
Germany’s top financial supervisor dismissed a decade of warnings about Wirecard - JumpCrisscross
https://www.wsj.com/articles/how-germanys-sec-dismissed-a-decade-of-warnings-about-wirecard-11594907212
======
ChuckNorris89
Also, under Helmut Kohl, despite advice from experts to use fiber, the German
government wired the whole country with copper instead because the ministry of
infrastructure at the time had stocks in the copper business leaving the
country's internet behind Ukraine or Belarus.[1]

If you're on the DAX or a politician, you're untouchable in Germany and lots
of people inside and outside of Germany have no idea of how insanely corrupt
the German government and their corporate buddies are.

Sure, it's not like Russia or the CCP and you're not in danger of being
suicided if you uncover some high level dirt but nobody really ever gets
punished when obvious corruption gets proven so I have no idea how they always
manage to looks so good in the corruption statistics.

[1] [https://www.spiegel.de/netzwelt/web/deutschland-warum-
unsere...](https://www.spiegel.de/netzwelt/web/deutschland-warum-unsere-
handynetze-so-schlecht-sind-kolumne-a-1297362.html)

~~~
chki
>If you're on the DAX or a politician, you're untouchable in Germany and lots
of people inside and outside of Germany have no idea of how insanely corrupt
the German government and their corporate buddies are.

This is obviously not true. There have been numerous uncovered political
scandals in Germany that have led to politicians and managers loosing their
job. Christian Wulff (Former German President), Guttenberg (former Defence
Minister), etc.

~~~
levosmetalo
Even though losing the job is not a punishment, not everyone even lost his
job.

Andreas Sheuer is still in charge of transport as a federal Minister, despite
the 500,000,000 € heavy corruption scandal.

Von der Leyen got even "promoted" to EU-lead position after heavy corruption
scandal last year when she was a Defense Minister of Germany.

Not only Germany, but in the whole EU commission leadership it would be hard
to find someone without corruption scandal, accusation or conviction.

~~~
qayxc
The problem is that gross incompetence is not a crime.

You can't arrest someone on account of them being an idiot.

It's the responsibility of the other party members and especially the
opposition to demand him being removed from office.

Funnily enough the Green Party demanded exactly that, but then again that's
the same party that wants general speed limits...

So yeah, of course any party that wants to get reelected in Germany will stand
behind that clown, as long as that clown fights for "Freie Fahrt für freie
Bürger!" and lets them keep their drivers license, because 21 km/h above the
speed limit is just a trivial offence...

~~~
heavenlyblue
> The problem is that gross incompetence is not a crime

I think it should be. You get the power over large sums of money and for that
you’re liable with your life.

~~~
qayxc
Problem is, you wouldn't find anyone willing to take that job then.

We're all just human after all and making mistakes is part of the human
condition.

~~~
heavenlyblue
I think it’s a comfortable lie people say.

There’s so much that comes with the power that it’s a very shallow argument to
make.

------
calpaterson
Sadly can't read the article as I don't have a subscription but have followed
this in the FT.

Germany has an ultra-protectionist political culture for pet German companies.
Wirecard was one such pet company but there are many others who have benefited
from implicit state support in the form of lowered standards and private
favouritism: Deutsche, VW, Siemens, etc. Wirecard even holds a banking license
so should be subject to quite a lot of oversight from the regulator but the
head of BaFin ("Germany's SEC" as the headline states) makes the risible
excuse that he didn't apply proper oversight to them because they are arguably
a "technology company".

Disappointingly there is very little doing. The pan-EU regulator, ESMA,
basically is not equipped to properly investigate and censure BaFin - they're
really just a standards body similar to the IETF or ANSI. No I can't imagine
much will change.

~~~
sbmthakur
This is a nice summary for those who either don't have access to the FT
coverage or are out of the loop:

When €2 Billion went missing at Wirecard:

[https://finshots.in/archive/wirecard-accounting-
scandal/](https://finshots.in/archive/wirecard-accounting-scandal/)

~~~
kmlx
here's the ft link containing all their wirecard coverage:
[https://www.ft.com/wirecard](https://www.ft.com/wirecard)

i think some articles there are free to read.

for example: [https://www.ft.com/content/284fb1ad-
ddc0-45df-a075-0709b3686...](https://www.ft.com/content/284fb1ad-
ddc0-45df-a075-0709b36868db)

------
thomaskcr
Not only that, they went after the short sellers who were writing about it
publicly.

