WEBVTT 00:00:00.000 --> 00:00:02.160 You know, there's this phrase in finance that 00:00:02.160 --> 00:00:05.900 always just it always cracks me up. Accounting 00:00:05.900 --> 00:00:09.140 irregularities. Sounds so polite, doesn't it? 00:00:09.160 --> 00:00:11.179 Sort of harmless. Like maybe someone forgot to 00:00:11.179 --> 00:00:13.640 carry the one or they lost a receipt for a client 00:00:13.640 --> 00:00:16.640 lunch. It's the ultimate euphemism. It is. It's 00:00:16.640 --> 00:00:19.140 like calling a Category 5 hurricane a breezy 00:00:19.140 --> 00:00:21.600 afternoon because usually, I mean, let's be honest, 00:00:21.699 --> 00:00:23.480 when we hear accounting irregularities in the 00:00:23.480 --> 00:00:27.000 news, it's not a simple math error. It's a smoke 00:00:27.000 --> 00:00:29.780 signal. A huge smoke signal. Yeah. For something 00:00:29.780 --> 00:00:33.299 much, much darker. Exactly. And today we are 00:00:33.299 --> 00:00:36.159 doing a deep dive into what might be the mother. 00:00:36.520 --> 00:00:38.679 Of all irregularities. We're talking about a 00:00:38.679 --> 00:00:41.520 situation where the irregularity wasn't a missing 00:00:41.520 --> 00:00:46.159 receipt, but a missing 1 .9 billion euros. Billion. 00:00:46.159 --> 00:00:49.299 With a B. It's a number that's hard to even comprehend. 00:00:49.640 --> 00:00:51.700 I know. Try to picture it. Well, just to visualize 00:00:51.700 --> 00:00:54.079 that for a second, if you stacked 1 .9 billion 00:00:54.079 --> 00:00:57.320 euros in, say, 100 euro notes, you're looking 00:00:57.320 --> 00:00:59.799 at a stack that would literally reach into the 00:00:59.799 --> 00:01:02.740 stratosphere. That's insane. It is a colossal, 00:01:02.740 --> 00:01:05.739 colossal amount of money. And for a very long 00:01:05.739 --> 00:01:08.219 time. The entire world, the entire financial 00:01:08.219 --> 00:01:10.739 market thought that money was sitting safely 00:01:10.739 --> 00:01:12.420 in a couple of bank accounts in the Philippines. 00:01:12.640 --> 00:01:15.099 Right. Bolstering the balance sheet of Wirecard, 00:01:15.359 --> 00:01:18.920 which was at the time the absolute pride of the 00:01:18.920 --> 00:01:22.200 German tech sector, a titan. But then in June 00:01:22.200 --> 00:01:25.079 of 2020, we all learned that the money wasn't 00:01:25.079 --> 00:01:27.799 just missing. It likely never existed in the 00:01:27.799 --> 00:01:30.379 first place. It's the story of Wirecard. And 00:01:30.379 --> 00:01:32.099 frankly, even now, even though it's been nearly 00:01:32.099 --> 00:01:34.640 six years since the collapse, it still feels 00:01:34.640 --> 00:01:37.540 like a fever dream. It really does. I mean, if 00:01:37.540 --> 00:01:39.459 you pitch this as a movie script, you've got 00:01:39.459 --> 00:01:42.379 hackers for hire, fugitive executives who are 00:01:42.379 --> 00:01:45.599 suspected of being Russian spies, regulators 00:01:45.599 --> 00:01:48.900 hunting journalists instead of criminals, Hollywood 00:01:48.900 --> 00:01:50.920 would probably reject it. They'd say it's too 00:01:50.920 --> 00:01:53.599 unbelievable. Exactly. Tone it down a bit. It 00:01:53.599 --> 00:01:56.010 really is the German Enron, but... Honestly, 00:01:56.090 --> 00:01:59.250 with way more spycraft. It's wild. And the reason 00:01:59.250 --> 00:02:01.909 we are revisiting this whole saga today here 00:02:01.909 --> 00:02:05.650 in February 2026 is that we finally have a new 00:02:05.650 --> 00:02:09.210 and very concrete chapter of closure. That's 00:02:09.210 --> 00:02:11.430 right. We've had speculation for years, but just 00:02:11.430 --> 00:02:14.930 last month in January, the courts in Singapore 00:02:14.930 --> 00:02:17.710 handed down some really significant sentences 00:02:17.710 --> 00:02:20.849 that I think. They close the loop on the actual 00:02:20.849 --> 00:02:23.629 mechanics of the fraud. They absolutely do. For 00:02:23.629 --> 00:02:25.210 the longest time, the big question was always 00:02:25.210 --> 00:02:29.090 how. Right. How do you fake 1 .9 billion euros? 00:02:29.330 --> 00:02:31.449 You can't just write a number on a napkin and 00:02:31.449 --> 00:02:33.530 show it to an auditor. Right. You need a system. 00:02:33.590 --> 00:02:36.650 You need infrastructure. And the sentencing of 00:02:36.650 --> 00:02:39.189 these two individuals are Sean McGrath and James 00:02:39.189 --> 00:02:42.050 Henry O'Sullivan in Singapore gives us the judicial 00:02:42.050 --> 00:02:44.990 stamp. It confirms exactly how that machinery 00:02:44.990 --> 00:02:46.669 of deception worked. We're definitely going to 00:02:46.669 --> 00:02:48.430 get into those sentences later because they are. 00:02:48.560 --> 00:02:51.300 so key to unlocking this whole mystery. But to 00:02:51.300 --> 00:02:53.479 really understand how we got to a courtroom in 00:02:53.479 --> 00:02:56.639 Singapore in 2026, we have to go back. Way back. 00:02:56.840 --> 00:02:58.819 Way, way back. And I was digging into the origins 00:02:58.819 --> 00:03:01.099 of Wirecard this week. And I have to say, for 00:03:01.099 --> 00:03:03.860 a company that ended up replacing, you know, 00:03:03.939 --> 00:03:07.340 Commerzbank and the DAX index, their beginnings 00:03:07.340 --> 00:03:10.659 were, well, let's call them colorful. Colorful 00:03:10.659 --> 00:03:13.180 is being very, very generous. Seedy might be 00:03:13.180 --> 00:03:16.259 the more accurate term. OK, fair enough. So let's 00:03:16.259 --> 00:03:19.610 rewind. The year is 1999. We're in Aschheim, 00:03:19.770 --> 00:03:22.349 which is a quiet suburb near Munich. Wirecard 00:03:22.349 --> 00:03:25.469 is founded. And usually when we think of fintech 00:03:25.469 --> 00:03:27.490 startups, you know, we think of sleek apps, people 00:03:27.490 --> 00:03:29.930 in coffee shops, solving problems for millennials. 00:03:30.250 --> 00:03:33.030 But Wirecord's initial client base wasn't exactly 00:03:33.030 --> 00:03:36.340 selling artisan coffee. Not at all. They were 00:03:36.340 --> 00:03:39.719 processing payments for pornography and online 00:03:39.719 --> 00:03:42.319 gambling websites. Right. And we really need 00:03:42.319 --> 00:03:44.120 to pause here for a second because this isn't 00:03:44.120 --> 00:03:46.599 just some like salacious detail to get people 00:03:46.599 --> 00:03:49.120 interested. It is actually the cornerstone of 00:03:49.120 --> 00:03:51.620 their entire business philosophy. OK, explain 00:03:51.620 --> 00:03:54.740 that, because in what, 1999, 2000, processing 00:03:54.740 --> 00:03:57.310 credit card payments for a porn site? wasn't 00:03:57.310 --> 00:03:59.389 something a respectable bank wanted to get anywhere 00:03:59.389 --> 00:04:02.090 near. Exactly. In the banking world, this is 00:04:02.090 --> 00:04:04.110 what's classified as high risk. And it's high 00:04:04.110 --> 00:04:07.090 risk for a few reasons. First, you got the obvious 00:04:07.090 --> 00:04:09.150 reputational risk. You know, Deutsche Bank doesn't 00:04:09.150 --> 00:04:11.349 want hotbabes .com showing up on their official 00:04:11.349 --> 00:04:13.789 client list. Of course not. But maybe even more 00:04:13.789 --> 00:04:16.149 importantly, the financial risk is all about 00:04:16.149 --> 00:04:19.399 chargebacks. Chargebacks. So that's when a customer, 00:04:19.439 --> 00:04:20.959 you know, calls their credit card company and 00:04:20.959 --> 00:04:22.939 says, hey, I didn't make this charge. Correct. 