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Wirecard scandal harks back to dark days of the Neuer Markt
The shocking news from German mobile payments firm Wirecard, one of the supposed gems of the country’s technology sector, that the €1.9 billion ‘missing’ from its accounts may never have been there in the first place, will ring bells with investors who remember the tech bubble 20 years ago and the numerous frauds perpetrated by ‘new economy’ German firms.
Shares in Wirecard traded as low as €13 on 22 June against €104 last week, in the process inflicting big losses on investment trust European Opportunities (JEO) which had been a big supporter of the stock.
Doubts were raised over Wirecard’s accounting as far back as 2016 when Zatarra Research accused it of ‘wide-scale corruption and corporate fraud’.
The Financial Times investigated the fintech firm’s accounts a couple of years later and found it was conducting ‘a concerted effort to fraudulently inflate sales and profit’.
Wirecard’s response was aggressive, attacking Zatarra’s web servers and threatening FT reporters before co-opting the German financial markets regulator BaFin into suspending short selling of
the stock and filing a criminal complaint against
Fast forward to 2020 and the firm admits that the billions of euros of cash which it alleged were in offshore accounts probably never existed. It has torn up its 2019 accounts and must rely on the kindness of its lenders for survival.
Sadly, Wirecard isn’t a one-off: Germany has a history of ‘new economy’ companies coming a cropper during bull markets after being revealed as frauds.
In the late 1990s the German banks faced criticism for not supporting young high-tech firms, so the Frankfurt stock exchange took the initiative and launched the Neuer Markt (New Market) to give firms access to investors who were hungry to take part in the tech bubble.
The number of new listings exploded from 10 in 1997 to 117 in 1999 and at its peak in 2000 there were 338 companies listed, mostly in the internet, software and IT hardware sectors.
However, a string of bankruptcies and scandals cost investors tens of billions of euros in losses and resulted in the Neuer Markt closing in 2003.
One of the biggest scandals was mobile phone operator MobilCom, which included Deutsche Telekom and France Telecom among its shareholders, and which ended up being technically insolvent.
Another was satellite navigation firm Comroad which invented 99% of its sales through a non-existent Asian subsidiary and went bust in 2002.
Possibly the most spectacular scandal associated with Neuer Markt was media firm EM.TV, which at one point owned the Jim Henson company and which collapsed with enormous losses after it was found to be manipulating its earnings.