> Germany's pursuit of short sellers began when Perring’s previously little-
> known outfit, called Zatarra Research, published its report about Wirecard.

> In March, just three months before Wirecard’s collapse, prosecutors dropped
> their case against Perring after he agreed to make a donation of an
> undisclosed sum to a charitable organization.

Finance watchdogs are archaeologist organizations when it comes to fraud, they
come in after the fraud has blown up and sift through the evidence to see what
happened. Between that, they are busy going after people with too little money
to defend themselves mostly.

[https://www.yahoo.com/news/germany-long-lonely-campaign-
batt...](https://www.yahoo.com/news/germany-long-lonely-campaign-
battling-051620645.html)

~~~
gridlockd
They didn't prosecute "short selling", they prosecuted market manipulation:

1\. Get a large short position

2\. Publish damaging information

3\. Profit

It doesn't even matter if the information is true. If it is true, it is
insider trading. If it isn't true, it is libel. Either warrants prosecution.

~~~
sdinsn
> If it is true, it is insider trading.

No, it's only insider trading if the information is based on insider (AKA
private) information. Anything that can be derived from public information,
even with a stretch, is also considered public.

~~~
gridlockd
I could have made myself clearer, I am talking about "damaging insider
information". Publishing already published information isn't exactly news.

In this case, the alleged accounting fraud mentioned in the FT article _was_
insider information.

~~~
oh_sigh
It depends where the knowledge came from - did it come from an insider, or was
the accounting fraud discovered by poring over public records?

------
KKKKkkkk1
Looks like BaFin was not merely incompetent but actively malfeasant. People
were apparently wrongly convicted due to their good-faith efforts to expose
the fraud.

 _BaFin’s role includes ensuring that listed companies abide by securities
law, for instance by communicating truthfully with their shareholders. But
BaFin didn’t look into the lawsuit’s allegations against Wirecard because
there was no evidence the company had provided misleading information, the
spokeswoman said.

Instead, BaFin opened a probe into the accusers. Wirecard had filed a
complaint with the agency and the Munich prosecutor after the suit caused its
stock to slump. Two former officials of the small shareholders’ association
were charged, convicted of market manipulation and handed suspended prison
sentences._

Are these folks going to have their names cleared now?

~~~
fluffything
And be compensated?

------
asah
Lest anyone think this is limited to Germany, consider the length of time it
took for the US SEC to catch up with Bernie Madoff:

[https://en.wikipedia.org/wiki/Madoff_investment_scandal#Prev...](https://en.wikipedia.org/wiki/Madoff_investment_scandal#Previous_investigations)

[https://www.google.com/search?q=warnings+bernie+madoff](https://www.google.com/search?q=warnings+bernie+madoff)

~~~
H8crilA
The Madoff case was utterly ridiculous.

The good part of it is that since Madoff the SEC is paying money to the
whistleblowers, proportional to the money that they ultimately recover in
fines. There's now even a proper industry of lawyers that will help you
package the whistleblower case for the SEC.

Any of you out there seeing fraud - please help clear the system and get
yourself some good retirement money!

------
aaisola
There is also an element of hubris where Germany and the EU so badly wanted to
have a tech champion emerge that was competitive on a global level, where they
looked the other way anytime someone raised concerns. The FT has been
criticizing Wirecard for yrs..

~~~
jacquesm
The EU has plenty of tech companies competing on a global level. They're not
the ones that you may think of but they're there regardless.

