Wirecard fought back \u2014 and even got BaFin, the German regulator, to start a criminal investigation into McCrum<\/i>, claiming he was working with short-sellers. The company even sent private investigators after McCrum.<\/p>\n
So last Thursday 18 June, Wirecard turned out to have a 1.9 billion EUR hole in its accounts \u2014 their auditors, Ernst & Young GmbH, refused to sign off on the 2019 financial statements, claiming \u201cspurious balance confirmations,\u201d i.e.,<\/i> faked letters from banks. [Wirecard<\/i><\/a>]<\/p>\n The CEO, Markus Braun, was arrested on Tuesday as he tried to skip Germany. [Guardian<\/i><\/a>] The COO, Jan Marsalek, successfully skipped Germany on Monday. [FT<\/i><\/a>, paywalled<\/i>]<\/p>\n The lack of audited accounts meant that two billion EUR of loans to Wirecard got called in. Wirecard declared insolvency on Thursday 25 June. [FT<\/i><\/a>, paywalled<\/i>]<\/p>\n Of course Wirecard were into crypto. Just a little, you understand.<\/p>\n <\/p>\n The 1.9 billion EUR \u2014 a quarter of Wirecard’s supposed assets \u2014 probably never existed. Wirecard’s trustee in the Philippines, Mark Tolentino, disappeared from public view at the same time that the hole in the accounts \u2014 the money he was supposedly administering \u2014 became glaringly obvious. [Spiegel<\/i><\/a>]<\/p>\n Tolentino took in money and claimed he had deposited it with BDO Unibank and the Bank of the Philippine Islands (BPI). Those banks say they never received the 1.9 billion EUR.<\/p>\n Mr Tolentino described himself on his law firm’s website \u2014 inaccessible as of 22 June \u2014 as “a litigation and corporate lawyer, published author, law professor, and media personality.” He was also “a former Associate Solicitor General as well as a DOTr deputy minister appointed by President Rodrigo Duterte” \u2014 which appears to be the case. [Abogado<\/i><\/a>, 2017<\/i>]<\/p>\n He listed himself as an expert in family, business and immigration law, as well as in … “Banking and Cryptocurrency Law”! [M. K Tolentino Law, <\/i>archive<\/i><\/a>]<\/p>\n How was the missing money not spotted in previous audits? It turns out that EY GmbH didn’t properly check Wirecard bank statements for three years \u2014 they just accepted representations from Wirecard that the money totally existed. [FT<\/i><\/a>, paywalled<\/i>]<\/p>\n It’s not clear that the money ever did exist. Was Tolentino scamming Wirecard, or just running the local end of the scam on behalf of Wirecard? And where is he now?<\/p>\n UPDATE:<\/b> Mr Tolentino spoke to the FT, and told them he was never<\/i> the trustee for Wirecard \u2014 but was a victim of identity theft by Wirecard!<\/a><\/p>\n Perhaps Tether could get themselves an audit from EY GmbH. Wirecard was the same sort of operation as Tether \u2014 book entries, claimed to represent actual money, that may or may not exist. There’s a blurred line between e-money and “stablecoins.” [New Money Review<\/i><\/a>]<\/p>\n I can’t find any direct connection between Wirecard and Tether, and that actually surprises me \u2014 crypto is both small and corrupt, and big scams tend to lead back to Tether.<\/p>\n The closest links have had some play on crypto Twitter in the past week, so I’ll mention them \u2014 but I suspect they’re both spurious, and not really links.<\/p>\n Louis Freeh is the guy who signed off on Tether\u2019s non-audit balance statement in June 2018.