00:04:23.120 --> 00:04:25.579 And in the world of online porn and gambling, 00:04:25.699 --> 00:04:28.920 that happens constantly, all the time. People 00:04:28.920 --> 00:04:31.360 gamble, they lose money, they regret it, and 00:04:31.360 --> 00:04:34.019 then they claim their card was stolen. Or they 00:04:34.019 --> 00:04:36.779 subscribe to a site, get caught by their spouse, 00:04:36.939 --> 00:04:39.839 and then claim fraud to cover their tracks. It's 00:04:39.839 --> 00:04:42.779 a messy, high churn, complicated business. So 00:04:42.779 --> 00:04:44.879 because the big respectable banks wouldn't touch 00:04:44.879 --> 00:04:47.569 it with a 10 -foot pole. Wirecard just stepped 00:04:47.569 --> 00:04:50.129 right in. And I'm guessing they weren't doing 00:04:50.129 --> 00:04:52.050 it out of the kindness of their hearts. Oh, absolutely 00:04:52.050 --> 00:04:54.689 not. They did it because they could charge exorbitant 00:04:54.689 --> 00:04:58.110 fees. If you are the lender of last resort or 00:04:58.110 --> 00:05:00.269 the processor of last resort, you can dictate 00:05:00.269 --> 00:05:03.970 the terms. Wirecard was making margins that standard 00:05:03.970 --> 00:05:06.970 payment processors could only dream of. But I 00:05:06.970 --> 00:05:09.589 think more importantly than the money, it taught 00:05:09.589 --> 00:05:12.689 the company a very, very dangerous lesson. And 00:05:12.689 --> 00:05:15.379 what was that lesson? The lesson was you can 00:05:15.379 --> 00:05:17.480 get really rich by operating in the shadows. 00:05:17.699 --> 00:05:20.360 You can build a massive business by processing 00:05:20.360 --> 00:05:23.339 payments that other people won't. And crucially, 00:05:23.399 --> 00:05:25.680 by not asking too many questions about where 00:05:25.680 --> 00:05:27.699 the money is coming from or where it's going. 00:05:27.939 --> 00:05:30.759 So it baked this kind of opacity right into their 00:05:30.759 --> 00:05:33.459 corporate DNA from day one. It did. It's almost 00:05:33.459 --> 00:05:36.180 like they started out as a black ops payment 00:05:36.180 --> 00:05:38.860 processor. So when they eventually try to pivot 00:05:38.860 --> 00:05:41.220 to more legitimate. businesses you know airlines 00:05:41.220 --> 00:05:44.519 and retail they just kept that same don't look 00:05:44.519 --> 00:05:46.360 too closely at the books mentality precisely 00:05:46.360 --> 00:05:50.060 they normalized secrecy in a normal healthy company 00:05:50.060 --> 00:05:52.420 complexity is a bug it's something you try to 00:05:52.420 --> 00:05:54.540 eliminate yeah you want things to be simple in 00:05:54.540 --> 00:05:57.019 wire card complexity was a feature it was how 00:05:57.019 --> 00:06:00.019 they hid everything it was how they hid the bodies 00:06:00.019 --> 00:06:03.540 so to speak So, OK, they're chugging along with 00:06:03.540 --> 00:06:05.939 the gambling and porn money. But then the dotcom 00:06:05.939 --> 00:06:08.319 bubble bursts in the early 2000s. Right. And 00:06:08.319 --> 00:06:10.019 Wirecard nearly goes under. I mean, they were 00:06:10.019 --> 00:06:12.959 right on the brink of bankruptcy in 2002. And 00:06:12.959 --> 00:06:15.220 this is where the central antagonist of our story 00:06:15.220 --> 00:06:18.199 makes his grand entrance. Marcus Braun. Enter 00:06:18.199 --> 00:06:21.519 Marcus Braun. He's this Austrian consultant and 00:06:21.519 --> 00:06:24.300 his background is actually from KPMG. Oh, interesting. 00:06:24.540 --> 00:06:27.560 He comes in, he injects capital, saves the company 00:06:27.560 --> 00:06:30.939 from total insolvency and takes over as the CEO. 00:06:31.100 --> 00:06:33.379 He's the one who really consolidated the business 00:06:33.379 --> 00:06:36.500 model. He had this grand vision of Wirecard as 00:06:36.500 --> 00:06:39.680 a technology powerhouse, not just a back office 00:06:39.680 --> 00:06:43.160 payment plumber. But he also had a very, very 00:06:43.160 --> 00:06:46.279 aggressive approach to growth. And this leads 00:06:46.279 --> 00:06:50.259 us to 2005. Wirecard wants to go public. Now, 00:06:50.319 --> 00:06:52.019 I've been around markets long enough to know 00:06:52.019 --> 00:06:55.870 that an IPO, an initial public offering. is a 00:06:55.870 --> 00:06:57.889 huge deal. It's like a, well, it's a financial 00:06:57.889 --> 00:07:00.009 colonoscopy. That's a great way to put it. You've 00:07:00.009 --> 00:07:02.810 got bankers, lawyers, auditors, regulators, just 00:07:02.810 --> 00:07:04.389 everyone tearing through your documents for months 00:07:04.389 --> 00:07:06.689 on end. It is an absolutely grueling process. 00:07:06.990 --> 00:07:09.290 You have to publish a prospectus that details 00:07:09.290 --> 00:07:11.769 every single risk, every debt, every lawsuit. 00:07:12.050 --> 00:07:14.589 You have to go on a roadshow and convince these 00:07:14.589 --> 00:07:16.990 really skeptical investors that your business 00:07:16.990 --> 00:07:19.829 is real. It's the gatekeeper of the public markets. 00:07:20.170 --> 00:07:22.389 But Wirecard looked at that gate and said, nah, 00:07:22.509 --> 00:07:24.550 we'll just hop the fence. They did. They did 00:07:24.550 --> 00:07:26.720 what's called a reverse IPO. And I really want 00:07:26.720 --> 00:07:28.600 to unpack this because the mechanism they used 00:07:28.600 --> 00:07:30.939 is just, it's both hilarious and terrifying at 00:07:30.939 --> 00:07:34.019 the same time. They bought a company called InfoGenie 00:07:34.019 --> 00:07:36.959 AG. InfoGenie, you really, you just can't make 00:07:36.959 --> 00:07:38.600 this stuff up. So for our listeners who might 00:07:38.600 --> 00:07:41.949 not know. What on earth was InfoGenie? So InfoGenie 00:07:41.949 --> 00:07:44.870 was a penny stock. It was listed in Berlin, and 00:07:44.870 --> 00:07:46.910 they had absolutely nothing to do with payments 00:07:46.910 --> 00:07:50.149 or fintech. Their business was operating telephone 00:07:50.149 --> 00:07:52.949 advice hotlines. You mean like 1 -900 numbers? 00:07:53.370 --> 00:07:55.990 Exactly. We're talking tech support, horoscopes, 00:07:56.009 --> 00:07:58.689 relationship advice, and probably some of the 00:07:58.689 --> 00:08:00.750 more adult conversations that we were alluding 00:08:00.750 --> 00:08:04.220 to earlier. I see. By 2004, Info Genie was basically 00:08:04.220 --> 00:08:06.620 a zombie company. The stock exchange actually 00:08:06.620 --> 00:08:08.600 wanted to delist them because their share price 00:08:08.600 --> 00:08:11.959 was effectively zero. So Wirecard, instead of 00:08:11.959 --> 00:08:14.480 doing its own proper, heavily scrutinized IPO, 00:08:14.759 --> 00:08:17.160 decides to just buy this dying hotline company. 00:08:17.459 --> 00:08:20.079 Correct. In December of 2004, the shareholders 00:08:20.079 --> 00:08:22.779 of Info Genie agreed to a capital increase in 00:08:22.779 --> 00:08:26.779 exchange for acquiring Wirecard. So mechanically, 00:08:26.879 --> 00:08:29.860 InfoGenie bought Wirecard. But in reality, Wirecard 00:08:29.860 --> 00:08:33.159 took over InfoGenie. And then what? They changed 00:08:33.159 --> 00:08:36.620 the name from InfoGenie to Wirecard and voila. 00:08:36.919 --> 00:08:40.679 On January 1st, 2005, Wirecard was a publicly 00:08:40.679 --> 00:08:44.379 traded corporation. That is just wild. They literally 00:08:44.379 --> 00:08:47.639 wore the skin of a dead company to sneak onto 00:08:47.639 --> 00:08:50.460 the stock exchange. That is a very vivid and 00:08:50.460 --> 00:08:53.039 I think a very accurate way to put it. And here's 00:08:53.039 --> 00:08:55.919 why that matters so much. By doing a reverse 00:08:55.919 --> 00:08:58.860 IPO, they skipped all the scrutiny. No roadshow. 