A British stock market research firm claims today to be the first whistleblower to sound the alarm concerning the collapse of the German payments giant, Wirecard.
Mark Hiley, who runs The Analyst, reveals in The Mail on Sunday that he issued a “red flag alert” on Wirecard to his customers six years ago.
The 2014 note, reproduced below, warned that “Wirecard’s income statement does not reflect the entire cash flow economy of the business.”
Hiley says he advised clients at his independent research house in Clapham, south London, to sell the stocks – or even bet against the stocks by taking short positions. Short sellers win when stock prices go down.
First warning: the analyst’s note of 2014, one of the 43 on Wirecard
Evidence of Hiley’s foresight was revealed after several rival analysts claimed to be the first to detect signs of accounting irregularities at Wirecard.
Matthew Earl – who is known in the city as the “Dark Destroyer” and who now runs the open research firm Shadowfall – had previously been seen as the first to raise concerns about Wirecard, after publishing his own concerns late 2015.
Wirecard last month filed for insolvency over debts of € 3.5 billion (£ 3.16 billion) in one of the world’s largest business bankruptcies. Its shares have plummeted and are now almost worthless.
CEO Markus Braun was arrested by German authorities after the discovery of a € 2 billion black hole in the company’s finances. Wirecard’s auditor Ernst & Young had refused to sign the company’s accounts because it was unable to verify the existence of the funds.
The fall of the company, which made headlines around the world, was compared to the Enron debacle in the United States in 2001, which was immortalized in film and theater productions.
Wirecard was founded in 1999 and listed on the German stock market in 2005 after a reverse takeover of a call center activity.
Mark Hiley, who heads The Analyst, reveals that he issued a “red flag alert” on Wirecard to his customers six years ago
Initially, the little-known company handled payments to online game companies and pornographic sites.
The business has grown through a series of mergers and acquisitions to become one of the largest financial companies in Germany, with a large division in the UK called Wirecard Card Solutions.
At the end of 2018, Wirecard’s British activity would have £ 465.7 million in cash for customer deposits.
In 2018, worth 24 billion euros, it was promoted to DAX – the German equivalent of the FTSE 100 – replacing Commerzbank, one of the largest banking groups in Germany, in the benchmark index .
But hedge funds, researchers and journalists had already started to sound the alarm.
After issuing a warning under his own name, Earl teamed up with Fraser Perring, another short selling analyst, to form the then anonymous research firm, Zatarra, and published a series of negative research reports. on Wirecard in 2016.
Wirecard filed for insolvency last month for € 3.5 billion (£ 3.16 billion) in debt in one of the world’s largest business failures ever
Neil Campling, an analyst with the Swiss broker Mirabaud Securities, set a target price of zero on Wirecard in 2019 when the shares were trading around € 100.
But it seems that Hiley, at The Analyst, beat them in the fist. Hiley said that after his initial “Red Flag Alert”, his company had published more than 40 other notes on Wirecard which exposed “to the smallest detail the growing gap between society’s often ridiculous claims about world domination and the reality of overmodulated stock ”.
“We couldn’t find a lot of claimed customers, the technology looked mediocre, the cash flow was negative, and the debt kept piling up,” he said.
Describing the drama that is unfolding as “stranger than fiction”, he says that in 2014, he knew that something was wrong, but “could not know at the time exactly how it would turn out”. But he says the accounts keep “getting worse” and slowly but surely, his suspicions have been confirmed.
On Friday, the Wirecard share closed at € 3.23, which gives it a market capitalization of € 456.3 million. Hiley’s business managed to uncover irregular activities in other companies, such as NMC Health, a Gulf hospital operator listed on the FTSE 100, and Telit Communications, an Internet of Things provider listed on Aim.
In 2017, The Analyst discovered that former Telit chief executive Oozi Cats was in fact Uzi Katz, a fugitive accused wanted in connection with an alleged 90s real estate scam. This discovery led to his resignation from Mr. Cats of Telit Communications and the collapse of Telit’s share price.
‘This [Wirecard] will not be the last corporate scandal in Europe, “concludes Hiley.
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