~~~
advanced-DnD
German government, politicians are investors are too conservative to invest in
tech companies that are not run by their peers.

~~~
jacquesm
The EU is far larger than Germany, though it is definitely one of the larger
economic drivers. But France, Sweden, Switzerland, the Netherlands and Germany
too have their own contributors who quietly perform and try hard not to
attract too much attention to their origins.

------
fab1an
The denial here was pretty strong, as Wirecard was one of the few success
stories of a German technology company rising into the DAX that _wasn't_
founded over 80 years ago. Sadly, this may only fuel skepticism towards tech
further instead of causing the possibly necessary reforms.

~~~
netsharc
[__REDACTED__]

~~~
hetspookjee
Op was speaking in the past tense and implied that it's _not_ a succes story
because of the fraud and lies. So I'm guessing you're being downvoted for
overseeing that part.

------
allendoerfer
I would like to see EY pay for the whole thing (since they were paid to check
the books, which they obviously didn't). Also a big tree of associates and
their superiors from BaFIN, Wirecard, EY, KPMG, etc. (maybe also some
institutional investors, who are supposed to do due dilligence) getting fired
and prosecuted for defrauding and not checking properly, please. But I am
dreaming - three people will get convicted, some ten-points program will get
presented to reform BaFIN so business can continue as usual.

~~~
fluffything
IIUC, EY was paid to check that what was reported in the books balances to
zero.

They were not paid to check that what was reported in the books was "correct".

That's not EYs job. If somebody thinks a company lies in their books, they
report it to BaFIN, and it is BaFIN job to investigate. They did the opposite
of that here though.

~~~
allendoerfer
Okay, if this is true, you are saying they are making billions by running a
simple algorithm? Why do they exist?

~~~
fluffything
Because people make mistakes, and if you make an accounting mistake in a
company listed in one of the largest indices, those mistakes are usually in
the order of billions.

So it definitely makes sense to require multiple accountants to check the
books of these companies _for mistakes_.

Also, running the simple algorithm is the last step of the job. When somebody
gives you their books and transaction data, you need to convert that to a
format you can first process, which is 99% of the work. Books, receipts, etc.
come in dozens of different formats. Running the algorithm is 1% of the job.

E&G is required to check that, if there is a receipt from an external company
that gave Wirecard 2 billion, and another receipt of Wirecard sending those 2
billion to a bank in the Philippines, that those are properly noted in the
books and everything balances out properly.

They are required to assume that Wirecard is working in "Good faith", and this
is not a German thing: everything else is just impracticable.

Even if you were to throw an infinite amount of money and time at the problem
to verify that all transactions actually happened as reported, if all sides of
the transaction are in on the scam (the company that gave wirecard 2 billion,
wirecard, and the bank that stores them), then there is no way for E&Y to find
out.

If they are aware of criminal activity, they must report it, and maybe E&Y did
not wanted to be aware of that, but who knows, maybe Wirecard was just good at
scamming, or E&Y was aware of that and reported it to the German SEC. We do
know that a lot of people did report Wirecard to the German SEC over the last
10 years due to suspicions of criminal activity, and the German SEC, which is
the only authority that can investigate Wirecard properly, did nothing about
that.

------
qwe098cube
Even worse, the german treasury secretary Olaf Scholz apparently was already
informed about the suspicions the BaFin had back in February 2019.

[https://www.tagesschau.de/inland/scholz-
wirecard-101.html](https://www.tagesschau.de/inland/scholz-wirecard-101.html)

~~~
diffeomorphism
To be fair, so was literally everybody else since FT published its story about
this in January 2019 and Singapore raided Wirecard offices in February 2019:

[https://www.ft.com/content/284fb1ad-
ddc0-45df-a075-0709b3686...](https://www.ft.com/content/284fb1ad-
ddc0-45df-a075-0709b36868db)

So this seems like a complete non-story.

~~~
qwertox
This makes BaFin's and Scholze's behavior even worse.

------
lazyjones
What do you expect from a country where the largest bank has been knee-deep in
money laundering scandals for years and where $36b of tax money were stolen in
the cum ex scandal while politics looked away?

------
raxxorrax
Germany has a very high amount of corruption, even if the statistics look
solid. This case of looking the other way is probably even a more benign
example.

~~~
nxpnsv
I consider myself ignorant here, but compared to what? In CPI or similar
measures typically only Nordic countries come out ahead of Germany...

