United Kingdom

Briton who was FIRST to spot fall of Wirecard

A British stock market research firm today lays claim to being the first whistleblower to raise the alarm about the collapsed German payment giant, Wirecard.

Mark Hiley, who runs The Analyst, reveals in The Mail on Sunday that he issued a 'Red Flag Alert' on Wirecard to his clients six years ago.

The 2014 note, reproduced below, warned that Wirecard's 'income statement does not reflect the full cash economics of the business'.

Hiley says he advised clients of his independent research house in Clapham, south London, to sell the stock – or even bet against the shares by taking out short positions. Short-sellers gain when share prices fall.

First warning: The Analyst’s note from 2014, one of 43 on Wirecard

Evidence of Hiley's foresight has come to light after several rival analysts claimed to be the first to spot signs of accounting irregularities at Wirecard. 

Matthew Earl – who is known in the City as the 'Dark Destroyer' and who now runs short-selling research firm Shadowfall – had previously been regarded as the first to raise concerns about Wirecard, having published his own concerns in late 2015.

Wirecard last month filed for insolvency over debts of €3.5billion (£3.16billion) in one of the world's biggest ever corporate failures. Its shares have crashed and are now almost worthless.

Chief executive Markus Braun was arrested by the German authorities after a €2billion black hole was discovered in the firm's finances. Ernst & Young, Wirecard's auditor, had refused to sign off the company's accounts because it was unable to verify the existence of the funds.

The firm's downfall, which has made headlines round the world, has been compared to the Enron debacle in the US in 2001, which has been immortalised in film and theatre productions.

Wirecard was founded in 1999 and listed on Germany's stock market in 2005 after a reverse takeover of a call centre business.

Mark Hiley, who runs The Analyst, reveals that he issued a 'Red Flag Alert' on Wirecard to his clients six years ago

Initially, the little-known company provided payment processing to online gambling companies and pornographic websites.

The business grew through a series of mergers and acquisitions to become one of Germany's largest financial companies, with a significant division in the UK called Wirecard Card Solutions.

At the end of 2018, Wirecard's British business reportedly had £465.7 million in cash for customer deposits.

In 2018, worth €24billion, it was promoted to the DAX – Germany's equivalent of the FTSE 100 – replacing Commerzbank, one of Germany's largest banking groups, in the blue-chip index.

But hedge funds, researchers and journalists had already started to raise the alarm.

After publishing a warning under his own name, Earl teamed up with Fraser Perring, another short-selling analyst, to form then-anonymous research firm Zatarra and published a series of negative research reports on Wirecard in 2016.

Wirecard last month filed for insolvency over debts of €3.5billion (£3.16billion) in one of the world's biggest ever corporate failures

Neil Campling, an analyst at Swiss broker Mirabaud Securities, slapped a price target of zero on Wirecard in 2019 when the shares were trading at around €100.

But it appears Hiley, at The Analyst, beat them to the punch. Hiley said that after his initial 'Red Flag Alert', his firm published more than 40 more notes on Wirecard that set out 'in extreme detail the widening gap between the company's often ludicrous claims about global domination and the reality of an overhyped stock'.

'We couldn't find many of the claimed customers, the technology seemed poor, the cash flows were negative, and the debt kept piling up,' he said.

Describing the unfolding drama as 'stranger than fiction', he says that in 2014 he knew something was wrong but 'couldn't have known back then exactly how it would unfold'. But he says the accounts kept 'getting worse' and slowly but surely, his suspicions were confirmed. 

On Friday, Wirecard's shares closed at €3.23, giving it a market capitalisation of €456.3million. Hiley's firm has had success in discovering irregular activity at other firms, such as FTSE 100-listed Gulf-based hospital operator NMC Health and Aim-listed internet-of-things provider Telit Communications.

In 2017, The Analyst discovered that Telit's former chief executive, Oozi Cats, was in fact Uzi Katz, a fugitive defendant wanted in connection with an alleged 1990s property scam. The discovery led to the resignation of Mr Cats from Telit Communications and a collapse of Telit's share price.

'This [Wirecard] won't be the last corporate scandal in Europe,' Hiley concludes.

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