Shortseller about Wirecard affair: "Is it immoral to uncover fraud?"

Former equity investor Tobias Bosler discovered indications of irregularities in Wirecard's balance sheet twelve years ago. His research at the time showed that the insolvent payment service provider from Aschheim illegally postpones sales in the gaming industry and launches money. In 2010, Bosler contacted the public prosecutor and the financial market regulator Bafin. The prosecutor suspended the Wirecard investigation two years later due to lack of evidence. Bosler, on the other hand, who had set short prices at Wirecard with short sales, persecuted the prosecutors. He was later convicted of price manipulation – albeit not in the Wirecard case, but at other companies. In an interview, Bosler reports what he found out at the time and why he ended up in court.

Mr Bosler, on the day of Wirecard's bankruptcy, you decided to speak publicly about Wirecard for the first time. Why?

Tobias Bosler: I had to wait until bankruptcy. Before that, nobody would have believed me that Wirecard was cheating in the billions. Now you are listening to me. Almost all media believed the fairy tale told by Wirecard about the evil shortseller that spreads untrue rumors and thus manipulates courses. I was labeled as a fraudster, but Wirecard was protected against it. I give the interview to my family and friends who have stayed with me. For this they had to take a lot of malice and they were laughed at by many. I want them to smile now. That's why I'm now making public what happened back then.

As early as 2008, Wirecard was apparently not doing the right thing. What did you find out?

The analysis of the annual financial statements and the subsidiaries before 2008 revealed astonishing results. The Wirecard Group generated two thirds of its sales in Germany, but posted losses there. The profits came from Gibraltar and the British Virgin Islands. Gambling providers are typically located there. In addition, Wirecard's margins were up to ten times higher than those of its competitors. That struck me as strange. The weak cash flow looked bloated. I spoke to Wirecard's competitors and partners. I knew that fraud was at stake here. At the end of 2008, at the edge of a Wirecard party at the Munich Oktoberfest, I received confirmation that Wirecard was doing illegal business. Almost the entire payment industry knows this, American business partners from Wirecard told me. They drank champagne and enjoyed themselves that nobody in Germany seemed to know about the illegal practices. They were surprised that no one suspected anything, even though Wirecard was already on the stock exchange at the time.

Although you already knew that at the time, why did you only file a complaint with the public prosecutor in 2010 about money laundering?

In mid-2009 I happened to meet a former Wirecard employee. He also confirmed my supposition: It has been common business practice since 2006 to systematically allow legally clearly prohibited deposits by private individuals via credit cards into online poker accounts in the USA. For this purpose, inconspicuous online companies such as flower delivery services or mobile phone shops were founded on behalf of Wirecard people, via which the payment is then made. At Wirecard, all of these companies are called flower shops, the ex-employee reported. To disguise the actual flow of money to the poker provider, credit card payments would be manipulated or re-encoded. Handling these illegal transactions would bring Wirecard ten times more profit than legal ones. The player’s credit card statement will show the name of the flower shop, but the money will go to the player’s poker account as desired. I don't know exactly how the cash flow was organized behind the scenes. However, I suspect that the money has flowed from the credit card account through the flower shop to the poker account.

Why didn't your informant report his employer himself?

He told me that for fear of reprisals, he would never repeat what he said to the prosecutor or to the court. So I needed some other proof. In spring 2010, an informant from the payment industry came to me unexpectedly. He reported that Wirecard had to pay Mastercard fines of over 16 million euros for unauthorized re-encoding of credit card payments in the area of ​​online gambling. A payment request has recently been received by Wirecard. After that, I thought I had collected enough evidence. I filed a criminal complaint about money laundering with the Munich public prosecutor's office by email. Nothing happened for a month. Then I filed the criminal complaint again, this time in paper form and by post.

Shortly thereafter, you also reported Wirecard to the Bafin and the public prosecutor for market manipulation. What happened to this ad?

To date, I do not know whether the Bafin actually investigated my complaint.

How do you explain that the fraud has not been noticed over the years?

It is inexplicable to me that the public prosecutor's office closed the investigation into money laundering initiated in 2010 in 2012. My lawsuit was well-founded, including explaining exactly how the florist's circumvention of US gambling laws worked. A second alleged letter from Mastercard that was found on the Internet also fueled my suspicions that payments had been illegally transcoded. But the prosecutor never checked whether the Mastercard letter was authentic. I would be happy to inspect the investigation files: What exactly did the prosecutor do at the time? Why hasn't the alleged fraud been exposed?

Shouldn't big investors have noticed something later? How did Wirecard get into the Dax?

