Sunday, December 6, 2020

Wirecard: 1.9 Billion Euros of Fraud (2020)

Wirecard: 1.9 Billion Euros of Fraud (2020)


Wirecard is a German payment processing company and was once seen as a darling amongst stock market analysis as they saw exponential growth through the acquisition of many companies and huge profits. This growth had caused many investigators to question the legitimacy of the profits that they reported and accused them of falsifying their profits. In June 2020, after multiple auditors were able to verify the accounts that Wirecard reported, and plummeting stocks, the CEO resigned and the new CEO admitted that the 1.9 billion euros in cash that they recorded had likely never existed. This caused the company to completely tank and all stakeholders to be negatively affected. Since what the company did was fraud, individualism does not agree with their actions because they broke the law. Like individualism, utilitarianism disagrees with their actions since in the end, everyone affected by the company’s decisions were not happy as everything went down in shambles. Kantianism also disagrees because the company lied and manipulated investors in order to get what they wanted. The one place they get any sort of agreeance is with virtue theory since knowingly breaking the law is technically courageous however, committing fraud does not show self-control, honesty, or fairness so overall, virtue theory also disagrees. Though they are at rock bottom, all hope is not lost. If the new management is able to cut the old members who were involved and fully admit to what happened, they could change their identity and gain trust from the public. With this along with offering promotions to customers to get more people through the door and focusing on their app in todays digital world, they have a chance to get back to where they once were.

Ethics Case Controversy

The front of a Wirecard headquarters in Germany

Wirecard is a German payment processing company who’s beginning would foreshadow their most recent years. Wirecard was created in 1999 but collapsed in 2000 due to the bursting of the Dotcom Bubble (Regulation Asia). The Dotcom Bubble refers to a time in the stock market where the creation of the World Wide Web caused countless investors to invest in all of these new start ups in the technology field. It was thought that these new internet companies would blow up and be the future. This mixed with the desire to cash in on the rapidly growing use of the internet caused investors to throw around their money without the proper care and research that they usually would. This caused the stock market to skyrocket creating the Dotcom Bubble. When these companies failed to turn profits the companies fell and the bubble burst (Investopedia).

CEO Markus Braun

An Austrian tech investor, Markus Braun helped Wirecard rebound with his capital and was named Chief Technology Officer (CTO) and Chief Executive Officer (CEO) of the company in 2002. Starting to rebuild, he merged Wirecard with Electronic Business Systems, a rival at the time. Looking for new ways to grow, Wirecard took an unusual approach and focused on customers and market segments that many other companies would not work with due to the risk involved including online gambling and pornography. From here, The company started to grow and in 2006, they purchased XCOM which pushed them into the banking world where they became Wirecard Bank (Financial Times). 

In 2008, the first red flag was raised when “the head of a German shareholder association alleged the company’s 2007 consolidated accounts were incomplete and misleading. Wirecard hired EY to conduct an audit, which showed no irregularities.” (The New York Times). After surviving this attack, Wirecard hired Markus Braun’s apprentice, Jan Marsalek, as the Chief Operating Officer (COO) and shifted their focus to going global with Wirecard. The first order of business was to make the company operate in English rather than German and create an international expansion plan. Soon after, the rapid growth began as they took the 500 million dollars that they had raised from shareholders and started buying smaller payment companies throughout Asia and investors started drooling over the growing company. They eventually set up a regional headquarters in Singapore (Financial Times). However, they did not have a license to operate in Singapore nor several other countries in Asia where they bought companies. Which obviously raised suspicion among investigators. The biggest skeptic at the time was Mark Hiley of The Analyst. He noticed the hundreds of millions of dollars that Wirecard was giving to their newly acquired companies and “‘When you looked at the local companies’ financial filings, you could see they were very small businesses, with very low revenue and limited profitability,’ Mr. Hiley said. ‘We were concerned: Why were they paying so much money for these small, barely profitable companies?’”(The New York Times) and suddenly these previously unprofitable companies began bringing in absurd amounts of profit all together according to Wirecard but no breakdown of which company was bringing in which amount of money. Mr. Hiley had sent an investigator to India to check in on one of these companies. When the investor arrived, he found a tiny office that was a part of an extremely run down building looking unsafe for people to be in. When inside, he reported few workers, broken technology, and absolutely no customers. 

Wirecard claimed that these Asian companies brought in half of the total revenue however, due to the setup of accounts, auditors were unable to verify the legitimacy of the accounts (The New York Times). Braun dismissed the accusations by saying that the reports done against Wirecard had been carried out by short sellers who were upset. Meanwhile, people who had publicly spoken out against Wirecard and their recorded profits received numerous threatening emails which included extensive details about their personal lives including their families; some even reported being followed when outside (The New York Times).