00:08:58.899 --> 00:09:01.440 No roadshow. No deep audit by skeptical investment 00:09:01.440 --> 00:09:04.600 banks. No detailed prospectus for investors to 00:09:04.600 --> 00:09:06.480 pick apart. They just sort of appeared on the 00:09:06.480 --> 00:09:08.360 market. I mean, that feels like such a massive 00:09:08.360 --> 00:09:11.039 red flag. If a company is actively avoiding scrutiny 00:09:11.039 --> 00:09:13.919 on day one, shouldn't investors be incredibly 00:09:13.919 --> 00:09:15.759 wary? They should be. Of course they should. 00:09:15.860 --> 00:09:17.940 And to be fair, some were. But you have to remember 00:09:17.940 --> 00:09:20.759 the context of the time. This was 2005. The tech 00:09:20.759 --> 00:09:22.740 market was recovering from the dot -com bust. 00:09:22.879 --> 00:09:24.759 People were hungry, especially in Germany, for 00:09:24.759 --> 00:09:28.220 a German tech success story. very, very good 00:09:28.220 --> 00:09:30.259 at selling the vision. He talked about the cashless 00:09:30.259 --> 00:09:33.299 society, the digitization of money. He sounded 00:09:33.299 --> 00:09:36.259 like a true visionary. And the growth chart seemed 00:09:36.259 --> 00:09:38.460 to back him up. I mean, they rocketed into the 00:09:38.460 --> 00:09:41.419 tech tax in 2006. They were growing faster than 00:09:41.419 --> 00:09:45.139 anyone else. They were. And then the real crowning 00:09:45.139 --> 00:09:49.299 achievement came in September of 2018. Wirecard. 00:09:49.740 --> 00:09:52.419 joins the DAX 30. This was a massive cultural 00:09:52.419 --> 00:09:55.559 moment in Germany. The DAX 30 is the elite club. 00:09:55.759 --> 00:09:58.039 It's the German equivalent of the Dow Jones Industrial 00:09:58.039 --> 00:10:01.200 Average. You're talking BMW, Siemens, Adidas, 00:10:01.379 --> 00:10:04.159 Volkswagen. The absolute titans of German industry. 00:10:04.399 --> 00:10:06.340 And Wirecard joined the club. And you have to 00:10:06.340 --> 00:10:08.860 look at who they replaced. They kicked out Commerzbank. 00:10:09.210 --> 00:10:12.049 The symbolism there was intoxicating. It was 00:10:12.049 --> 00:10:14.529 just perfect for their narrative. Cumbers Bank 00:10:14.529 --> 00:10:16.809 was founded in 1870. It was the establishment. 00:10:16.850 --> 00:10:19.190 It was old money, traditional banking. Right. 00:10:19.350 --> 00:10:22.070 And here comes Wirecard, founded in a Munich 00:10:22.070 --> 00:10:24.669 suburb in 1999, kicking the old guard out the 00:10:24.669 --> 00:10:26.230 door. It looked like the future defeating the 00:10:26.230 --> 00:10:28.649 past. It's the perfect story. Old banking is 00:10:28.649 --> 00:10:31.330 dead. FinTech is king. And I mean, investors 00:10:31.330 --> 00:10:34.769 just ate it up. At its peak, Wirecard was valued 00:10:34.769 --> 00:10:38.159 at over 24 billion euros. It was worth more than 00:10:38.159 --> 00:10:39.980 Deutsche Bank at one point. That's staggering. 00:10:40.259 --> 00:10:42.620 Just let that sink in for a minute. A payment 00:10:42.620 --> 00:10:45.279 processor that started out with porn and gambling 00:10:45.279 --> 00:10:48.080 sites was worth more than the biggest, most systemically 00:10:48.080 --> 00:10:50.320 important bank in Germany. So let's talk about 00:10:50.320 --> 00:10:52.320 what they claimed they were actually doing to 00:10:52.320 --> 00:10:56.419 justify that 24 billion euro valuation. Because 00:10:56.419 --> 00:10:59.519 you can't just say we process payments and be 00:10:59.519 --> 00:11:01.620 worth that much. You need to have a special sauce, 00:11:01.840 --> 00:11:04.539 some kind of magic. Right, they claim to have 00:11:04.539 --> 00:11:08.340 a financial ecosystem. Their business, on paper, 00:11:08.539 --> 00:11:11.799 had three main pillars. First, the bread and 00:11:11.799 --> 00:11:14.429 butter. payment processing, and risk management. 00:11:14.669 --> 00:11:17.350 Okay. This is just acting as the middleman between 00:11:17.350 --> 00:11:20.129 a merchant, like an airline or a shop, and the 00:11:20.129 --> 00:11:22.429 credit card network, like Visa or MasterCard. 00:11:22.529 --> 00:11:25.149 They take a tiny little cut of every single transaction. 00:11:25.450 --> 00:11:27.409 Okay, that's standard stuff. I mean, PayPal does 00:11:27.409 --> 00:11:29.830 that, ADN does that, nothing special there. Second 00:11:29.830 --> 00:11:32.210 pillar was card issuing. So they would issue 00:11:32.210 --> 00:11:34.669 physical or virtual debit cards for other companies. 00:11:34.929 --> 00:11:37.269 So if a new startup wanted to launch a cool new 00:11:37.269 --> 00:11:39.870 banking app, Wirecard would provide the actual 00:11:39.870 --> 00:11:42.299 card infrastructure in the background. Right. 00:11:42.320 --> 00:11:44.159 I remember they worked with companies like Revolut 00:11:44.159 --> 00:11:46.720 in the early days and a bunch of other smaller 00:11:46.720 --> 00:11:49.799 fintech apps. They did. And they had big names 00:11:49.799 --> 00:11:51.879 in their client list. I remember seeing their 00:11:51.879 --> 00:11:56.259 client deck, Allands, KLM, Qatar Airways, Transport 00:11:56.259 --> 00:11:58.559 for London. I mean, if you saw that list, you'd 00:11:58.559 --> 00:12:00.940 think, OK, this is a legitimate blue chip operation. 00:12:01.549 --> 00:12:04.450 And they did have real clients. That's what makes 00:12:04.450 --> 00:12:06.850 the fraud so tricky. The business wasn't completely 00:12:06.850 --> 00:12:11.129 fake. The European part of the business was real. 00:12:11.250 --> 00:12:13.850 It was actually losing money for the most part. 00:12:14.009 --> 00:12:16.669 But it was real. They were processing real payments 00:12:16.669 --> 00:12:19.789 for real companies like Aldi and Lidl. But the 00:12:19.789 --> 00:12:22.210 real growth story, the thing that was driving 00:12:22.210 --> 00:12:25.129 the stock price, wasn't Aldi or Lidl. It was 00:12:25.129 --> 00:12:27.409 all the innovation stuff. I remember the Boone 00:12:27.409 --> 00:12:29.950 app. Boone, yes. It was their mobile payment 00:12:29.950 --> 00:12:32.470 app that gave... you a virtual MasterCard on 00:12:32.470 --> 00:12:36.169 your phone. It was Apple Pay and Google Pay compatible. 00:12:36.350 --> 00:12:38.230 And it was a decent product, wasn't it? It was 00:12:38.230 --> 00:12:40.269 actually a pretty good product, but it wasn't 00:12:40.269 --> 00:12:43.289 making them billions of euros in profit. Not 00:12:43.289 --> 00:12:45.350 even close. And then there was the China connection. 00:12:45.590 --> 00:12:48.450 I feel like this was the narrative that really, 00:12:48.529 --> 00:12:51.190 really drove the stock price into the stratosphere. 00:12:51.330 --> 00:12:55.269 The Alipay narrative. This was pure genius from 00:12:55.269 --> 00:12:58.600 a storytelling perspective. Wirecard claimed 00:12:58.600 --> 00:13:01.000 to be the indispensable bridge between China 00:13:01.000 --> 00:13:03.600 and Europe. They partnered with Alipay and WeChat 00:13:03.600 --> 00:13:06.279 Pay, which are, you know, the completely dominant 00:13:06.279 --> 00:13:09.399 payment apps in China. And the pitch was simple. 00:13:09.970 --> 00:13:12.870 When millions of Chinese tourists come to Paris 00:13:12.870 --> 00:13:15.330 or Munich to buy luxury handbags and watches 00:13:15.330 --> 00:13:17.789 they want to pay with their phones. Wirecard 00:13:17.789 --> 00:13:20.070 is the company that makes that happen. It sounded 00:13:20.070 --> 00:13:22.629 like a license to print money. You have millions 00:13:22.629 --> 00:13:25.610 of wealthy tourists billions in potential transactions. 