2. Outline
1
2
3
4
Overview
Corporate Response: Dismissiveness and avoidance of the issue
Analysis and Recommendations: Acknowledge the problem and recover
Wirecard AG University of Massachusetts - Amherst 2
• Company History
• Fraud Revelation
• Impact on Stakeholders
Analysis of Attacks on Financial Times Writer Dan McCrum
3. Wirecard AG University of Massachusetts - Amherst 3
Company History
Rare Technology Success of Europe
• Processed credit card transactions for
businesses
• Rare European technology “success”
• Added to the DAX-30 in 2019
• Operated on a global scale,
partnerships across Europe, APAC
• Apparent strong revenue and earnings
growth
Growth Story
Source: The Wall Street Journal
Wirecard was a fast-growing payments processor based in Germany
4. Fraud Revelation
Analysts had cast doubt on the company’s success story for years
4Wirecard AG University of Massachusetts - Amherst
Wirecard Stock Price Growing Suspicion
Source: The Wall Street Journal
• Skeptics had cast doubt about
financials
• Whistleblower report in 2019 said
numbers were falsified
• June 2020 – EY discovered $2 billion
missing cash
5. Impact on Stakeholders
Many different stakeholders were significantly impacted by this crisis
Wirecard AG University of Massachusetts - Amherst 5
Major Stakeholders Description Informational Needs
Stockholders Shareholders ofWirecard Stock
Implications for stock price; updated
and truthful financial information; A
public apology; compensation for
being defrauded
BusinessPartners Businesses that wereclients of Wirecard
Compensation for being misled into
business relationship; an apology;
description ofhow operations will be
impacted
Lenders Owners ofWirecard loans and bonds
Updated information about liquidity
and recovery value; an apology;
compensation for decreased securities
value
Employees Peopleemployed by thefirm
Updateon how employment status
will beaffected; plan for revocering in
thefuture; an immediatewritten
apology
6. 1
2
3
4
Overview
Corporate Response
Analysis of Attacks on Financial Times Writer Dan McCrum
Analysis and Recommendations
Wirecard AG University of Massachusetts - Amherst 6
• Project Tiger
• Pre-audit
• Post-audit
Outline
7. Project Tiger
Wirecard AG University of Massachusetts - Amherst 7
Hid Problems instead of Addressing Them
An internal investigation “Project Tiger” revealed book-cooking
• A Wirecard compliance officer
outlined $37million in fraud
• Presented to four top executives in
2018
• Despite evidence, Wirecard
executives did nothing
• Allowed issue to spiral out of control
8. Pre-audit
Wirecard AG University of Massachusetts - Amherst 8
Management’s responses were intentionally evasive
“As an example, Mr. McCrum argues that the “fraudulent
transaction” in question were contracts between WireCard
and Flexi Flex. Fraudulent transactions between WireCard
and Flexi Flex cannot occur since they have never been
involved in any contractual or business relationships.”
-Wirecard
Denying non-existent allegations
• Personally attacked the FT writer
• Denied accusations that never
occurred
• Misleading about presentation
• Fail to address concerns; deflect
instead“The top management was not given a presentation about
this alleged matter on 8th May 2018.”
-Wirecard
9. Post-audit
Wirecard AG University of Massachusetts - Amherst 9
Hid Problems instead of Addressing Them
Simply stated truth – did not accept responsibility or show remorse
• CEO: Wirecard may have fallen victim
to massive case of fraud
• COO: Went missing, Interpol most
wanted
• Trying to establish “whether, in
which manner and to what extent
such business has actually been
conducted for the benefit of the
company.”