Again, seemingly unbothered by these serious accusations, Wirecard continued to grow at a rapid rate and by September 2018, they replaced Commerzbank in the DAX 30 index which catapulted them even more. Reports of wrongdoing and exaggeration of their accounts had continued to flow in from multiple different companies, reporters, and investigators however, Wirecard was able to keep its name clear by deflecting the accusations by saying they were false and made by short sellers. In an attempt to finally clear their name once and for all, Wirecard hired KPMG to do a special audit of their 2019 accounts. On April 28, 2020, KPMG published their report stating that they could not verify the majority of Wirecard’s profits and “was unable to verify the existence of €1 billion in revenue that Wirecard booked”(The New York Times).

For the final time, Wirecard argued that the report was false but, on June 5, 2020, the Munich police raided the Wirecard headquarters as part of a criminal investigation against Braun “on suspicion of releasing misleading information that may have [positively] affected Wirecard’s share price”(The New York Times). Shortly later on June 18, Wirecard was slated to release its 2019 full year audit but was unable to as their auditor, EY, did not give it the thumbs up due to them not being able to find sufficient evidence of the 1.9 billion euros on the balance sheet. As a result, their stocks plummeted from $58.50 per share to $20.20 per share over night. On June 22, “Wirecard claimed the missing €1.9 billion likely did not exist, and it withdrew an assessment of its financial results”(Market Insider) and Braun resigned the next day. By the 26th, the price per share had gone all the way down to $0.79 and the company then went on to file for insolvency. COO Marsalek was removed by the company since he was the primary person to overlook the areas that had been where the fraud had been reported and the next day CEO Braun turned himself in and was promptly arrested and later released on five million euro bail. Marsalek on the other hand did not and went on the run starting an international manhunt still underway today.


Every company has stakeholders who are those connected to the company and are directly affected by the decisions of the company. For Wirecard, their stakeholders were the upper management, stockholders/investors, employees, the companies they owned, and the customers. CEO Markus Braun and COO Jan Marsalek were both negatively affected as they lost their jobs along with their reputation. Also, they both face potential jail time for their parts in the fraudulent behavior of Wirecard. These fraudulent behaviors led to the insolvency of the company and this greatly hurt the stockholders and employees. Multiple stockholders of the business saw their life savings disappear when the company dropped from $58.50 per share to $0.79 in just nine days. The most notable of the stockholders to take the loss was Japanese conglomerate, SoftBank who invested 900 million euros in Wirecard when they were going through the multiple allegations as a sign of confidence in the company (Financial Times). This investment was diminished shortly after with the drop in the share price. Meanwhile, the employees were facing their own battle as a result of the company’s plummet. Wirecard had had 5,800 employees on payroll but after filing for insolvency, they were forced to make some cuts to the employees. 730 employees were laid off (Fintech Futures) and this lay off is worse than others when you take into account the already low number of job openings due to the coronavirus.

Wirecard purchased many companies over the years and through these, Wirecard was able to lie about the profits they made all together. However, when Wirecard collapsed, so did these companies. “With the exception of Wirecard’s bank, all its companies have filed for bankruptcy”(Fintech Futures). These companies took big paychecks from Wirecard and trusted the growing giant to help catapult them but instead used them as part of their fraud scheme and took the companies down with them leaving them with nothing in the end. This also directly connects to the customers. Though they didn't have many customers, the customers of the smaller companies owned by Wirecard lost the place they do business and the customers of Wirecard itself lost their ability to trust Wirecard since they were lied to the entire time of giving them business. 


Individualism is an ethical theory that was created by economist, Milton Friedman. Friedman  believed that “business actions should maximize profits for the owners of a business, but do so within the law.”(Salazar 17). In shorter terms, do whatever it takes to maximize profits as long as it is legal. With the only thing stopping any profit maximizing action from being unacceptable is the written law, individualism allows many companies to do things that society sees as wrong, such as lying or cheating customers, seem acceptable through this lens. However, what Wirecard did is not seen as acceptable even in the most forgiving of the ethical theories. This is because what they did was commit fraud which is illegal and even considered a felony in certain places. It is evident with the arrest of Markus Braun and the manhunt for Marsalek because of their actions and involvement in the fraud. 

Even if what Wirecard had done was legal, individualism would still disagree with what Wirecard did because of the first part of the rule for individualism. The first part states that the actions need to maximize profits. It could be argued that they did maximize profits as they were a growing giant in the stock market but this can be disproven for two reasons. Firstly, in the end their price per share had an incredible drop that shows they lost an absurd amount of money and owe creditors a lot of money. Secondly, the great majority of their profits were fabricated so it is impossible to say they maximized profits.


