German Regulators Investigate the Investigator During Wirecard Debacle

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Like many fraud examiners, reporters often hate being part of their stories. They’d much rather remain in the background, asking the questions and discovering the facts. Dan McCrum, an investigative reporter for the Financial Times, described that less-than-ideal scenario in his keynote address during the Monday afternoon session of the virtual 32nd Annual ACFE Global Fraud Conference. McCrum is the recipient of the ACFE Guardian Award.

“I have pictures here of a couple of criminal suspects,” McCrum said as he showed photos on the screen of himself and Markus Braun, the former CEO of the infamous German company, Wirecard AG. Wirecard collapsed in June of 2020 when Braun announced that 1.9 billion euros of its funds were “missing.”  

However, when McCrum was investigating the Wirecard house of cards — which eventually led to its demise and Braun’s arrest — McCrum found himself in the crosshairs of German banks and regulators. Wirecard, feeling the heat of McCrum’s hard-hitting articles, insinuated that he was spreading false stories so he could damage the company to make cash by short selling in the market.

“For about 18 months that the German authorities seemed to be most concerned about investigating me for market manipulation in the stock of this revered German company, Wirecard,” which at one point was worth $30 billion — more valuable than Deutsche Bank, McCrum said.

When McCrum was in the thick of his investigation, Wirecard tailed him with private detectives and tried to demolish his reputation.

What caused all this unwanted attention? McCrum had been following Wirecard’s rise since 2014 when an English fund-manager source asked him, “Would you be interested in some German gangsters?”

Wirecard was founded in 1999 as a payments processor helping websites collect credit card payments from customers. The company grew when it merged with a Munich-based rival, Electronic Business Systems, and then in 2006 moved into banking when it purchased XCOM. Visa and Mastercard licensed Wirecard Bank, which meant it could issue credit cards and handle money on behalf of merchants.

The English fund-manager source told McCrum that Wirecard was the best documented accounting fraud he’d ever seen. The fund manager’s working theory in 2014 was that Wirecard was disguising fake profits by overpaying for worthless businesses in Asia. McCrum believed that the company was getting rid of some fake cash and was creating some space for other kinds of financial tricks. McCrum spent years trying to prove that and during that time found the following red flags:

  • Big profits but no free cash flow.

  • Cash all spent on acquisitions, always at year-end.

  • Inconsistencies between local and group accounts.

  • Reliance on adjusted financial metrics.

  • Unusual profitability versus peers.

McCrum’s reporting raised opposition, of course. On Jan. 30, 2019, anonymous Twitter bots screamed, “McCrums a criminal … Dannyboy McCRIM is GOING TO JAIL!!” The next day, Heike Pauls, an equity research analyst at Germany’s Commerzbank sent a note to its customers, “Yesterday, serial offender Dan McCrum, journalist at the otherwise renowned FT, published another negative article about Wirecard. … As before McCrum’s article followed a visible increase in short [selling] during the past few weeks. We believe that market manipulation looks obvious. …”

McCrum was flabbergasted. “I didn’t think I was ever going to be able to travel to Germany or I might get arrested,” he says.

In July 2019, McCrum discovered that a list of supposed Wirecard customers from an April 2018 Excel file were all false. That wasn’t quite the smoking gun, but in October 2019, FT published documents that indicated Wirecard fraudulently inflated profits at its units in Dubai and Dublin, and customers listed in documents it provided to EY didn’t exist.

KPMG began an audit after investors pressured the company. KPMG said in its April 2020 report that it couldn’t verify that arrangements responsible for “the lion’s share” of Wirecard profits from 2016 to 2018 were genuine, citing several “obstacles” to its work. Wirecard’s stock crashed, police searched its offices and the company began to dissolve. Braun was arrested and Wirecard’s COO Jan Marsalek was on the run — last seen boarding a plane to Belarus.

McCrum was vindicated; he’s not in prison and Braun is awaiting trial. “In the end, it was like all of these frauds,” McCrum says. “Too good to be true.”