Where's The Money? Auditors Say They Can't Confirm $2.1 Billion In Wirecard Trust Funds

Shares of Wirecard AG (WDI.DE), one of Europe’s fastest-growing fintechs, plunged more than 61% Thursday on word auditors were unable to find $2.1 billion of the company’s cash – about a quarter of its balance sheet. The plunge, which sent share prices down to less than $40, wiped out more than $9 billion in market value.

At one point last year, the company was worth nearly $27 billion.

The missing funds were supposed to be held in trust accounts. The company, which processes electronic payments for retailers, gambling sites, travel companies and others, was undergoing a boom amid the coronavirus pandemic, which prompted a rapid shift to online purchases and away from cash payments.

Much of Thursday’s price collapse was the result of products arranged and sold by Credit Suisse, which lost 75% of their value and were trading at 18 cents. Employees of SoftBank, which never made good on a pledge to invest $1 billion, used personal funds and the Abu Dhabi sovereign-wealth fund to buy the Credit Suisse products but pulled out.

“During our first-quarter conference call we previously described the company as ‘having more red flags than you would see at a communist rally,’” Barry Norris, manager of the Argonaut Absolute Return Fund, told MarketWatch.

The public accounting firm KPMG raised questions about Wirecard’s accounting practices in April.

“Due to the lack of available documents or IT system access, some of the original investigative actions brought to the client’s attention at the beginning of the investigation could not be carried out or could not be carried out in the manner originally intended,” KPMG said in its report.

On Thursday, Wirecard said there are indications “confirmations had been provided” to “deceive the auditor and create a wrong perception of the existence of such cash balances.”

Wirecard faces the possible termination of $2.24 billion in loans if it cannot present 2019 financial results by Friday.

Wirecard has consistently denied allegations from skeptical investors who alleged the company used shell companies to generate fake revenue or faked the amount of cash it had on hand.

CEO Markus Braun said his company may be a victim of fraudulent transactions and planned to file a complaint.

Ernst & Young asked banks to issue new confirmations of the trust fund balances but two, both in Asia, refused to comply, Wirecard said.

German prosecutors are investigating Wirecard management for misleading investors. A raid was conducted on the company’s headquarters outside Munich earlier this month. The company said it is cooperating with the inquiry.

Braun, who owns 7% of the company stock, also was under investigation for insider trading.