With the utilitarianism ethical theory, “we can determine the ethical significance of any action  by looking to the consequences  of that act” (DesJardins 29). In order to follow the rules of utilitarianism, those consequences “should aim to maximize the happiness in the long run for all conscious beings that are affected by the business action”(Salazar 19). Wirecard was conducting itself from an utilitarian point of view as them fabricating was to make everyone happy. The people of the c-suite were happy that their stocks were increasing, the company was growing, and were making a lot of money. The stockholders saw the stocks increasing which made them happy, the customers were doing business with a big and seemingly trustworthy company, the companies owned by Wirecard were being backed by a very rich and profitable company, and all the employees had their jobs that they believed would stay due to the apparent success of Wirecard. However, in the end, utilitarianism would completely disagree with the actions of Wirecard. First and foremost, what they did was illegal which makes it almost impossible for utilitarianism to agree with it. Also, as outlined above in the stakeholder section, no one who was affected by the actions of the business benefited from the actions of Wirecard which in turn means not everyone's happiness was maximized


There are two parts of kantianism, both of which need to be followed in order for kantianism to completely agree with the action done by the company. The first of the two parts is the ethical rule that people should “always act in ways that respect and honor individuals and their choices. Don’t lie, cheat, manipulate or harm others to get your way” (Salazar 20). The second part is known as the Formula of Humanity. This states that people should not be treated as a mere means to an end. Once again, Wirecard’s actions completely disagree with kantianism. Wirecard lied, cheated and manipulated investors into investing their money by fabricating what their profits were to get what they wanted which were more people investing in them. They also did not follow the formula of humanity. They treated many stakeholders as a mere means. They used the investors to grow their company and overall gain more profit but held no regard for their life as they took their money knowing that they were doing illegal things and jeopardizing their money. They also used the companies that they bought out to gain profit with no regard to the future of those companies or their customers. They used these companies to report their false profits and never invested more money into them so when Wirecard’s illegal practices caught up to them, these companies were forced to file for bankruptcy and their customers were forced to find somewhere else to do business.

Virtue Theory

Virtue Theory is the belief that you should “act so as to embody a variety of virtuous or good character traits and so as to avoid vicious or bad character traits” (Salazar 22). The four most widely regarded virtuous traits are courage, self control, fairness, and honesty. By definition, Wirecard’s actions were courageous because they were knowingly breaking the law which is frightening due to the ramifications that can result from it and there is a lot of uncertainty that comes along with that but they did it anyway. In no way was it positive but it was technically courageous. For the last three virtues on the other hand, wirecard does not have any of them. They have no self control because they decided to lie and break the law for over ten years straight. They definitely weren't fair as their only goal was to make sure Wirecard stayed alive. The company did not treat any of the companies that it owned as well as it treated itself which is evident with how many of the companies were reported to be in very run down offices  and buildings. Finally, it is quite obvious that Wirecard was not honest. Fraud is built on the basis of lying and lying is the complete opposite of being honest. Wirecard clearly were not a virtuous company.

Justificated Ethics Evaluation

I believe that what Wirecard did during its time of business up until its collapse was completely unethical. I think it's almost impossible to argue otherwise. Defrauding the company is clearly unethical as it's against the law but I believe the biggest thing for me was their blatant disregard for the investors. It still blows my mind how a company and the top people running it could collect the money of someone who is placing their trust and possibly their life savings into your company and you could completely throw away their trust and immediately jeopardize their money by continuing to do these illegal actions. Wirecard knew that if it ever came out (and it was coming out over the years from many different investigators) it would completely tank the company and the money put into it which could ruin the investors life which it ultimately did in the end. Nobody was able to benefit from what Wirecard had done and it actually hurt many people through its illegal and unethical actions which is totally unacceptable in my opinion.

Company Action Plan

Despite the sudden crash, Wirecard’s share price is yet to hit zero so they still have life left. “Data from equity analytics platform Ortex Analytics showed that Coltrane Asset Management, Greenvale Capital, Capital Fund Management and Ennismore Fund Management either increased or opened new short positions in Wirecard”(CNBC) just a week after Wirecard hit rock bottom. They have investors that have yet to give up on them so now they just need to take the right steps to return to a stock market giant.

The first focus should be on full transparently. They should completely gut the c-suite officer positions and the new CEO should come out and admit to all of the wrongdoings of the company under the previous leadership. The ownership of the mistakes and display of intolerance of the prior behavior by cutting everyone involved will show the current and potential customers and investors that the company is completely changed and has a more honest, positive, and ethical outlook. Plus, everyone enjoys a comeback story. 

Once they establish this new identity, it's time to bring in new customers. For this, they should offer customer loyalty perks to incentivise people to stay with the company along with offering small cash rewards for people who get others to join through recommendations. This will bring in new customers and spread positive word of mouth advertisement to people who may not join right away. Finally they should put a big focus on their app and its placement since the world is becoming more and more digital everyday. As of now if someone searches “Wirecard” on the Apple App Store, the first app that comes up is another payment processing company by the name of “North Lane” and then Wirecard’s app appears. This is a big problem especially since prospective customers may already be skeptical of the company. However, if these changes are made then Wirecard could make a slow and gradual climb back to their former state but this time in a legal and ethical way.

Caedin Pacheco


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