~~~
raxxorrax
It is entrenched in the (political) culture of Germany. As I said, metrics are
difficult to compare, so determining the degree of corruption is always a poor
approximation. Transparency International usually has some good data, but they
are completely off when it comes to Germany.

We have cases were public officials got bribes and weren't convicted or even
didn't lose their position. Our former, former chancellor Kohl still refuses
to testify against people that were involved in illegal party donations for
his own party. He promised to keep it secret. The public is just told that
these dirty money trails are "political reality".

But these are just the higher profile cases. It is prevalent in the industry
too. That can have advantages as business do cooperate very closely with each
other, but corruption is the inevitable result. A start up culture like in the
US would just barely be possible, because established players will get their
hands on the money that is available for investments.

Additionally, EU initiatives against corruption that mostly tried to introduce
transparency about financial transactions are always rejected by Germany, with
dire consequences for other countries.

Officially there is no legal term for corruption at all. Using your position
of power to further personal gains is completely legal if no other laws are
violated. There was "Amtsmissbrauch" at some point, but that was scrapped by
the Nazis. Contemporary politicians probably think that not everything they
did has been bad...

Aside from that there is also a lot of child abuse and getting dissidents
declared to be insane by state authorities, but that is another story.

The CPI is a corruption -perception- index and Germany can be quite discrete
about corruption and there is a tendency of people to believe the state.
Neither Hitler nor the GDR-regime could change that apparently.

~~~
swimik
You're claiming CPI is off as well as Transparency International. So what
exactly are you basing your claim on that Germany has a "very high amount" of
corruption? Just your personal impression? Seems very prone to be biased for
many reasons.

~~~
kome
CPI is by Transparency International, and it has basically nothing to do with
corruption, it is a public image index: nothing more, nothing less.

------
maze-le
> Sure, it's not like Russia or the CCP and you're not in danger of being
> suicided if you uncover some high level dirt

You are not going to get disappered, but you are in danger of getting a
fraudulent "psychiatric diagnosis" if you are a tax investigator uncovering
dirt about some politicians or their cronies.[0][1] In this case the
investigator got free, but I am sure there are some cases out there of people
who didn't got as much publicity. Consequences for the people that instigated
this? None! Nothig to see here, move on... And the so called "Psychiatrist" is
still free, and had to pay a meagre 200000 in damages.

> lots of people inside and outside of Germany have no idea of how insanely
> corrupt the German government and their corporate buddies are

That is so true, I always cringe when people use Germany as an example of a
society that doesn't have a lot of corruption -- we have, it's just buried
under lots and lots of red tape...

[0]: [https://www.spiegel.de/wirtschaft/soziales/psychiater-
muss-s...](https://www.spiegel.de/wirtschaft/soziales/psychiater-muss-
steuerfahndern-in-hessen-schadensersatz-zahlen-a-994523.html)

[1]: [https://de.wikipedia.org/wiki/Steuerfahnder-
Aff%C3%A4re](https://de.wikipedia.org/wiki/Steuerfahnder-Aff%C3%A4re)

~~~
lima
The affair you're talking about happened more than a decade ago, it was a
major and pretty unique scandal in Germany, and the "expert" has been
convicted not only to pay damages, but was also found to be guilty of
malpractice. The state eventually offered the investigators to be re-hired.

There were no consequences for the "instigators" because, to my understanding,
it couldn't be proven that there was criminal intent.

The events got plenty of media attention and high-ranking officials and judges
denounced the actions of the agency.

No country is safe from corruption, but this story certainly doesn't support
the notion of the country being corrupt, much less "insanely corrupt".

~~~
Mirioron
Is it unique? Didn't Gustl Mollath [0] also end up in a psychiatric facility
and it started with him claiming that a bank was evading taxes? He was
involuntarily committed to a psychiatric facility. After years in there it
turned out that his claim about the tax evasion was reasonable. From what I
can tell, he spent ~6 years locked up in a psychiatric facility and got
€600,000 in damages.

