Can a New American* CCO Save Germany’s Darling Fintech Company?

Thom Thompson

Thom Thompson

Editor

James Freis, who joined German fintech and crypto darling Wirecard in May this year, was abruptly elevated to its executive management board yesterday, weeks ahead of schedule. His ascension was precipitated by Wirecard having to get serious about the shortfall of $2 billion that its auditor Ernst & Young won’t certify as being under the company’s control. Wirecard is a payments processing firm located near Munich.

The company was forced to delay publication of its 2019 financial results again. If Wirecard does not publish its audited consolidated financials by the close of business on June 19, it violates a covenant in a loan facility from a European banking consortium which could lead to their withdrawing a 1.75 billion euro loan facility.

Wirecard management board member Jan Marsalek was also suspended Thursday. Marsalek is the chief operating officer, according to the 2018 annual report. He was slated to become chief business development officer. 

Freis, an American lawyer who left his CCO position at Eurex’s parent, Deutsche Boerse AG,  will be busy. He also has a newly formed department to run, “Integrity, Legal and Compliance,” which also has remit over legal, contracts and, of course, compliance.

Wirecard is a sort of German “new bank,” an innovative, digitally oriented financial institution. It processes payments, grabbing the porn platform and gambling niche early on. It made a name for itself in the cryptocurrency communities by issuing Visa-branded bitcoin and other cryptocurrency debit cards for Crypto.com and TenX. Crypto.com’s CEO, Kris Marszalek, said that Crypto.com customers’ funds were safe as the cards are fully prepaid.  

For the past few years, the Financial Times, among others, had raised concerns about Wirecard’s accounting practices, which led eventually to the appointment of KPMG to investigate accounting practices. Earlier complaints were not taken seriously. According to the Financial Times, the German national financial regulator BaFin even investigated the source of the complaints for insider trading. 

In April special auditor EY said it could not confirm the bulk of Wirecard’s recent reported profits, while the company said, “No incriminating evidence was found for the publicly raised accusations of balance sheet manipulation.” But a little more than a month later Wirecard was raided. On June 5, the company reassured investors, saying, “The investigations are not targeting the company, but the members of its management board.”

Wirecard replaced Commerzbank in the German blue chip DAX in September 2018. It ascended from the TecDAX, while Commerzbank landed in the less sexy MDAX. Perhaps ironically, Commerzbank leads the lender consortium that backs Wirecard’s liquidity. Yesterday, in trading on Deutsche Boerse’s Xetra, Wirecard lost more than 60% of its opening price to close at just under 40 euros. This is the second largest one-day price decline for a DAX component stock ever.  U.S. OTC markets saw the share price fall further on Thursday in after hours trading. 

Having once had a market capitalization of 24 billion euros, after Thursday’s trading, Wirecard’s market cap was a little less than 5 billion euros.That fall in value, if it had happened earlier, would have made Wirecard a prime candidate for relegation out of the prestigious DAX. Instead, today is Lufthansa’s last day in the Index. It will be replaced by Deutsche Wohnen.

*The Wirecard press release described Mr. Freis as an American. The nationalities of other management board members were not disclosed. It must indicate something.

Addendum – This news just broke from the Financial Times: Under a cloud of scandal, long-serving Wirecard CEO Markus Braun resigned his position, effective immediately, on Friday afternoon in Germany.

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