• June 23, 2020 – CEO Markus
Braun Arrested
Management Changes
• Jun 19, 2020 – James H. Fries is
appointed Interim CEO
• Thomas Eichelmann appointed
Chair of Supervisory Board
10. 1
2
3
4
Overview
Corporate Response
Analysis of Attacks on Financial Times Writer Dan McCrum
Analysis and Recommendations
Wirecard AG University of Massachusetts - Amherst 10
• Poor Operational Decisions
• Lose Credibility & Trust
Outline
11. Poor Operational Decisions
Management’s response was not aligned with Lukaszewski’s first principle
Wirecard AG University of Massachusetts - Amherst 11
Analysis
• No effort to address the issue
• Allowed the problem to magnify
• Could have avoided tragedy if addressed
sooner
• Attacking journalists weakens credibility
12. Loss of Credibility & Trust
Response also violated Lukaszewski’s third principle
Wirecard AG University of Massachusetts - Amherst 12
Analysis
• Personally attacking a journalist reflects poorly
• Evasiveness only serves to increase distrust
• Motivates McCrum and other journalists to
search deeper
• Could instead talk about working with
regulators to ensure compliance
“It is another imprecise, deceptive and defamatory
media coverage by Dan McCrum (FT).” [“Es
handelt sich um eine weitere ungenaue,
irreführende und diffamierende
Medienberichterstattung von Dan McCrum (FT).”]
-Wirecard
13. 1
2
3
4
Overview
Corporate Response
In-Depth Examination of corporate response to falsified bank balances
Analysis and Recommendations
Wirecard AG University of Massachusetts - Amherst 13
Outline
• Rights & Wrongs
• Lukaszewski’s Seven Principles
• Recommendations for the Future
• Conclusions
14. Rights & Wrongs
Wirecard AG University of Massachusetts - Amherst 14
What was Done Right
CEO resigned
Improved transparency on website
What Was Done Wrong
Deflection of blame
No acceptance of responsibility
No acknowledgement of victims
15. Lukaszewski’s Seven Principles
Wirecard AG University of Massachusetts - Amherst 15
Principle Response
Operational Decisions Did not take action
Victim Management Claimed to be victims themselves
Credibility and Trust Attacked skeptics
Corporate Behavior Claimed no responsibility
Professional Expectations Evasion of police
Ethical Standards Knew of issues but did not solve them
Lessons-Learned Approach Working to improve transparency
16. Recommendations for the Future
New management must purge all associated with the scandal and communicate its vision for the future
16Wirecard AG University of Massachusetts - Amherst
New management should
come out and publicly
apologize to those negatively
impacted
Announce future
plans of internal
control that will
prevent further
problems
Ensure to
stakeholders that
there is still an
underlying
successful
business
17. Conclusions
1
2
3
Many people have been severely harmed by the poor communication strategy, but there
is still opportunity for improvement in the future if proper measures are undertaken
Before audit, management was evasive and did not address issues
Wirecard AG University of Massachusetts - Amherst 17
Once the fraud was confirmed by EY, management did nothing to make amends for
their actions
4
Old management showed little regard for stakeholders in response; new management needs to change that
A better response plan would have been to apologize to all involved, accept
responsibility and to provide strategies for improving the future of the firm
18. Sources
Wirecard AG University of Massachusetts - Amherst 18
Davies. (2020, July 2). How Wirecard Went from Tech Star to Bankrupt. The Wall Street Journal. https://www.wsj.com/articles/wirecard-bankruptcy-
scandal-missing-$2billion-11593703379
McCrum. (2019, January 30). Executive at Wirecard Suspected of Using Forged Contracts. The Financial Times.
https://www.ft.com/content/03a5e318-2479-11e9-8ce6-5db4543da632
Jimenea. (2019, January 31). Report: Wirecard Exec May Have Used Fake Contracts for Suspicious Transactions. S&P Global Intelligence.
https://www.spglobal.com/marketintelligence/en/news-insights/trending/uXuLlhmNkMjw-dQDMXQ5rA2
About Us. (2020). Wirecard. https://www.wirecard.com/en-us
Pell. (2020, July 14). Wirecard Fraud is Risk Management Lesson for Fintech Companies. Forbes.
https://www.forbes.com/sites/gideonpell/2020/07/14/wirecard-fraud-is-risk-management-lesson-for-fintech-companies/#75f637c6487c
