Wirecard surges after law firm finds only minor accounting irregularities

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Wirecard AG surged the most in more than a decade after saying irregularities found in an external investigation into fraud allegations in Asia weren’t material.

While the company — which had previously rejected wrongdoing — acknowledged a number of accounting oversights and potential criminal liability for some employees in Singapore, the sums involved were not significant for a company with more than 2 billion euros ($2.3 billion) in annual sales, according to a Wirecard statement.

The selected findings of the external report from Singapore-based law firm Rajah & Tann were limited to specific transactions and based on documents provided by the company. Rajah & Tann couldn’t resolve all the issues, saying it “could not correlate certain payments made between business partners and Wirecard entities with agreements between them.” The firm also found evidence of contracts being created for audit purposes.

The shares surged as much as 32 percent, the steepest intraday gain since October 2008, and were up 28 percent at 3:16 p.m. in Frankfurt trading, valuing the company at 15.6 billion euros.

“This is a huge relief,” said Wolfgang Specht, an analyst at Bankhaus Lampe who has a buy recommendation on Wirecard. “The report looks better than expected. It found small erroneous entries, but no systemic fraud or misconduct by the core management.”

The digital payments company has been under intense pressure over the past weeks after the Financial Times published a series of reports about alleged fraud at the company’s Singapore unit. The shares plunged as much as 50 percent, despite repeated denials. The volatility prompted Germany’s financial regulator to temporarily ban short sales of Wirecard stock, and Munich prosecutors are probing for potential market manipulation.

Rajah & Tann presented an initial probe last May. That report listed allegations of potential financial irregularities, money laundering and forgery at Wirecard’s Asian unit. The German company had repeatedly denied all the charges, arguing that the report is based on evidence that is either faulty or forged.

Wirecard’s management also fought back against the reports from the Financial Times, calling the stories “inaccurate, misleading and defamatory.”

According to Rajah & Tann’s latest report, Wirecard employees “wrongfully” recorded 2.5 million euros of revenue in 2017 and improperly accounted for a 3 million-euro asset for one week in 2018. While dubious contracts were prepared, none of the funds — except for one transaction of 63,000 euros — flowed to Wirecard affiliates.

Wirecard got its start two decades ago processing payments for gambling and pornography websites, but has since morphed into a developer of software and systems for online payments and fraud protection used across the internet.

Its revenue almost doubled in the two years to 2018 to 2.1 billion euros, following acquisitions of at least 18 companies in recent years. In September, it replaced Commerzbank AG in Germany’s benchmark DAX stock index alongside titans such as Volkswagen AG, Siemens AG and Deutsche Bank AG.

— With assistance from Richard Weiss and Jan-Patrick Barnert

Bloomberg News
International accounting Accounting fraud Payment processing Financial reporting Wirecard