Wirecard A Series of Unfortunate Regulatory Incidents

 

"Who are the police?
We need a police to catch the police?"

No sooner had I posted about regulatory lapses by Apas in re Wirecard than the weekend edition of the FT landed at my doorstep.

Was für eine Überraschung! (Quelle surprise!)

Olaf Storbeck had another article on German parliamentary hearings on Wirecard.

This time the head of Apas, Mr. Ralf Bose, gave testimony.

Herr Bose admitted that he purchased an undisclosed number of Wirecard shares in April and sold them at an undisclosed loss in May – while Ba-Fin and Apas were in confidential talks about Wirecard.

Bundesminister für Wirtschaft und Energie Peter Altmaier, reportedly found Herr Bose’s comments “disconcerting” (beunruhigend?)

Ba-Fin fresh from its success supervising Wirecard will investigate Herr Bose’s share trading.

In that regard, I would hasten to note that Herr Bose was “long” not “short” Wirecard shares so the investigation may be able to be concluded quickly.

First time an oversight. Second time a mistake. Third time an unfortunate coincidence?

You may recall a post from some years back in which I ridiculed the idea of the imagined superiority of supervision in the “developed” West when discussing l’affaire Abraaj.

I’d offer the WC saga as re-enforcement of that argument.

Wirecard - Great Moments in Regulatory Oversight

 

Wachsam sein --immerzu

On 10 December Mr. Naif Kanwan, executive director for enforcement and market monitoring at Apas, the Federal Republic’s audit “watchdog”, gave testimony at German parliamentary hearings on Wirecard.

Olaf Storbeck has an absolutely delightful (though ultimately disturbing) account on that testimony which appears in the print edition of Friday’s FT (where else?)

Let’s run through the quotes. AA’s commentary in italics.

“My impression was: somebody is on the case, has been looking at the allegations and came to certain conclusions.” He added that this “subconsciously influenced my thoughts about the matter”. 

One reading of this quote is that it is an admission that the apparently aptly named naif was not on the case. And saw little reason to disturb himself. George will do it. 

Perhaps as well, that Mr. Naif’s investigations are conducted based primarily on the operation of the subconscious. If you will, a Freudian approach to regulation. Hence the picture above. The subconscious, as I hope you know, is more active during sleep.

Alternatively, it could just be an attempt to create an excuse. Feigned faulty memories or low intelligence are often proffered to “explain” failures.

Asked if he believed in early 2019 that FT journalists colluded with short sellers, Mr Kanwan pointed to BaFin’s ban and criminal complaint. “These moves were in line with such a picture,” he said.

Indeed, it is certainly well known-at least in certain circles-that short sellers are a nefarious bunch always up to no good bad mouthing fine companies. And that short sellers have never ever pointed out fraud before regulators woke up.

Equally that there really haven’t been any cases of external auditors missing or colluding in accounting irregularities.

It’s also well known that major financial newspapers don’t take action against columnists that collude with short sellers, particularly when a major regulatory agency lodges a criminal complaint.

Shame on you, FT! 

Especially since this also happened with NMC – though to be fair in that case no criminal charges were lodged.

He acknowledged the watchdog at the time was unaware of earlier allegations against Wire-card raised by short sellers in 2016 in the so-called Zatarra report. That only changed in October 2019 after the FT published internal Wirecard documents pointing to a concerted effort to fraudulently inflate sales and profits.

One (at least AA) expects a watchdog to “wachsam sein immerzu” to quote the old song from the East. Though AA admits that he may be ignoring the possibility of “repressed memories”.

As a positive comment, I’ve heard--and not just from short sellers or financial journalists--of a communications service called the “internet” which I am assured allows one to follow news, conduct searches, etc. 

They say it’s quite useful.

I am even also told that one  can set up “alerts” to be advised of news on a particular topic, company, etc. without having to take an active steps –other than setting up the alerts.

Remarkable if true.

On that latter point, he did note: 

 “As a lesson learned, we have improved our press monitoring.”

лучше поздно, чем никогда!

And Now for Something Completely Different - The Financial Times

 

AA at His Rona Rig
Sufficiently Socially Distant so no Mask Required

If you’re one of the select (few) readers of this blog, what you usually find here are posts that focus on the negative. 

Misrepresentation of financial statements, questionable business strategies, other frauds and fakes, financial and economic fairy tales and the like.

That certainly is a “field” offering multiple opportunities to comment.

As the picture above indicates, today it is time for something completely different.

Some kudos to The Financial Times and the no doubt underpaid journalists who work there.

A bit of context.

Overall journalism ain’t what it used to be. 

And since it was never perfect, that’s quite a disappointing development.

Some basic “have to’s” are often missing. 

A breathless review of an exhibition that omits what in the past would have been basic facts: where, when, cost 

Other sloppiness that misses the "meat" of the story.

More seriously is the substitution of mindless partisanship for reporting. The intrusion of the editorial page into the news columns.

The FT is welcome respite from these two frequent lapses.

Some examples to make the case: NMC UAE, Wirecard, H20.

First, there is the uncovering of the basic story. 

Second the pursuit of the story despite pressure. 

Dan McCrum’s experience on the Wirecard story is instructive – working from a windowless office at FT central on an air-gapped PC. 

It is not the only case – NMC is another -- where external pressures were ignored.

Third rigorous smart in-depth analysis.

The report doesn’t stop at the surface of the story but goes into detail. 

It seems that often the chips are allowed to fall where they should. 

Did a “hero” in the Wirecard case have a less “heroic” role in related case in Mauritius? Dan McCrum and Olaf Storbeck report it.

Or BondHack and Cynthia O’Murchu digging through filings at EMCR and discovering that NMC had pledged assets (future credit card A/R). 

Something apparently unknown to folks who might be presumed to have a more serious interest in this disclosure.

“Folks” like equity investors or providers of funds -- other than ADCB.

Fourth, a global network that allows input from journalists around the globe to round out the story with local insights. 

Simeon Kerr weighing in on Wirecard from the UAE.

Is the FT perfect?

No, but it’s very good.

Disclosures:

1. No shareholding in companies related to FT.
2. No compensation for this article.