00:13:25.990 --> 00:13:28.210 It was an incredibly compelling story. They announced 00:13:28.210 --> 00:13:30.830 these huge partnerships with Printem the big 00:13:30.830 --> 00:13:33.169 department store in Paris the body shop Munich 00:13:33.169 --> 00:13:36.350 Airport. It positioned Wirecard as the only player 00:13:36.350 --> 00:13:38.789 who could unlock this massive, massive revenue 00:13:38.789 --> 00:13:41.870 stream. So on the surface, you've got real clients, 00:13:41.929 --> 00:13:44.090 you've got cool apps, this massive Chinese expansion, 00:13:44.289 --> 00:13:46.789 and the financials looked absolutely incredible. 00:13:46.970 --> 00:13:49.929 A hockey stick graph. Totally. In 2013, their 00:13:49.929 --> 00:13:54.610 revenue was, what, 482 million euros? By 2018, 00:13:54.769 --> 00:13:57.649 it was over 2 billion. Assets just quadrupled 00:13:57.649 --> 00:14:00.070 in that same period. And then in 2019, they got 00:14:00.070 --> 00:14:02.970 what seemed like the ultimate validation. SoftBank, 00:14:03.029 --> 00:14:05.570 you know, Masayoshi -san's massive Japanese investment 00:14:05.570 --> 00:14:08.169 fund invested. And that's a huge stamp of approval. 00:14:08.409 --> 00:14:10.889 It's the biggest. When SoftBank puts money in, 00:14:10.990 --> 00:14:13.629 the market takes that as a sign that you have 00:14:13.629 --> 00:14:16.610 officially made it to the global big leagues. 00:14:16.830 --> 00:14:19.769 And there is always a but in these deep dives. 00:14:19.929 --> 00:14:22.070 While the stock price was climbing and while 00:14:22.070 --> 00:14:24.169 the German public was celebrating their new tech 00:14:24.169 --> 00:14:26.190 champion, there were people. people, smart people 00:14:26.190 --> 00:14:27.990 scratching their heads. There were. Because the 00:14:27.990 --> 00:14:30.230 math just wasn't adding up. No, it wasn't. And 00:14:30.230 --> 00:14:32.049 this is where we need to introduce a concept 00:14:32.049 --> 00:14:34.129 that is absolutely critical to understanding 00:14:34.129 --> 00:14:36.769 the entire fraud. We have to talk about third 00:14:36.769 --> 00:14:39.950 party acquirers or TPAs. OK, let's slow down 00:14:39.950 --> 00:14:41.750 and really explain this, because I'll be honest, 00:14:41.870 --> 00:14:43.509 when I first started reading about the scandal 00:14:43.509 --> 00:14:45.870 years ago, this was the part that confused me 00:14:45.870 --> 00:14:48.759 the most. What is a third party acquirer? So 00:14:48.759 --> 00:14:51.940 imagine Wirecard wants to do business in a country 00:14:51.940 --> 00:14:54.539 where it doesn't have a financial license. Let's 00:14:54.539 --> 00:14:59.480 say the Philippines or Malaysia or Dubai. OK. 00:14:59.600 --> 00:15:02.139 They can't legally process the credit card swipe 00:15:02.139 --> 00:15:05.220 themselves because they aren't a licensed bank 00:15:05.220 --> 00:15:07.460 or financial institution in that jurisdiction. 00:15:07.639 --> 00:15:09.759 So they're blocked. They can't operate there. 00:15:09.860 --> 00:15:12.559 Theoretically, yes. But instead of giving up. 00:15:12.860 --> 00:15:14.639 or going through the long process of getting 00:15:14.639 --> 00:15:17.559 a license, they just hire a local partner. This 00:15:17.559 --> 00:15:20.539 local partner is the third -party acquirer. And 00:15:20.539 --> 00:15:22.740 that partner has the license. Exactly. The TPA 00:15:22.740 --> 00:15:25.580 has the license. So the TPA processes the transaction 00:15:25.580 --> 00:15:28.120 for the merchant in that country. They take the 00:15:28.120 --> 00:15:30.480 customer's money, they hold it, and then in theory, 00:15:30.500 --> 00:15:33.039 they pass it on to Wirecard, minus a commission. 00:15:33.299 --> 00:15:35.139 So it's basically like outsourcing the actual 00:15:35.139 --> 00:15:37.470 work. It's exactly like outsourcing. It's like 00:15:37.470 --> 00:15:39.629 being an Uber driver, but you don't have a car 00:15:39.629 --> 00:15:42.009 or a driver's license. So you hire a guy who 00:15:42.009 --> 00:15:44.509 does have a car to drive people around. And then 00:15:44.509 --> 00:15:46.049 you tell everyone that you're the one running 00:15:46.049 --> 00:15:48.570 the successful taxi business. And Wirecard claimed 00:15:48.570 --> 00:15:51.690 that this TPA business was huge. This is the 00:15:51.690 --> 00:15:55.419 absolute key to the entire fraud. Wirecard claimed 00:15:55.419 --> 00:15:58.000 that roughly half of their entire transaction 00:15:58.000 --> 00:16:01.679 volume and the vast, vast majority of their operating 00:16:01.679 --> 00:16:05.059 profit came from these obscure TPA partners in 00:16:05.059 --> 00:16:07.600 Asia and the Middle East. Wait, wait. Half their 00:16:07.600 --> 00:16:09.379 business was coming from these outsourced partners 00:16:09.379 --> 00:16:11.379 that no one had ever heard of? Yes. And because 00:16:11.379 --> 00:16:13.940 it was outsourced, Wirecard didn't have any of 00:16:13.940 --> 00:16:16.419 the associated costs. They didn't have to pay 00:16:16.419 --> 00:16:19.039 for servers or staff or office space in those 00:16:19.039 --> 00:16:21.700 countries. They just booked the revenue. So that's 00:16:21.700 --> 00:16:23.539 why their profit margins look so much better 00:16:23.539 --> 00:16:25.610 than... their competitors. Exactly. They claim 00:16:25.610 --> 00:16:28.289 to be making these massive profits with basically 00:16:28.289 --> 00:16:30.690 zero cost. I mean, that sounds way too good to 00:16:30.690 --> 00:16:33.809 be true. We have billions in revenue, but it's 00:16:33.809 --> 00:16:35.490 all happening over there in that other company's 00:16:35.490 --> 00:16:38.090 books. Don't worry about it. And that is exactly 00:16:38.090 --> 00:16:40.389 what the skeptics started to notice. As far back 00:16:40.389 --> 00:16:43.690 as 2008 and certainly by 2015, people were looking 00:16:43.690 --> 00:16:45.909 at this TPA structure and saying, this doesn't 00:16:45.909 --> 00:16:48.429 make any sense. This smells wrong. And this brings 00:16:48.429 --> 00:16:51.529 us to the heroes of this story. Yeah. The people 00:16:51.529 --> 00:16:54.080 who didn't buy the hype. We have to talk about 00:16:54.080 --> 00:16:56.080 the Financial Times and the short sellers. The 00:16:56.080 --> 00:16:58.799 FT, and specifically a journalist there named 00:16:58.799 --> 00:17:01.820 Dan McCrum, they deserve a Pulitzer and a half 00:17:01.820 --> 00:17:05.200 for what they did. Absolutely. In 2015, the FT's 00:17:05.200 --> 00:17:08.299 blog, it's called FT Alphaville, started a series 00:17:08.299 --> 00:17:11.019 called The House of Wirecard. And they just started 00:17:11.019 --> 00:17:13.720 methodically picking apart the accounting. They 00:17:13.720 --> 00:17:15.359 were asking the simple questions. Like what? 00:17:15.440 --> 00:17:20.269 Like, where are these assets really? Why is a 00:17:20.269 --> 00:17:22.309 company that claims to be making so much profit 00:17:22.309 --> 00:17:24.890 constantly asking for more cash from investors? 00:17:25.309 --> 00:17:26.809 That's a classic tell, isn't it? If you're so 00:17:26.809 --> 00:17:28.309 profitable, why do you always need to borrow 00:17:28.309 --> 00:17:31.049 more money? Exactly. Cash flow should be strong. 00:17:31.250 --> 00:17:33.809 And then in 2016, things got really, really spicy. 00:17:34.069 --> 00:17:36.950 We got the Zatara report. Zatara. It honestly 00:17:36.950 --> 00:17:38.769 sounds like a villain in a James Bond movie. 