Dan McCrum - the Financial Times journalist - has released a blockbuster finance book - the story of Wirecard.
The book is called Money Men: A Hot Startup, A Billion Dollar Fraud, A Fight for the Truth.
Wirecard is - I think - the biggest fraud by dollar value and scale ever conducted in Europe.
Whatever: just buy the book. It is really good fun. I do not agree with all of Dan's perspectives - or even some of the analysis - bit it is a great story about bad accounting, worse sell side analysts and completely awful regulators.
It is also a story of Libyan and Austrian secret agents, guys who run night clubs, pornographers and fraud. Oh, and guys who turn up in Syria with the very best body armour money can buy only to be told by the cool heads that that body armour marks them as a high-value target and the snipers would shoot them dead so they better leave it behind.
Dan also tells a story about how he looked - for work - at several thousand porn sites - and how he even spent some of the Financial Times money using a credit card to buy porn.
And yes - this was a perfectly legitimate work activity. Not like when the SEC did it.
It is above all a story about how surprising (and often nasty) the world is.
I once thought of Wirecard as a simple fraud. This was about 2009-2013. What I saw was a payments processor with three red flags:
a. it was a reverse merger into a totally bullshit EASDAQ listed company.
b. It did "high risk" payments in the Philippines and other places, and
c. The accounts did not quite make sense.
I did one check - described below - and found that the acquisitions did not make sense.
High Risk Payments
High risk payments are payments that normal banks do not want to process. Some come with administrative troubles (eg lots of high cost charge backs). Some are likely magnets for stolen credit cards. Some come with the risk you will find yourself on the wrong side of a DOJ indictment.
- Porn sites that get your credit card and then systematically loot it by putting a recurring charge on. These obviously come with chargeback risk.
- Clearing money for online casinos - especially in jurisdictions such as the US where online gambling is illegal.
Even the porn sites, though legal, can get you into bad trouble. Nobody has found a foolproof way for instance to use a computer to separate legal pornography with actors over the age of 18 from child abuse material.
If a financial institution is found to clear payments for child abuse material and that is discovered by the DOJ then the CEO is unlikely to have a good day at the office. (Example - look what happened to Westpac - a large Australian bank - when it accidentally cleared a handful of payments involving child exploitation...)
The number one sin in the Visa/Mastercard network if you clear payments is mislabelling a payment. To take an extreme example - if you cleared payments for a porn site in Central Luzon and labelled it as a flower shop in London you may reasonably be thought of hiding something.
Anyway Wirecard did this. And yes - for work - I spent enough time looking at bad porn sites to work this out - and then I stopped - because I did not want to go there.
I also found out - via online gambling chat boards - that Wirecard cleared payments for online casinos.
That was enough hanging around bad websites for me. I never proved comprehensively that Wirecard did child abuse material - and I did not want to. Well actually I would have loved to have nailed the company - but I did not want to go down that rabbit hole.
But whatever - I thought there was enough to get them into really bad trouble.
Putting this business in a public company did not make sense
The idea of embedding high risk payments in a public company did not make sense to me.
There were two main reasons.
- public companies have more scrutiny and if you are doing that sort of thing it is best to be under-the-radar,
- If you are someone who is clearing high risk payments you are taking a real risk of prison - and in exchange you are getting paid really well - the cut is high. But there is no logical reason you would take all this risk and share the profits - but not the risk - with distant shareholders.