Hacker News Reader

Comment by blablabla123 | Hacker News Reader

Since years there have been allegation of fraud towards Wirecard. [1] I cannot understand how they even managed to make an IPO.

[1] https://translate.google.com/translate?sl=auto&tl=en&u=https...

View on HN

They didn't just IPO, they were included in the DAX 30! In addition, Wirecard claimed to be vastly more profitable than their competitors, but they never actually explained how they made all their money. There was certainly enough smoke to warrant an investigation, but regulators were asleep at the wheel.

"No one knew how they did it. One theory was that they were active in more “risky” areas such as online gambling and porn sites but no one cared as long as reported profits and the stock price went up."

That's actually the explanation. 10 years ago I ran a small project and they were the only Payment Service Provider that agreed to work with us. At that time at least in Germany there were no Paypal and Stripe to directly process Credit Cards etc. for small websites. IIRC their fees - especially for refunds - were much higher than those of competitors. Refund rates are normally in the sub percentage but they would accept higher than usual refund rates without cancelling the account. It's easy to start a business in an area where there is a vacuum of competitors.

(FWIW I think cancelling the account with them to switch over to Paypal took almost 2 years...)

I have trouble to see the risk with processing payments for online porn. Sure, some institutions might have a "moral" issue, but otherwise? Gambling could be different, so.

PornHub has an enormous problem with sexual trafficking and child abuse, which means that financing PornHub exposes you to serious legal liability (and an unambiguous moral responsibility). So it's not just institutional prudishness - online porn is full of vicious criminals.

Wow so I guess Facebook needs to be classified as high risk as well? Please don't spread misinformation like that.

I guess there are a lot of chargebacks from people entering their details for "trials" as well as stolen cards being used.

> I have trouble to see the risk with processing payments for online porn.

Huge number of chargebacks. A previous employer of mine had a subsidiary that handled premium rate SMS and phone call billing, a lot of which was adult services. You'd see a huge amount of contested charges, for reasons such as:

* Buyer's remorse (get drunk, wake up the next day, realise you spent $500 on porn)

* Unsupervised minor - your kid "borrows" your credit card for some online "research"

* Outright fraud - stolen cards, etc.

This varies quite a bit. I was the CTO of a very large porn site in the mid-2000s and our chargeback rate was tiny - a small fraction of a percent. That fact didn't help us avoid high-risk categorization, though.

The only time I've ever suffered from "stolen id", not even cards or accounts, was with an online porn company that sold the account in arrears to a collections agency. The agency even admitted they had nothing linking me to the transactions other than my name, but demanded I pay up. A stern letter fixed the problem from my end.

Yeah this is probably a big part of their business. I recently shopped around for a merchant account for a similar market and Wirecard reps were willing to work with me and would allow us to process big numbers.

Also last year Deutsche Bank gave the CEO a €150 million personal loan using his Wirecard stock as collateral.

This isn't a case of a few errors and lack of a little due diligence.

Just for the record, Deutsche Bank is a private company with the majority of stocks owned by non-German investors. It is not to be confused with the Bundesbank, which is something like the German FED.

it's a public company, its shares are tradeable on exchanges

"Private" and "public" companies don't have the same meaning in our side of the Pond. In France, "public" = "state-owned" and "private" = "not public".

Oh, wasn't aware of that. Not that I'm surprised that is Deutsche Bank. They have a long track record of shady dealings reaching back to, as far as I remember, the 90s.

"Bank of America", anyone? (Just talking how that name could also be misunderstood, I have no idea if they're scumbags or not).

> Also last year Deutsche Bank gave the CEO a €150 million personal loan using his Wirecard stock as collateral.

That kind of stuff is pretty common though, Elon Musk has about 15 billion dollars, 100x that amount (!), of his Tesla stocks posted as collateral for personal loans: https://www.theverge.com/2020/5/8/21252487/elon-musk-persona...

And Deutsche Bank is a big player in this kind of business, remember their involvement with Trump?

Honestly why do banks accept this collateral when underwriting a loan? Stocks are known to be volatile, aren't there more stable assets you should collateralize (e.g. inventory, real estate)?

Depends on advance rate. Loaning 20% of the value of the collateral seems pretty safe on average.

It's common, but the problems at Wirecard have been public for a long time and will be even more well known in the industry so you would imagine that due diligence would have questioned the potential value of his collateral against such a loan.

Regulators were definitely not asleep at the wheel. They were apparently actively defending them, for instance by attempting to sue the Financial Times for reporting on the irregularities.

Being asleep at the wheel would be an improvement. Last year, BaFin -- the german regulators -- investigated Financial Times for market manipulation (ie, reporting on Wirecard's suspicious accounting practices).

https://aboutus.ft.com/en-gb/announcements/ft-statement-on-w...

Agreed. Ignorance would be more ideal than corruption.

IPO'd via reverse merger, according to MSN article linked to from other post https://news.ycombinator.com/item?id=23573350 :

"Wirecard's origins date back to 1999, when its Berlin-based predecessor InfoGenie was founded. Wirecard listed its shares on Frankfurt's stock exchange through a reverse merger with InfoGenie in 2005."

ft's reporting on this story has been great throughout. I would recommend anyone looking to get more background to read the solid investigative pieces Olaf Storbeck and Dan McCrum have done over the past few years1[1]. they deserve a lot of credit for pursuing this likely enron level accounting malfeasance story to the top.

[1] https://www.ft.com/content/d080c3fc-c561-11e8-8670-c5353379f...

You can hide a lot of things in an international crime organisation.

Reply on news.ycombinator.com