Whitney Tilson’s email to investors discussing the Wirecard fraud; Bankrupt Hertz Suspends $500 Million Stock Sale; 20-Year-Old Robinhood customer dies by suicide.
The Massive Fraud At Wirecard
1) Huge kudos to Carson Block of Muddy Waters Research, Gabriel Grego of Quintessential Capital Management, Roddy Boyd of the Southern Investigative Research Foundation, Dan McCrum of the Financial Times, and many others for completely nailing the massive fraud at German payments processor Wirecard AG (ETR:WDI), which was once considered the country's pre-eminent fintech player.
Pros And Cons Of Tail Risk Funds
Editor’s note: This article is part of a series ValueWalk is doing on tail risk hedge funds. The series is based on over a month of research and discussions with over a dozen experts in the field. All the content will be first available to our premium subscribers and some will be released at a Read More
After its auditor, EY, refused to sign off on the company's accounts last week, the stock has fallen by 85% in the past three trading sessions... wiping out more than $10 billion in market value.
Since Wirecard is a German company, many Americans may not be following this story... But what happened here is worth studying because it's a brilliant case study in a dozen different ways – the ineptness and complicity of regulators and the media, how an obvious fraud could continue for so long, etc.
I'd been warning my readers about it for more than a year. On March 20, 2019, I wrote:
In my e-mail on March 6, I included Carson Block's brilliant essay about Germany's disgraceful and misguided attacks on short sellers who are exposing frauds there: Why Elon Musk Should List Tesla Shares in Germany. Block specifically mentioned Wirecard, which many savvy short sellers I know have long believed is a total fraud. He wrote:
Right now, German authorities are subjecting journalists, short sellers and analysts to criminal investigations for exposing alleged fraud and money laundering at one of their now largest public companies (by market cap). That company, a payment processor called Wirecard, until recently had a market cap over €20 billion. As the operator of a global payments business, it should be responsible for ensuring illicit money from criminals and terrorists are kept out of its network, which is a gateway to the global banking system.
Last night, investigative journalist Roddy Boyd of the Southern Investigative Research Foundation ("SIRF"), who has an extraordinary track record exposing corporate fraud and malfeasance, revealed the results of his latest in-depth look at the company – and it's damning: Wirecard AG: Something Is Terribly Wrong Here.
On October 21, I wrote:
Short-sellers have long targeted German payment-processor Wirecard, with little to show for it but unending pain as the stock rose more than 300% from early 2017 through August 2018... But they may have the last laugh, as evidence of fraud continues to mount and the stock tumbles. Kudos to Dan McCrum of the Financial Times for some excellent investigative journalism: Wirecard's suspect accounting practices revealed.
I concluded: "This company has a market cap of around $15 billion and could blow sky-high..."
On December 12, I added:
Kudos to the Financial Times for its ongoing courageous reporting on German payments giant Wirecard, which many smart short sellers I know think is a house of cards. Here's the latest (if you think Wirecard didn't know all about this surveillance operation that targeted short sellers, please contact me, as I have a bridge to sell you...): Wirecard critics targeted in London spy operation.
For more on this sordid scandal, see this 31-post Twitter thread.
Bankrupt Hertz Suspends $500 Million Stock Sale
2) In my e-mail on June 12, I wrote:
This is one of the scummiest things I've ever seen. It will be a total disgrace if the court overseeing the Hertz (HTZ) bankruptcy and/or the SEC allow Hertz to issue equity!
Since then, jeers to the court, which approved the offering, but cheers to the SEC, which – in the nick of time – stepped in to block the $500 million fleecing of a bunch of naïve, day-trading Robinhood-type investors... Bankrupt Hertz Suspends $500 Million Stock Sale as SEC Poses Questions on Deal.
20-Year-Old Robinhood customer dies by suicide
3) Speaking of Robinhood, this is what can happen when regulators fail to rein in companies that exploit many folks' investing ignorance combined with a desire to gamble and get rich quick: 20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance.
I'll believe this when I see it:
Robinhood's founders have since responded to Kearns' death by suicide, pledging major changes to their platform – especially around options trading.