be the victim of an elaborate plot by short sellers even after the company discovered that €1.9bn of its stated cash was missing, according to three people briefed on the matter and a document seen by the Financial Times.
Felix Hufeld, president of BaFin, raised the possibility with Wirecard chairman Thomas Eichelmann, according to these sources, in a phone call that took place last June after the payments group’s auditor EY was informed by two banks that documents purporting to confirm the company’s cash position were “spurious”.
Two of the people said Mr Hufeld told Mr Eichelmann that he thought there was a 50-50 chance that the reported missing cash was part of an attack by investors betting against the company’s share price.
The documented incident shows how strongly BaFin clung to the notion that Wirecard was a victim rather than a perpetrator of fraud even after EY refused to audit its 2019 results.
For years, BaFin had dismissed reports of fraud at Wirecard and filed a criminal complaint against FT reporters, alleging they colluded in market manipulation. The case was dropped after Wirecard filed for insolvency, having acknowledged the €1.9bn probably did “not exist”.
BaFin said Mr Hufeld had several phone calls with the chairman, but denied that at that point he believed short sellers might be behind the group’s woes.
“In mid-June, BaFin did not have any insights about potential short seller attacks against Wirecard. In his talks with Wirecard’s supervisory board, Mr Hufeld at no point described such a scenario as likely,” BaFin said, adding that the written summary of the call seen by the FT was “evidently wrong”.
Mr Eichelmann declined to comment.
According to the document seen by the FT, Mr Eichelmann on June 18 briefed the supervisory board about his conversation with Mr Hufeld. According to that account, the BaFin president pointed out that “the content and wording” of the letters from two separate Manila-based banks to EY was “very similar”.
Mr Hufeld also was said to have noted that one of the letters was signed by a vice-president, a relatively low-ranking employee. He was reported to have said that the documents would appear like “co-ordinated statements” and may represent “a campaign that is directed against the company”.
One person with knowledge of the discussion said Mr Eichelmann was “really perplexed” about Mr Hufeld’s assessment as it sounded similar to the view of Wirecard’s then-chief executive Markus Braun. Until Mr Braun was pushed out of the company on June 19, he stressed that the bank letters reflected a “misunderstanding” which would be resolved soon. He is now in police custody.
In a separate, earlier conversation with Wirecard representatives on June 17, a different BaFin employee expressed disbelief about the letters in which the two banks pointed out that previous balance confirmations were “spurious”.
BaFin told a lawyer working for Wirecard that it was “incomprehensible” how two letters from banks could “call all facts that were previously audited [by EY] into question”.
The Philippine central bank a few days later said Wirecard’s missing cash never entered the country’s banking system and the company disclosed that the money probably did “not exist”.
Wirecard, which later acknowledged that large parts of its Asian business were a sham, filed for insolvency within a week.
BaFin has long been under fire for its mishandling of early warning signals of misconduct at Wirecard. After short sellers in 2016 published fraud and money-laundering allegations, the regulator discussed the “homogeneous cultural background” of investors betting against the company, noting they were “mainly Israeli and British citizens”.
In 2019, it temporarily protected Wirecard from short sellers, brushing aside Bundesbank concerns and filed the criminal complaint against the FT journalists.
At the same time, dozens of BaFin employees were heavily trading Wirecard shares and derivatives, with some of them breaching disclosure rules. One of the employees left BaFin at the end of November after his contract was terminated.
Fabio De Masi, an MP for the leftwing Die Linke party, called for the dismissal of Mr Hufeld and BaFin vice-president Elisabeth Roegele, who is in charge of securities supervision.
“Finance Minister Olaf Scholz eventually needs to act. Mr Hufeld and Ms Roegele allowed themselves to be used by Wirecard and even believed in a conspiracy when Wirecard was already collapsing,” he told the Financial Times, adding that a “clean break” was needed to restore the reputation of Germany’s financial regulators. “Business as usual is over,” said Mr De Masi.