The Dax climb should never have happened. In terms of content, hardly anyone in Germany has dealt with the allegations. Neither authorities nor analysts have adequately investigated these. Instead, Wirecard critics have always been rigorously smashed, including me. In 2008 I received an unwanted visit from three men in front of my office who threatened me massively and demanded that I immediately close my short position. Wirecard has defamed the statements of shortsellers as lies for years. That was apparently enough to convince the authorities. But it is also a fact: banks, funds, analysts and auditors make sales by investing their customers' money in listed companies or advising companies. Bankruptcy like Wirecard means zero sales. Nobody likes to saw off the branch on which they are sitting.

Could someone have sponsored the company?

I don't know if someone in the background held a protective hand over the company. I also do not rule out Wirecard.

Against Wirecard, shortsellers like you have been losing out for years. How did Wirecard proceed?

I do not know if others have also had uninvited visitors. However, Wirecard hired lawyers, forensic experts, data specialists and experts with the aim of portraying critics as liars and course manipulators. Wirecard also filed criminal charges against me for course manipulation in 2008. Representatives of the company then had a lively exchange with the prosecutors who were investigating me. Once they submitted a detailed crime plan to the public prosecutor's office, which they allegedly received anonymously. In it, people who demonstrably do not know each other plan to target the stock price. Even the public prosecutor suspected that this could be a fake. Wirecard got away with it anyway. I know that I was spied on in 2015. Others also report such methods. Wirecard must have built the right machinery.

There are many reservations about shortsellers like you. Among other things, that they benefit from the failure of companies. Why do you think short sellers are important for the capital market?

There is nobody who analyzes companies more critically than a shortseller. Journalists don't either, Dan McCrum of the Financial Times (FT) is an absolute exception. The reason is money. It is a lot of work to uncover fraud. There is no wage for that and for FT the Wirecard story will probably never pay off financially. Among other things, I also detected Thielert AG's balance sheet fraud in 2008. The CEO had manipulated his profits upwards for years with fictitious bills – without the auditor wanting to have noticed anything. In order to prove the fraud, I did some two years of research. And then I made money by shorting the stock.

Many consider this to be immoral. What do you say to them?

It is immoral if, as at Wirecard, a share price is artificially driven up by balance sheet fraud and illegal sales. My job as a shortseller is to uncover such machinations. Sure, then the price drops and I make a profit. But how can it be immoral to uncover a scam? Shortsellers thus protect investors from even greater losses. In spring 2010, Wirecard's market value was just over a billion euros. Had the fraud been exposed at that time, a market value of more than 20 billion euros would never have been reached and investors would not have made such immense losses overall. It is, of course, immoral and criminal if false rumors are spread to affect stock prices. However, this rarely happens in practice: untruths can quickly be invalidated by the company. Even if the allegations are correct, companies have the opportunity to correct mistakes without suffering much damage. In the USA or Great Britain, unlike Germany, the stock analyzes and assessments of short sellers receive a lot of attention. I have always looked for facts and evidence.

Even so, in 47 cases you have tried the price manipulation of shares in court in 2012 – and have been convicted. How did that happen?

It was not about course manipulation through misinformation. In my judgment, it was even explicitly stated that I never disseminated false information.

But you were convicted. Then what for?

In 2005 and 2006, I was involved in the publications of a business partner who issued stock market letters. As an active investor, I often provided information about stocks, some of which I owned myself. In this case, a risk warning should have informed the reader that contributors to the article hold the shares themselves. However, the existing reference did not go far enough for the court. For 47 cases – which correspond to 47 publications – I was convicted after my confession …

… to 36 months in prison and a fine of 127,000 euros. After the verdict, some wondered why you were released immediately and after just 18 months.

After 18 months in custody, I felt bad. I just wanted to get out to my family. The 47 cases were still pending trial, which would have taken months. The public prosecutor offered to release me against my confession. I made this deal. Although I had found around 150 errors in the Bafin reports on the open cases.

What kind of mistakes were they?

Using a simple Google search, stock analyzes and buy recommendations for other stock market letters can still be published at the same time, which were not included in the Bafin report on behalf of the public prosecutor at the time. These publications are likely to have had an impact on the course. The expert opinions should exclude influences other than those of our stock market letters. In addition, ad-hoc announcements from companies or investor conferences were ignored. In one case, the assessors took the opening price on the right day, but the closing price on the day after that. In fact, the price demonstrably fell 4.41 percent on that day – despite the buy recommendation of the stock exchange letter in which I participated.

What do you think your sentence meant for Wirecard?

I wasn't convicted of Wirecard, but Wirecard learned how easy it was to silence critics with the help of the authorities. Finally, Wirecard had the authorities under control so well that, according to further reports from the FT about massive inconsistencies in Wirecard businesses in Asia, the beginning of 2019 even banned shortsellers because of the risk of price manipulation – instead of simply following up on the information.

Birgit Haas spoke to Tobias Bosler

This interview first appeared on Capital.de on July 22nd

. (tagsToTranslate) Economy (t) Wirecard (t) Financial fraud (t) Financial markets (t) Federal Financial Supervisory Authority (t) Prosecutor (t) Dax companies