00:17:38.930 --> 00:17:41.150 It does, doesn't it? It was actually a pseudonym 00:17:41.150 --> 00:17:44.549 used by Fraser Puring of Viceroy Research and 00:17:44.549 --> 00:17:47.400 Matthew Earl of Shadowfall. Now, these guys are 00:17:47.400 --> 00:17:49.640 short sellers. So investors who are betting that 00:17:49.640 --> 00:17:52.339 a stock price will go down. Correct. And they 00:17:52.339 --> 00:17:56.180 released this bombshell 101 page report accusing 00:17:56.180 --> 00:17:59.920 Wirecard of, well, everything. Fraud and money 00:17:59.920 --> 00:18:01.940 laundering. I read parts of the Zatara report 00:18:01.940 --> 00:18:04.200 recently. It wasn't subtle at all. They basically 00:18:04.200 --> 00:18:07.180 just said this is a crime scene. They did. They 00:18:07.180 --> 00:18:10.900 alleged that the TPA business in Asia was. largely, 00:18:11.000 --> 00:18:13.920 if not entirely, fake. They claimed Wirecard 00:18:13.920 --> 00:18:16.420 was laundering money for illegal offshore gambling 00:18:16.420 --> 00:18:19.839 rings. It was a dossier of just nuclear accusations. 00:18:20.259 --> 00:18:22.579 Now, in a normal functioning market, if someone 00:18:22.579 --> 00:18:24.980 drops a 100 -page report alleging massive fraud 00:18:24.980 --> 00:18:27.480 and money laundering, the regulator, in this 00:18:27.480 --> 00:18:29.940 case Bafin, the German regulator, would kick 00:18:29.940 --> 00:18:31.819 down the doors of the company and start seizing 00:18:31.819 --> 00:18:33.660 hard drives. You would think. You would absolutely 00:18:33.660 --> 00:18:35.539 think. But this is where the story becomes a 00:18:35.539 --> 00:18:38.670 true tragedy of German institutional pride. Bafin 00:18:38.670 --> 00:18:41.309 didn't investigate Wirecard. Unbelievable. They 00:18:41.309 --> 00:18:43.410 investigated the short sellers. That is just 00:18:43.410 --> 00:18:45.490 mind -blowing to me even now. The guys pointing 00:18:45.490 --> 00:18:48.029 out the fire get arrested for arson. Effectively, 00:18:48.029 --> 00:18:51.490 yes. Bafin and the prosecutors in Bavaria bought 00:18:51.490 --> 00:18:54.579 into Wirecard's narrative completely. And Wirecard's 00:18:54.579 --> 00:18:56.960 narrative was that these Anglo -Saxon speculators 00:18:56.960 --> 00:18:59.539 were trying to manipulate the market to destroy 00:18:59.539 --> 00:19:02.339 a great German champion. So it became a nationalist 00:19:02.339 --> 00:19:04.680 issue. It became a nationalist issue. They are 00:19:04.680 --> 00:19:07.819 attacking our success story. This is an attack 00:19:07.819 --> 00:19:10.859 on Germany. So the Bavarian prosecutors actually 00:19:10.859 --> 00:19:13.519 opened criminal investigations against Fraser 00:19:13.519 --> 00:19:15.740 Paring and the others. They did. They threatened 00:19:15.740 --> 00:19:18.119 them with jail time. Yeah. And it created this 00:19:18.119 --> 00:19:21.059 circle the wagons mentality in the German establishment. 00:19:21.400 --> 00:19:23.849 If you criticized Wirecard. You weren't just 00:19:23.849 --> 00:19:25.930 a skeptic. You were attacking Germany itself. 00:19:26.109 --> 00:19:28.430 But the Financial Times didn't stop. In January 00:19:28.430 --> 00:19:31.950 2019, Dan McCrum published what really should 00:19:31.950 --> 00:19:34.559 have been the kill shot. January 30th, 2019, 00:19:35.059 --> 00:19:37.980 the FT reports that a senior executive in Wirecard's 00:19:37.980 --> 00:19:40.720 Asia -Pacific operations, a guy by the name of 00:19:40.720 --> 00:19:44.480 Ido Kurniawan, was suspected internally of falsification 00:19:44.480 --> 00:19:47.000 of accounts and round -tripping. Okay, round 00:19:47.000 --> 00:19:49.039 -tripping. We need to define this because this 00:19:49.039 --> 00:19:51.319 is the core of how they kept the balloon inflated 00:19:51.319 --> 00:19:54.819 for so long. So imagine I have a company. I want 00:19:54.819 --> 00:19:57.200 to look successful. I want to show growing revenue. 00:19:57.440 --> 00:20:00.420 I take, say, 100 euros out of my company's left 00:20:00.420 --> 00:20:03.079 pocket. I transfer it to a sub... subsidiary 00:20:03.079 --> 00:20:06.160 I control in Hong Kong. That subsidiary then 00:20:06.160 --> 00:20:08.539 transfers it to a so -called partner company 00:20:08.539 --> 00:20:12.059 in India. That partner then pays me back the 00:20:12.059 --> 00:20:14.119 hundred euros for some fake software services. 00:20:14.380 --> 00:20:15.819 The money just comes right back into your right 00:20:15.819 --> 00:20:18.400 pocket. Exactly. And I record that hundred euros 00:20:18.400 --> 00:20:21.380 coming in as revenue. My stock price goes up 00:20:21.380 --> 00:20:23.160 because look at all this amazing revenue growth. 00:20:23.240 --> 00:20:25.819 But I haven't actually made a single dime. I've 00:20:25.819 --> 00:20:28.180 just moved my own money in a circle. It's financial 00:20:28.180 --> 00:20:30.460 illusionism. You're just creating the appearance 00:20:30.460 --> 00:20:33.059 of activity where there is none. And the FT had 00:20:33.059 --> 00:20:35.400 the documents. They had internal spreadsheets. 00:20:35.400 --> 00:20:37.480 They had emails. They had proof that this was 00:20:37.480 --> 00:20:39.160 happening in the Singapore office. And what did 00:20:39.160 --> 00:20:41.500 Wirecard do? Did they finally apologize? Did 00:20:41.500 --> 00:20:43.799 they launch a real internal investigation? No. 00:20:43.940 --> 00:20:47.240 They went nuclear. They sued the Financial Times 00:20:47.240 --> 00:20:50.579 for unethical reporting. They claimed the documents 00:20:50.579 --> 00:20:53.579 were fake, part of the conspiracy. And Baffin. 00:20:53.740 --> 00:20:55.859 Baffin did something absolutely unprecedented. 00:20:56.700 --> 00:20:58.480 This is the part of the story that still shocks 00:20:58.480 --> 00:21:01.920 me the most. In February of 2019, Bayfin, the 00:21:01.920 --> 00:21:04.200 German financial regulator, banned the short 00:21:04.200 --> 00:21:06.400 selling of Wirecard shares. They made it illegal 00:21:06.400 --> 00:21:08.380 to bet against the company. They made it illegal. 00:21:08.779 --> 00:21:11.279 It was a massive intervention in the free market 00:21:11.279 --> 00:21:15.079 to protect a single company. And to top it all 00:21:15.079 --> 00:21:17.519 off, they filed a criminal complaint against 00:21:17.519 --> 00:21:20.359 Dan McCrum and his colleague for market manipulation. 00:21:20.819 --> 00:21:23.359 I just I try to imagine being Dan McCrum in that 00:21:23.359 --> 00:21:26.480 moment. You have the truth. You have the evidence 00:21:26.480 --> 00:21:28.859 in your hands. And the government of Germany 00:21:28.859 --> 00:21:31.420 is actively trying to put you in jail while the 00:21:31.420 --> 00:21:33.700 actual fraudsters are ringing the opening bell 00:21:33.700 --> 00:21:35.940 at the stock exchange. It's terrifying. It's 00:21:35.940 --> 00:21:38.619 the stuff of nightmares for a journalist. But 00:21:38.619 --> 00:21:40.599 it wasn't just legal threats. And this is where 00:21:40.599 --> 00:21:43.019 the deep dive gets really dark. We have to talk 00:21:43.019 --> 00:21:45.019 about Dark Basin. This sounds like something 00:21:45.019 --> 00:21:46.740 out of a science fiction movie, but it's completely 00:21:46.740 --> 00:21:50.160 real. It is very real. In June of 2020, just 00:21:50.160 --> 00:21:52.279 as everything was collapsing, a group called 00:21:52.279 --> 00:21:54.859 Citizen Lab at the University of Toronto released 00:21:54.859 --> 00:21:57.720 a stunning report. They had uncovered a sophisticated 00:21:57.720 --> 00:22:00.380 hackers for hire group operating out of India. 