[0]
[https://en.wikipedia.org/wiki/Gustl_Mollath](https://en.wikipedia.org/wiki/Gustl_Mollath)

~~~
ketzu
Based on your "also": According to the spiegel article the investigators
didn't end up in a psychiatric facility, but got a diagnosis of inability-to-
work and pensioned.

The case for Mr. Mollath was much worse.

~~~
hef19898
And it happened in Bavaria. We do have a certain tradition with such kind of
things, it even has nickname since the Strauss days: Amigo Affairs. Most high
level political corruption and fraud cases had Bavarian politicians involved.
Especially when arms or taxes are involved.

------
yesplorer
Softbank invested $1 billion in Wirecard just under a year ago. Son isn't
having a good time around these times.

~~~
NovemberWhiskey
Actually it did not - SoftBank _employees_ contributed into a special purpose
fund created for this investment, and that fund bought a convertible bond
issued by Wirecard.

Although it has been reported as a "SoftBank investment", it's pretty clear
that no SoftBank money was part of the deal.

~~~
AlexandrB
That's almost worse. The fact that SoftBank employees were willing to pile
their own money into this fraud should tell you something about the due
diligence they're doing when dealing with other people's money.

~~~
NovemberWhiskey
I don't think you're aware of all the details here. The special purpose
vehicle also structured a transaction with Credit Suisse which effectively
allowed the bonds to be resold immediately to institutional investors. The
fund (i.e. SoftBank employees) had no ongoing risk exposure and pocketed the
pre/post-deal spread in the share price.

Matt Levine has an article about that on Bloomberg:
[https://www.bloomberg.com/opinion/articles/2020-07-02/free-w...](https://www.bloomberg.com/opinion/articles/2020-07-02/free-
wirecard-money-costs-softbank)

------
dang
The Wirecard stack so far:

[https://news.ycombinator.com/item?id=23668365](https://news.ycombinator.com/item?id=23668365)

[https://news.ycombinator.com/item?id=23662704](https://news.ycombinator.com/item?id=23662704)

[https://news.ycombinator.com/item?id=23638624](https://news.ycombinator.com/item?id=23638624)

[https://news.ycombinator.com/item?id=23611347](https://news.ycombinator.com/item?id=23611347)

[https://news.ycombinator.com/item?id=23598824](https://news.ycombinator.com/item?id=23598824)

[https://news.ycombinator.com/item?id=23573386](https://news.ycombinator.com/item?id=23573386)

[https://news.ycombinator.com/item?id=23438323](https://news.ycombinator.com/item?id=23438323)

This, from April 2019, reads interestingly now:
[https://news.ycombinator.com/item?id=19737344](https://news.ycombinator.com/item?id=19737344)

~~~
phyalow
Indeed, after my comment on that last links thread, I took out a sizeable
short against Softbank, which paid fairly well. Masayoshi San's reality
distortion field has since pulled a second (or third even) act against
investors, perhaps time to double down.

------
merricksb
[https://archive.md/TTZ1H](https://archive.md/TTZ1H)

------
RcouF1uZ4gsC
Germany also did not aggressively investigate Volkswagen for the emissions
scandal.

[https://www.reuters.com/article/uk-volkswagen-emissions-
germ...](https://www.reuters.com/article/uk-volkswagen-emissions-germany-
regulati/germany-rallies-around-volkswagen-in-diesel-emissions-scandal-
idUKKCN0S91AS20151015)

~~~
solstice
The state government of lower Saxony (the state where VW is based) owns 25% of
VW. I don't think that's a coincidence. Edit: looks like it's 20%

~~~
chii
how can a company be both owned by, but also regulated by "the same" entity?
that is a conflict of interest aint it?

~~~
perlgeek
So, we should forbid all politicians to own stock.

~~~
_whiteCaps_
No, but it should be in a blind trust.

