
Edit Story
Editors' Pick|

Wirecard’s Former Billionaire CEO Markus Braun Arrested Over Allegations Of Fraud

Jack Kelly

On Monday, I reported that Markus Braun, the billionaire CEO of online payments company Wirecard, faced serious allegations over the company’s rapid growth and questionable business practices. Specifically, regulators and investors were concerned over claims that the FinTech company purported to have $2 billion dollars in a couple of Philippine banks. Investigations conducted by an outside auditor revealed that the money wasn’t there and possibly never existed.  

In my coverage of Wirecard, I wrote, “Braun made out very well at Wirecard, earning about $3 million a year. He plowed millions of his own money into the tech company and heavily borrowed $150 million from Deutsche Bank, a company that’s been the subject of numerous regulatory infractions, to invest into the company. As the stock price rose, Braun, who owned 7%, became a billionaire on paper.” Despite allegations raised by the Financial Times and sophisticated investors, Braun continued to vehemently deny having knowledge of any improprieties. I raised the issue, “In light of his substantial holdings, lush compensation, coupled with reporting by the Financial Times and other publications and vocal short sellers, it makes one wonder.” Was he financially engineering the profits?

On Monday night, Braun, the architect of Wirecard’s push to make it one of Germany's largest tech companies, was arrested on suspicion of presenting false information, inflating the digital payment company's balance sheet and sales through fake transactions, suspicion of false accounting and market manipulation. He was accused of doing this to make the company look more attractive to investors and customers. These actions would also serve to pump up his net worth that was tied up in Wirecard stock. Munich prosecutors claimed that Braun may have acted in cooperation with other perpetrators. A spokeswoman for the Munich prosecutor’s office told the Financial Times that there are other people who are also under investigation.

Braun turned himself into the police after a judge issued an arrest warrant. This has been a rapid fall from grace for Braun. He’s a billionaire based on the stock price of Wirecard and was at the helm of the company for roughly 20 years—up until his abrupt resignation last Friday. This fiasco may be one of the largest, most recent corporate frauds committed in Europe. 

In the midst of this alleged fraud, there’s some dark humor. Elizabeth Holmes was, for a brief blip in time, a billionaire and beloved wunderkind of Silicon Valley. She founded Theranos, a company that supposedly made it easy to test for maladies and diseases with a painless blood test pinprick. She adopted the black turtleneck sweater as her daily go-to attire, drawing inspiration from Apple’s Steve Jobs’ standard uniform. After Holmes was accused of fraud and her business imploded, she was viewed as a villain. Her iconic Jobs-copycat black turtleneck turned into a meme of mistrust. Braun, ironically, sported the same black turtleneck as part of his regular wardrobe.

According to the Financial Times, it seems that Braun may have been misleading investors and regulators for a long time, “Much of what Mr. Braun said is now in question. In 2017, for example, he told investors that Wirecard was using the latest artificial intelligence technology to analyze data. But according to documents seen by the FT, staff were instead cobbling together spreadsheets of customer information.”

Braun held roughly 7% of Wirecard’s stock—amounting to about 4.2 million shares. His purchases were made, in large part, through margin loans. It's been reported that he pledged a big chunk of his stake as collateral for the loans. 

The borrowed stock has relevancy. When a rich investor, such as Braun, borrows on margin—and it represents the primary source of liquid assets—and the stock price precipitously drops in value, he’s then forced to sell some holdings to meet margin calls. The selling by a CEO begets worries from shareholders who may then sell their own holdings, which will further depress the value of the company’s share price. 

In this case, Braun would be forced to sell even more of his stock to meet margin calls—assuming he didn’t have other financial resources. It would cause a cascading crash in the value of the Wirecard stock. To avoid this from happening, Braun would have to maintain the appearance that his company was sound, secure and growing. Otherwise, his sizable holdings and entire net worth would be wiped out.

As of Tuesday morning, Wirecard’s stock fell from a high of about $191 per share to now under $19. Sadly, investors will lose out on their investments and it's likely that thousands of innocent workers will lose their jobs.