00:22:00.579 --> 00:22:03.539 A company called Beltrats Infotech. Link to that 00:22:03.539 --> 00:22:08.339 company, yes. And the group was codenamed Dark 00:22:08.339 --> 00:22:11.420 Basin. And who is hiring these hackers? Well, 00:22:11.500 --> 00:22:13.619 the client list is officially confidential, but 00:22:13.619 --> 00:22:15.579 the targets of the hacking campaigns tell the 00:22:15.579 --> 00:22:17.859 story. The people being relentlessly targeted 00:22:17.859 --> 00:22:20.180 were hedge funds, short sellers, investigators, 00:22:20.599 --> 00:22:22.960 and journalists. All of whom were critical of 00:22:22.960 --> 00:22:26.000 Wirecard. Every single one. So if you were asking 00:22:26.000 --> 00:22:28.019 tough questions about Wirecard's balance sheet, 00:22:28.079 --> 00:22:30.640 suddenly your email inbox is getting bombarded 00:22:30.640 --> 00:22:34.039 day after day. With what? Sophisticated phishing 00:22:34.039 --> 00:22:36.900 attacks, attempts to steal your passwords, attempts 00:22:36.900 --> 00:22:39.400 to gain access to your private communications, 00:22:39.640 --> 00:22:42.599 your sources. Dan McCrum was targeted. Fraser 00:22:42.599 --> 00:22:45.339 Paring was targeted. It was a coordinated campaign 00:22:45.339 --> 00:22:48.339 of digital espionage designed to silence the 00:22:48.339 --> 00:22:50.400 critics. It just shows the lengths they were 00:22:50.400 --> 00:22:52.039 willing to go to. This wasn't just, you know, 00:22:52.039 --> 00:22:53.700 cooking the books. This was an active intelligence 00:22:53.700 --> 00:22:56.779 operation to suppress the truth. It was warfare. 00:22:57.319 --> 00:22:59.099 But here's the thing about accounting fraud, 00:22:59.319 --> 00:23:03.609 and it's always true. You can fake revenue. You 00:23:03.609 --> 00:23:06.809 can fake profit, but you cannot fake cash forever. 00:23:07.130 --> 00:23:09.150 Eventually, you have to pay the bills. You have 00:23:09.150 --> 00:23:11.730 to pay back the loans. Gravity always wins. Gravity 00:23:11.730 --> 00:23:15.430 always wins. By late 2019, the pressure was mounting. 00:23:15.589 --> 00:23:17.589 The FT reports were damaging the stock price 00:23:17.589 --> 00:23:19.789 no matter how much they denied them. Investors 00:23:19.789 --> 00:23:22.130 were getting nervous. So Wirecard made a very 00:23:22.130 --> 00:23:24.869 desperate move. What did they do? They hired 00:23:24.869 --> 00:23:28.509 KPMG, one of the big four global auditors, to 00:23:28.509 --> 00:23:31.339 conduct a special independent audit. Okay, so 00:23:31.339 --> 00:23:34.039 the idea was KPMG will come in, check everything, 00:23:34.160 --> 00:23:35.660 they'll give us a clean bill of health, a gold 00:23:35.660 --> 00:23:38.079 star, and then all these critics will have to 00:23:38.079 --> 00:23:40.680 shut up forever. That was the plan. But it was 00:23:40.680 --> 00:23:43.519 a massive, massive gamble. Because unlike EY, 00:23:43.799 --> 00:23:45.720 Ernst & Young, who had been auditing Wirecard 00:23:45.720 --> 00:23:47.539 for years and had apparently been sleeping at 00:23:47.539 --> 00:23:50.940 the wheel, KPMG came in fresh with a skeptical 00:23:50.940 --> 00:23:53.630 eye. And they started asking for the documents. 00:23:53.950 --> 00:23:56.750 Specifically, they asked for the documents related 00:23:56.750 --> 00:23:59.589 to those third -party acquirers in Asia, the 00:23:59.589 --> 00:24:02.430 source of all the profit. Exactly. Show us the 00:24:02.430 --> 00:24:04.390 bank statements. Show us the original transaction 00:24:04.390 --> 00:24:06.690 logs from your partners. And Wirecard couldn't 00:24:06.690 --> 00:24:08.769 produce them. They couldn't. They kept delaying. 00:24:08.769 --> 00:24:11.049 They made excuse after excuse. Oh, the server 00:24:11.049 --> 00:24:14.349 is down today. Oh, you know, privacy laws in 00:24:14.349 --> 00:24:16.309 Singapore prevent us from sharing that information 00:24:16.309 --> 00:24:19.809 directly. The classic dog ate my homework defense. 00:24:20.940 --> 00:24:24.220 Basically, in March of 2020, Wirecard tried to 00:24:24.220 --> 00:24:26.460 bluff their way through it. They put out a press 00:24:26.460 --> 00:24:29.799 release claiming that KPMG had found no discrepancies. 00:24:29.920 --> 00:24:32.339 But that wasn't true. It was a lie. The truth 00:24:32.339 --> 00:24:36.279 came out on April 28, 2020. KPMG officially released 00:24:36.279 --> 00:24:38.740 their report and was absolutely devastating. 00:24:39.019 --> 00:24:41.039 Now, they didn't explicitly say it's a fraud, 00:24:41.220 --> 00:24:43.839 but they said something that for an auditor is 00:24:43.839 --> 00:24:46.660 almost worse. They said. We cannot verify that 00:24:46.660 --> 00:24:48.920 this money exists. Which in the world of auditing, 00:24:48.980 --> 00:24:51.480 that's the polite way of screaming fire at the 00:24:51.480 --> 00:24:54.220 top of your lungs. It is. The stock tanked 26 00:24:54.220 --> 00:24:57.559 % that day. The hedge fund TCI filed new criminal 00:24:57.559 --> 00:24:59.859 complaints. The facade was just cracking wide 00:24:59.859 --> 00:25:04.079 open. And then we get to June 2020. The final 00:25:04.079 --> 00:25:06.900 spectacular explosion. It all came down to the 00:25:06.900 --> 00:25:09.599 2019 annual report. It was supposed to be released 00:25:09.599 --> 00:25:12.619 on June 18th. If they didn't release it, their 00:25:12.619 --> 00:25:15.500 loans, billions in loans, would be called in 00:25:15.500 --> 00:25:17.700 by the banks. And they needed their longtime 00:25:17.700 --> 00:25:21.839 auditor, EY, to sign off on it. But EY, finally 00:25:21.839 --> 00:25:24.319 feeling the intense heat from the KPMG report 00:25:24.319 --> 00:25:27.240 and the media, decided to actually for the first 00:25:27.240 --> 00:25:30.339 time properly check the bank accounts in the 00:25:30.339 --> 00:25:32.200 Philippines where this money was supposed to 00:25:32.200 --> 00:25:35.190 be. Better late than never, I guess. I suppose. 00:25:35.349 --> 00:25:38.769 So Wirecard had claimed for years that 1 .9 billion 00:25:38.769 --> 00:25:41.430 euros, which was effectively all of their profit 00:25:41.430 --> 00:25:44.470 from the last decade, was sitting in escrow accounts 00:25:44.470 --> 00:25:47.829 at two banks in the Philippines, BDO Unibank 00:25:47.829 --> 00:25:50.190 and the Bank of the Philippine Islands. And what 00:25:50.190 --> 00:25:52.609 happened when EY finally called them? The bank 00:25:52.609 --> 00:25:54.950 said, we have no idea who you are. These account 00:25:54.950 --> 00:25:57.109 numbers you're giving us don't exist. These documents 00:25:57.109 --> 00:25:58.869 you have, these confirmation letters, they are 00:25:58.869 --> 00:26:01.549 forgeries. Boom. The Central Bank of the Philippines 00:26:01.549 --> 00:26:03.569 then jumped in and made an official statement 00:26:03.569 --> 00:26:06.529 saying, quote, the money never entered the Philippine 00:26:06.529 --> 00:26:10.549 financial system. So on June 18th, 2020, instead 00:26:10.549 --> 00:26:13.390 of announcing a huge profit, Wirecard had to 00:26:13.390 --> 00:26:16.930 issue a statement saying that 1 .9 billion euros 00:26:16.930 --> 00:26:19.849 was missing. Marcus Braun resigned the very next 00:26:19.849 --> 00:26:22.769 day, June 19th. And here's a fantastic piece 00:26:22.769 --> 00:26:25.289 of corporate trivia. They appointed an interim 00:26:25.289 --> 00:26:28.130 CEO, an American guy named James Fries. He had 00:26:28.130 --> 00:26:30.269 joined the company, get this, the evening before. 