[https://www.investopedia.com/terms/b/blindtrust.asp](https://www.investopedia.com/terms/b/blindtrust.asp)

------
segmondy
SEC is garbage every where. I found a foreclosed property that was lost due
from a reverse mortgage and the lender wasn't in a hurry to sell for fair
market value. I dove in and found out that this company is taking poor
performing reversed mortgage properties that are at risk of foreclosure and
packaging it as a securitized debt and selling to Wallstreet. Pretty much
stamped AAA+ by Moody's filed by SEC, same ol crap from 2008 is still
happening, and the house can't even sell for how much they loaned out.
Depending on any govt agency to protect us is just dreams, dig into the data
yourself and figure it out. Lots of people noticed issues with Wirecard, you
can do the same for any US company just learn to read their 10K filings, they
might lie but it's often a good start.

~~~
brnt
Not saying that your example isn't a valid critique, but shouldn't you weigh
the number of problematic cases against the number in which the SEC functions
well?

Moreover, certain parties would benefit from the SEC being starved of
resources due to people not trusting governments in general anymore. Its a
strategy that has paid out in the US in many instances.

------
Havoc
>Germany's SEC

Talk about a US centric headline lol

~~~
dang
Ok, we've inlined that bit in the title.

~~~
Havoc
Thanks. Was frankly more amused than complaining but I appreciate you changing
it

------
m0zg
Smells like corruption to me. There's no way a government agency would
consistently turn a blind eye otherwise.

------
tijuco2
I can't read the full article

------
yamrzou
Who else read it "Wireguard" and worried :p ?

------
DeadSec
What do you expect from a country with more lobbyists than members of the
federal parliament.

~~~
docdeek
Wouldn’t most countries experience this reality? Upper limit on members of a
parliament is probably a couple of hundred, and lobbyists would almost always
outnumber them.

~~~
DeadSec
I didn't say it's just in Germany like this. But espacially the Car
Manufacturers are almost invincible in Germany. Their "Punishment" for the
emissions scandal was a government funded exchange programm combined with buy
bonus from the Goverment. Basicly they got a boost in sales for their
misconduct.

~~~
hetspookjee
Well in their defense the rest of the world was pretty harsh for them and to
let the ship sink was not an option. I think if you're being blunt about the
car emissions scandal one could say that each manufacturer got a hand held
above their head from the country of origin. E.g. America gave GM a pass.

------
netsharc
Also, some people praise the German government for being able to manage an
economic powerhouse, but hey, if you keep your currency relatively low to
others (by having them all pegged, or even better, replaced with a single
currency), of course your production costs stay cheap. But at what cost to
your neighbors?

[https://www.theguardian.com/commentisfree/2019/nov/26/german...](https://www.theguardian.com/commentisfree/2019/nov/26/germany-
damaging-european-economy-raise-german-wages)

[https://www.nytimes.com/2011/01/16/magazine/16Europe-t.html](https://www.nytimes.com/2011/01/16/magazine/16Europe-t.html)

~~~
qayxc
Not only is your comment completely unrelated to the issue at hand, but your
references are as well.

The slightly one-sided (who would've guessed from UK publication) Guardian
article simply ignores the internal issues that the southern European
countries have carried around for decades and doesn't even mention the success
of the Baltic states (I wonder why).

The NYT article, aside from being 9 years old and written in the context of
the aftermath of the 2008 financial crisis, didn't age well either -
especially regarding its prime subject Ireland...

~~~
netsharc
Most of the comments here are about German government corruption and
incompetence.

The articles maybe old but the facts still haven't changed; the Euro was a bad
thing (yeah, yeah, citation needed).

I disagree with your insinuation that a UK publication must be against the
Euro (such a cheap conclusion!), the Guardian does lean towards the left, but
it is also a pro EU.

~~~
qayxc
> Most of the comments here are about German government corruption and
> incompetence.

Yet neither is addressed by the articles you linked. If illustrating
corruption or incompetence was your intend, then you simply missed the mark
with those articles.

There's suitable, prominent and recent examples for both, but "Euro bad"
definitely isn't one of them.

~~~
netsharc
People praise the government for the stable economy, attributing this to
competence. The truth is (in many economists' opinion) the stable economy is
because of the bad construct pegging the European currencies, probably not
because of good governance.

Sorry I can't provide you with proper up-to-date citations, but you declaring
"that's not the case" does not make it the case. Well, me declaring "that is
the case" does not make it the case either.

