Wirecard – are they round-tripping revenues to hide missing cash flow?

Hiding accounting fraud requires explaining why reported profits fail to deliver cash flow. Our previous work used regulatory and audited filings to demonstrate that Wirecard claims about MCA business are untrue. Our continued research suggests that Wirecard may be using other means to disguise a lack of cash flow. Fraud can be hidden by overpaying for acquisitions, executive loans against stock holdings being funnelled back into the business, fake earnings from offshore (un-audited) entities and more.

Investors should be asking – what is Wirecard hiding?

Update: June 2020
EY announced €1.9bn of cash missing, CEO arrested, Wirecard AG filed for insolvency

When difficult questions are asked, Wirecard’s story has always changed. Now that Wirecard has filed for insolvency, the truth will finally be revealed.

For over a year we have published research showing management misleading investors about MCA lending, Wirecard’s relationship with Senjo and Al Alam, and their highly suspect China acquisition.

Our previous letters to the supervisory board drove Wirecard to bring in KPMG for the special audit. The results of the audit, together with our recent insight on EY’s cash accounting treatment drove EY to take a closer look at the trustee cash balance, which was found to be counterfeit.

Anatomy of a fraud

Edo’s EY accounting

Our previous work

Wirecard first announced the MCA product in November 2018 as mainly Brazil, and at the time the size and growth of MCA in Brazil didn’t make sense to us given our understanding of the size of Wirecard Brazil. We subsequently found the financials that showed no MCA lending in Brazil or Turkey, but some concerning transactions in Singapore. We have also posed questions for management at the recent innovation day, all of which remain unanswered. We have also published our previous letters to Wirecard’s Supervisory Board, highlighting our concerns.

If you'd like to review this initial work:

Further updates

May 8, 2020EY – Wirecard Finance have been laughing at youApr 24, 2020Scope of KPMG investigationJan 15, 2020Brazil updateJan 8, 2020Equity mismatchJan 6, 2020Christmas capital-injectionsDec 9, 2019Family businessNov 8, 2019Disclaimer of opinionNov 5, 2019Australian impairment

Letters to the Board & Concerns about Al Alam

Dec 19, 2019Cash to New Zealand?Dec 12, 2019Suspend the management board?Oct 23, 2019Letters to the audit committeeOct 18, 2019Letter to the boardOct 17, 2019Fabricated data

Wirecard Innovation Day: We summarize the outstanding issues that management need to answer

Oct 8, 2019Innovation or Integration?Oct 7, 2019Accounting issuesOct 4, 2019Indian round trip

MCA – With access to accounts in Brazil and Turkey, we found zero MCA lending, so we looked elsewhere:

Sep 9, 2019oCap/SenjoAug 30, 2019Call for TransparencyJul 23, 2019Where is the €267mJul 18, 2019Turkey accountsJul 10, 2019Brazil accountsJun 20, 2019Illegal in Turkey

Our early work:

Jun 18, 2019Help us understandJun 17, 2019Brazil simplifiedJun 16, 2019Brazil in detail

An overview of MCA

What they’ve said

  • In November 2018 Wirecard claimed it had launched a new Merchant Cash Advance (MCA) Product.
  • In both May and June 2019, Wirecard told analysts that at least 33% (€133M) was in Turkey and Brazil. Earlier statements in March, and May, have repeatedly said that the bulk of the programme is in Brazil, with some also in Asia and Europe.
  • In August 2019, Wirecard mis-remembered their earlier statements, and told analysts that they had previously stated MCA was less than 33% in Brazil and Turkey. Overall lending shrank to €370M.

Numbers don’t lie

  • MCA lending is easily seen on the balance sheet.
  • We have seen Wirecard’s own accounts for both Brazil and Turkey. In both countries, MCA lending would appear negligible or non-existent. And in Turkey, it’s illegal, suggesting if there is any MCA lending, this is a separate problem in itself.
  • More details for both Brazil and Turkey are available. But at its simplest, any firm with a meaningful MCA programme would see this reflected on the balance sheet as significantly more receivables than payables at any given moment. Neither Brazil nor Turkey have anything like this.
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