00:26:30.490 --> 00:26:32.670 Now, can you imagine? It's your first day on 00:26:32.670 --> 00:26:34.349 the job. You get hired as the new compliance 00:26:34.349 --> 00:26:36.490 guy. You walk in on a Thursday and on Friday, 00:26:36.490 --> 00:26:38.890 the CEO quits and the company announces it's 00:26:38.890 --> 00:26:40.829 missing two billion euros. Here are the keys 00:26:40.829 --> 00:26:43.680 to the castle. Good luck. Unbelievable. He apparently 00:26:43.680 --> 00:26:45.480 looked at the books over the weekend, realized 00:26:45.480 --> 00:26:47.640 it wasn't just a liquidity issue, but a total 00:26:47.640 --> 00:26:50.859 catastrophic fraud. And he was the one who ultimately 00:26:50.859 --> 00:26:53.759 had to file for insolvency. His tenure as CEO 00:26:53.759 --> 00:26:57.240 lasted just 85 days. So Marcus Braun was arrested 00:26:57.240 --> 00:27:01.059 on June 22nd. While he was being processed and 00:27:01.059 --> 00:27:03.420 sitting in a Munich jail cell, the other key 00:27:03.420 --> 00:27:06.460 figure in this whole drama decided to execute 00:27:06.460 --> 00:27:09.339 his own exit strategy. Jan Marsalek. Jan Marsalek. 00:27:10.319 --> 00:27:12.519 The chief operating officer, the man who's in 00:27:12.519 --> 00:27:15.500 charge of all the Asia operations, the man who 00:27:15.500 --> 00:27:18.839 managed the TPA relationships. The man who is 00:27:18.839 --> 00:27:21.259 currently one of Europe's most wanted fugitives. 00:27:21.460 --> 00:27:24.140 He just vanished. He vanished. He told his colleagues 00:27:24.140 --> 00:27:26.019 he was flying to the Philippines to personally 00:27:26.019 --> 00:27:28.700 find the missing money. He even had immigration 00:27:28.700 --> 00:27:31.319 records faked to show that he had entered the 00:27:31.319 --> 00:27:34.609 Philippines, but he didn't go to Manila. So where 00:27:34.609 --> 00:27:36.930 did he go? According to incredible investigations 00:27:36.930 --> 00:27:40.069 by Bellingcat and the German newspaper Der Spiegel, 00:27:40.210 --> 00:27:44.289 he took a private jet to Belarus, and from there 00:27:44.289 --> 00:27:47.470 he was spirited away to Russia. And the strong 00:27:47.470 --> 00:27:49.690 suspicion is that he's living in Moscow now. 00:27:49.869 --> 00:27:52.789 Yes. Possibly under the protection of the Russian 00:27:52.789 --> 00:27:55.210 intelligence services, the FSB. Which brings 00:27:55.210 --> 00:27:57.230 us right back to the spy thriller aspect of this 00:27:57.230 --> 00:27:59.390 whole thing. It turns out Marsalek might have 00:27:59.390 --> 00:28:01.049 been feeding information to various intelligence 00:28:01.049 --> 00:28:03.930 agencies for years. He was living a double life. 00:28:04.089 --> 00:28:07.210 It adds a whole other layer of shadow and intrigue. 00:28:07.210 --> 00:28:09.529 I mean, was Wirecard just a massive accounting 00:28:09.529 --> 00:28:12.089 fraud or was it also a money laundering operation 00:28:12.089 --> 00:28:14.769 for intelligence services and their various activities? 00:28:14.970 --> 00:28:17.190 We may never know the full extent of it. So the 00:28:17.190 --> 00:28:20.109 company completely collapses. Insolvency is filed 00:28:20.109 --> 00:28:23.970 on June 25th, 2020. The stock, which had been 00:28:23.970 --> 00:28:27.369 in the DAX 30, goes to pennies. Thousands of 00:28:27.369 --> 00:28:29.710 people lose their jobs. It was a total bloodbath. 00:28:30.170 --> 00:28:32.589 The insolvency administrator came in and immediately 00:28:32.589 --> 00:28:36.069 cut 730 staff. The company was just chopped up 00:28:36.069 --> 00:28:38.470 and sold for parts. Right. Santander bought the 00:28:38.470 --> 00:28:42.450 core European tech for a measly 100 million euros. 00:28:42.650 --> 00:28:45.009 100 million. For a company that was valued at 00:28:45.009 --> 00:28:48.089 24 billion just two years earlier, Rails Bank 00:28:48.089 --> 00:28:50.509 bought the UK arm. The empire that Marcus Braun 00:28:50.509 --> 00:28:53.089 had built was just sold for scrap metal. So that 00:28:53.089 --> 00:28:55.809 was the crash. An absolute spectacular implosion. 00:28:56.419 --> 00:28:58.839 But legal justice, as we know, moves a lot slower 00:28:58.839 --> 00:29:00.799 than the stock market. Much slower. And that 00:29:00.799 --> 00:29:02.720 brings us to the core reason we are doing this 00:29:02.720 --> 00:29:04.519 deep drive today. We need to talk about what 00:29:04.519 --> 00:29:06.759 happened just last month, in January of 2026, 00:29:06.980 --> 00:29:09.299 in a courtroom in Singapore. This is the closure 00:29:09.299 --> 00:29:12.140 we've been waiting for, for years. We knew the 00:29:12.140 --> 00:29:14.200 money was missing. We knew the documents were 00:29:14.200 --> 00:29:16.900 forged. But we needed the courts to officially 00:29:16.900 --> 00:29:19.599 establish exactly who did it and how they did 00:29:19.599 --> 00:29:22.259 it. We saw some of the initial convictions back 00:29:22.259 --> 00:29:25.980 in 2023. James Ward -Hanna and Chai Ai Lim, they 00:29:25.980 --> 00:29:28.359 got relatively short sentences for their roles. 00:29:28.599 --> 00:29:31.380 But the big fish in the Singapore operation were 00:29:31.380 --> 00:29:34.000 sentenced just a few weeks ago. Aat Shanmugaratnam 00:29:34.000 --> 00:29:37.039 and James Henry O'Sullivan. Let's start with 00:29:37.039 --> 00:29:39.220 Shanmugaratnam. He ran a small trustee company 00:29:39.220 --> 00:29:41.839 called Citadel Corporate Services. He was sentenced 00:29:41.839 --> 00:29:44.700 to 10 years in prison. What was his role in all 00:29:44.700 --> 00:29:47.339 this? He was the guy with the stamp. It's as 00:29:47.339 --> 00:29:49.920 simple as that. He was a trustee. His job on 00:29:49.920 --> 00:29:52.259 paper was to hold money in escrow accounts for 00:29:52.259 --> 00:29:55.299 third parties. Okay. Wirecard needed to prove 00:29:55.299 --> 00:29:57.880 to their auditors, to EY, that the money from 00:29:57.880 --> 00:30:00.420 the TPA business actually existed. So they would 00:30:00.420 --> 00:30:03.240 ask Sean McGrathnam to issue an official confirmation 00:30:03.240 --> 00:30:05.279 letter. A letter that would say something like, 00:30:05.400 --> 00:30:08.079 yes, I can confirm my company Citadel is holding 00:30:08.079 --> 00:30:10.779 500 million euros in an escrow account on behalf 00:30:10.779 --> 00:30:13.660 of Wirecard. Exactly that. And he wrote those 00:30:13.660 --> 00:30:16.660 letters. Year after year. He signed documents 00:30:16.660 --> 00:30:19.839 claiming Citadel held huge sums of money. At 00:30:19.839 --> 00:30:24.359 one point, up to 1 .1 billion euros. But the 00:30:24.359 --> 00:30:26.460 accounts were empty. The accounts were empty. 00:30:26.599 --> 00:30:29.220 Or they contained a tiny fraction of what was 00:30:29.220 --> 00:30:31.579 claimed. He was simply lying on official letterhead 00:30:31.579 --> 00:30:34.019 to fool the auditors. And for that service, I'm 00:30:34.019 --> 00:30:36.460 assuming he was paid handsomely. He wasn't doing 00:30:36.460 --> 00:30:39.329 for free, no. But compared to the billions that 00:30:39.329 --> 00:30:41.849 were at stake, the bribes were probably relatively 00:30:41.849 --> 00:30:45.390 small. He got 10 years for falsification of accounts. 00:30:45.650 --> 00:30:48.049 That is a very heavy sentence in Singapore. And 00:30:48.049 --> 00:30:50.650 then there's the other guy, James Henry O'Sullivan. 00:30:50.730 --> 00:30:53.250 He got six and a half years. O'Sullivan was the 00:30:53.250 --> 00:30:56.250 coordinator. He was the link man. He was the 00:30:56.250 --> 00:30:58.910 bridge between Wirecard's top management, like 00:30:58.910 --> 00:31:01.329 Jan Marsalek, and the local guys on the ground, 00:31:01.369 --> 00:31:04.069 like Sean McGrathnam. He facilitated the arrangements. 