<\/a> He also helped negotiate Allied Wallet\u2019s settlement with the FTC, after Allied Wallet served as money mules for $110 million scammed from consumers \u2014 and Allied Wallet got their credit cards via Wirecard. [FT<\/i><\/a>, paywalled; <\/i>AP<\/i><\/a>]<\/p>\n However, Freeh has had links to a startling<\/i> selection of companies that have had legal or regulatory issues. The Fact Freeh blog collects stories on Freeh. [Fact Freeh<\/i><\/a>]<\/p>\n And Global Trade Solutions GmbH \u2014 the company of Ivan Manuel Molina, sometime money mule for Bitfinex and Tether \u2014 shares a Switzerland address with crypto Visa card issuers Crypto.com: Bahnhofstrasse 21, 6300 Zug, Switzerland. But that address has a remarkable number of company names attached to it, so I’d think it’s just sharing a lawyer or something similar. [Google search<\/i><\/a>]<\/p>\n Merchants pretty much don’t take crypto \u2014 because crypto true believers don’t spend, they just hold. (See chapter 7<\/a> of Attack of the 50 Foot Blockchain<\/i><\/a>.)<\/p>\n But crypto users also want crypto to work like money \u2014 so they can turn their cryptos into actual money, without waiting days to get cash out of their exchange.<\/p>\n So crypto companies often try to issue crypto-backed debit cards \u2014 these either tap into an exchange balance of cryptos, or you top them up yourself with cryptos. The merchants get paid in actual money, from the card provider selling the crypto backing.<\/p>\n Crypto is a disaster area for anti-money-laundering rules \u2014 because there’s so much dirty money, and separating out allegedly-clean money is all but impossible.<\/p>\n No decently-run financial institution wants to go within a mile of this \u2014 so the card issuers tend to be dodgy chancers, crypto true believers, or (of course) both.<\/p>\n Enter Wirecard \u2014 who were the most recent backers for crypto Visa debit cards issued by crypto.com and TenX!<\/p>\n The cards were backed by Wirecard Card Solutions in the UK. The FCA suspended that company on Friday 26 June. The cards immediately stopped working. [FCA<\/i><\/a>]<\/p>\n Cash on the cards should be safe \u2014 the FCA says that “Wirecard is required under the EMRs [Electronic Money Regulations<\/i>] to maintain appropriate measures to safeguard customers money. It does this by holding it separate from its own money in accounts with banks (or another credit institution).”<\/p>\n The FCA advises UK customers that they should “contact their card provider directly and may do so using the contact details on their website.” Passported customers elsewhere in the EU should contact Wirecard Card Services directly. (Good luck!)<\/p>\n TenX states that “all customer funds are safe and remain accessible as the TenX Wallet is unaffected” \u2014 so you can just withdraw your crypto balance. [TenX<\/i><\/a>]<\/p>\n Crypto.com says: “Our team is working on processing credits to the crypto wallets equivalent to the fiat balances held on the cards. We expect this to be completed within 48 hours.” [Crypto.com<\/i><\/a>]<\/p>\n Wirecard were getting a bit desperate to shore up the business \u2014 and that’s the sort of fintech that gets into crypto.<\/p>\n Wirecard had already inquired about working with the Telegram Open Network,<\/a> before that was firmly shut down by the SEC \u2014 planning \u201ca joint digital financial services, payments and banking platform.” [Wirecard<\/em><\/a>]<\/p>\n The company also used the buzzword “blockchain” a lot when it was in fashion a year or two ago \u2014 though it’s not clear any products ever eventuated.<\/p>\n Whoever next offers a crypto Visa card \u2014 I would suggest you look closely into their corporate history and behaviour. And drop Dan McCrum an email.<\/p>\n Here’s the collapse of Wirecard in video form, presented by Dan McCrum. This is a most enjoyable eight minutes. [FT<\/i><\/a>, free to watch<\/i>]<\/p>\n <\/p>\n![\"\"](\"https:\/\/davidgerard.co.uk\/blockchain\/wp-content\/uploads\/2020\/06\/wirecard-financial-times-header.jpg\")
<\/a>
\n <\/p>\nThe vanishing trustee<\/h3>\n
Wirecard, not actually Tethered<\/h3>\n
Holes in accounts: 1.9b \u20ac. Your card stops working: Priceless<\/h3>\n
Never trust a crypto fintech<\/h3>\n