00:31:04.390 --> 00:31:07.130 The court found that he was instrumental in setting 00:31:07.130 --> 00:31:09.490 up and maintaining this entire structure of lies. 00:31:09.809 --> 00:31:11.529 I mean, this is the smoking gun, isn't it? This 00:31:11.529 --> 00:31:13.960 is the final nail in the coffin. It absolutely 00:31:13.960 --> 00:31:17.559 is. It's judicial confirmation. It proves beyond 00:31:17.559 --> 00:31:21.319 any doubt that the missing 1 .9 billion euros 00:31:21.319 --> 00:31:24.859 wasn't stolen by some rogue hacker. It wasn't 00:31:24.859 --> 00:31:27.160 lost in a bad investment. It was a complete fabrication 00:31:27.160 --> 00:31:29.440 from the start. It was a fabrication. These men 00:31:29.440 --> 00:31:32.339 went to prison for long sentences because they 00:31:32.339 --> 00:31:34.980 signed pieces of paper saying money existed when 00:31:34.980 --> 00:31:37.400 they knew for a fact that it didn't. It effectively 00:31:37.400 --> 00:31:40.569 closes the loop on the entire mechanism. Wirecard 00:31:40.569 --> 00:31:43.190 used the TPA structure to create fake revenue 00:31:43.190 --> 00:31:46.289 out of thin air. They used trustees like Shem 00:31:46.289 --> 00:31:49.029 Mugaratnam to create fake verification for that 00:31:49.029 --> 00:31:51.289 fake revenue. And they used the complexity of 00:31:51.289 --> 00:31:53.230 international banking with all its different 00:31:53.230 --> 00:31:55.910 jurisdictions to hide it all from the auditors 00:31:55.910 --> 00:31:58.130 sitting back in Germany. And it worked. For over 00:31:58.130 --> 00:32:00.130 a decade, it worked. That is the really scary 00:32:00.130 --> 00:32:02.970 part. If the Financial Times hadn't been so dogged, 00:32:03.029 --> 00:32:05.509 so persistent, or if the pandemic hadn't caused 00:32:05.509 --> 00:32:07.869 market jitters that ultimately led to that special 00:32:07.869 --> 00:32:11.289 KPMG audit. They might still be doing it today. 00:32:11.509 --> 00:32:12.970 It's a chilling thought, isn't it? It really 00:32:12.970 --> 00:32:14.970 is. It makes you realize just how much of our 00:32:14.970 --> 00:32:17.690 global financial system runs on, well, on blind 00:32:17.690 --> 00:32:20.690 trust. It's the trust economy. We trust the bank 00:32:20.690 --> 00:32:22.609 statement is real. We trust the auditor stamp 00:32:22.609 --> 00:32:25.109 means something. We trust that a company in the 00:32:25.109 --> 00:32:28.329 DAX 30 must be legitimate because, well, it's 00:32:28.329 --> 00:32:31.349 in the DAX. Right. Wirecard weaponized that trust. 00:32:31.670 --> 00:32:34.009 They knew that people wanted to believe in them. 00:32:34.410 --> 00:32:37.490 Germany wanted a tech champion to rival the giants 00:32:37.490 --> 00:32:40.750 in Silicon Valley. Investors wanted those incredible 00:32:40.750 --> 00:32:43.690 returns. Exactly. Confirmation bias is a hell 00:32:43.690 --> 00:32:46.289 of a drug. When you looked at Wirecard, if you 00:32:46.289 --> 00:32:48.549 wanted to see a spectacular success, you saw 00:32:48.549 --> 00:32:50.690 a spectacular success. If you looked closely, 00:32:50.869 --> 00:32:53.769 you saw a crime scene. But most people, including 00:32:53.769 --> 00:32:56.329 the regulator, didn't want to look closely. And 00:32:56.329 --> 00:32:58.849 the regulators, Bafin, they were the worst offenders 00:32:58.849 --> 00:33:01.309 of all. They were so protective of the home team 00:33:01.309 --> 00:33:03.349 that they completely forgot their job was to 00:33:03.349 --> 00:33:06.009 be the impartial referee. It is the Enron of 00:33:06.009 --> 00:33:07.849 Germany, but you're right, in some ways it's 00:33:07.849 --> 00:33:10.430 worse. Because with Enron, the regulators and 00:33:10.430 --> 00:33:12.890 the authorities eventually caught on and prosecuted 00:33:12.890 --> 00:33:15.990 them. With Wirecard, the regulators were actively 00:33:15.990 --> 00:33:18.049 fighting against the people who were trying to 00:33:18.049 --> 00:33:21.069 expose the fraud. It's a stain on Germany's financial 00:33:21.069 --> 00:33:23.069 reputation that I think will take a generation 00:33:23.069 --> 00:33:26.970 to wash out. I agree. So, sitting here now... 00:33:27.400 --> 00:33:30.799 In early 2026, looking at the 10 -year sentence 00:33:30.799 --> 00:33:33.779 for Shannon Bogaratnam, looking at the ruins 00:33:33.779 --> 00:33:38.680 of what was once a 24 billion euro giant. What 00:33:38.680 --> 00:33:41.259 is the big takeaway from all this? For me, it 00:33:41.259 --> 00:33:44.140 comes down to one word. Complexity. Whenever 00:33:44.140 --> 00:33:46.400 a company tells you, oh, our business model is 00:33:46.400 --> 00:33:48.539 too complicated for you to understand, or we 00:33:48.539 --> 00:33:51.059 make money in these very complex ways in faraway 00:33:51.059 --> 00:33:54.059 places, run. Complexity is camouflage. Always. 00:33:54.640 --> 00:33:57.619 Wirecard used a web of subsidiaries, TPAs, trustees 00:33:57.619 --> 00:33:59.920 in Singapore, and endless excuses about privacy 00:33:59.920 --> 00:34:02.650 laws to hide a very, very simple truth. They 00:34:02.650 --> 00:34:04.589 weren't actually making any money. Right. Genuine, 00:34:04.589 --> 00:34:06.569 healthy businesses can usually explain how they 00:34:06.569 --> 00:34:08.489 make money in two sentences. We sell phones. 00:34:08.510 --> 00:34:11.190 We fly planes. We sell coffee. When the answer 00:34:11.190 --> 00:34:13.030 becomes a flowchart involving three continents 00:34:13.030 --> 00:34:16.369 and an obscure trustee in Singapore, you should 00:34:16.369 --> 00:34:18.590 be very, very worried. And I keep thinking about 00:34:18.590 --> 00:34:20.909 the whistleblowers. Pei Viel, the senior legal 00:34:20.909 --> 00:34:22.710 counsel in Singapore who leaks those initial 00:34:22.710 --> 00:34:25.489 documents to the FT. He risked his entire career, 00:34:25.590 --> 00:34:28.719 his personal safety. He's a hero, a genuine hero 00:34:28.719 --> 00:34:31.460 in a world of dark base and hackers and state 00:34:31.460 --> 00:34:34.420 level intimidation and legal threats to stand 00:34:34.420 --> 00:34:38.199 up and say this is a lie is an act of incredible 00:34:38.199 --> 00:34:41.960 bravery. It really is. So we have form of closure. 00:34:42.219 --> 00:34:44.840 The fraudsters are either in jail or they're 00:34:44.840 --> 00:34:47.119 in Russia. The company is gone. But it still 00:34:47.119 --> 00:34:48.880 leaves you with this really nagging question. 00:34:49.079 --> 00:34:51.579 And what's that? If a DAX 30 company, a national 00:34:51.579 --> 00:34:54.900 champion audited by a big four firm like EY. 00:34:55.639 --> 00:34:58.840 regulated by Bafin, could successfully fake 1 00:34:58.840 --> 00:35:03.059 .9 billion euros in cash for a decade? Where 00:35:03.059 --> 00:35:04.940 else is this happening right now? That is the 00:35:04.940 --> 00:35:06.619 question that should keep all of us up at night. 00:35:06.719 --> 00:35:08.699 There is almost certainly another wire card out 00:35:08.699 --> 00:35:10.320 there. Maybe it's not as big. Maybe it's not 00:35:10.320 --> 00:35:12.940 German. But somewhere right now, there is a company 00:35:12.940 --> 00:35:15.159 posting record profits based on a spreadsheet 00:35:15.159 --> 00:35:17.139 that is nothing but pure fiction. And on that 00:35:17.139 --> 00:35:19.400 absolutely terrifying note, I think we're going 00:35:19.400 --> 00:35:21.260 to wrap it up. Sleep tight, everyone. Check your 00:35:21.260 --> 00:35:23.260 sources. Be skeptical of those hockey stick growth 00:35:23.260 --> 00:35:25.829 charts. And maybe, just maybe. Double check if 00:35:25.829 --> 00:35:28.130 your favorite fintech darling used to run a telephone 00:35:28.130 --> 00:35:31.230 psychic hotline. Thanks for listening to The 00:35:31.230 --> 00:35:33.710 Deep Dive. Stay curious. We'll see you next time.