I wonder who hired them. Sure, it could be the CEO of Wirecard, but it could also be another large shareholder. Given how ridiculous this story is and how Germany's regulator BaFIN has done such a horrendous job looking over Wirecard, I would believe it if they were somehow complicit. I guess only time will tell, though.
BaFIN is very much shorthanded, their typical approach is to let go until things get out of hand, they simply do not have the manpower to do pro-active oversight.
Lots of companies that you would expect to be regulated operate entirely on self regulation, and that of course doesn't work at all in the longer run. Increasing the BaFIN budget and making their salary structure comparable to industry salaries would do a lot of good in this respect.
This guy literally called them, multiple times, to their whistleblower hotline asking "Do you speak english?" "Of course, what's up?" "So I've been looking into Wirecard..." "Oh sorry, no, we don't speak english" (hang up).
That's not being short handed, that's being negligent. They knew something was up with Wirecard, and they actively tried to ignore all the warnings, and now all stakeholders have lost ~80% of the share value.
So yeah, the DAX is a joke and Germany is a banana republic.
German regulators in short: "we see no evil, we hear no evil. We will only rain penalties if someone else does ALL the work/investigation, and the shit will hit the front page of some major newspaper/website, in which case we cannot play dumb any more." (these are airquotes - not actual statement)(to avoid any lawsuits).
Just have a look at the penalties that DB have been hit with over the years, the dieselgate fiasco and you get the spirit on how they work. External auditors for German companies follow the same approach. It is not negligence, it is complicity.
At the same time they have the super tough privacy rules, I had to fly to Germany for a client (not DB or VW), to review some SOX docs, just to realize they were doing (what I call) "photocopy audit", they just copied last year's tables, they used tipp-ex to change dates and remove names and signatures, and they were the same files to send outside Germany. Oh the shock and horror when I asked for the originals (client couldn't say no anymore)(I wasn't removing/copying data, just reviewing and taking sanitized notes with me).
Not only German regulators are like that... The bigger the country, the more absurd things get... Think Madoff, mortgage-crisis, etc.
“The Big Short” and “Fooling Some of the People All of the Time” are quite interesting reads in that respect.
And as one Finance professor once put it: “If you do business or buy stock in ‘the far east’, P/Ls and Balance Sheets are just fake”. Having seen what is done in some countries - yes, it’s insane.
“ Increasing the BaFIN budget and making their salary structure comparable to industry salaries would do a lot of good in this respect.”
Alternatively, it might just bump up the salary and bonus of existing employees while truly smart people avoid it due to structural issues.
I am wary of the default line that “Thing that sucks is due to poor funding.” Sometimes that is true. But I would like to see more support for that line of reasoning to better understand.
I don’t think money is the only motivator and I’ve worked with organizations that claimed that money was the cause for poor morale and poor performance. But when I dug into it more, even the areas where money was the same as other orgs the morale and performance off.
The one example is Singapore, where it is possible for civil servants to do so well that they earn millions of dollars annually, and the country does rank extremely high on most development and performance metrics.
> Alternatively, it might just bump up the salary and bonus of existing employees
I am afraid that this won't help. The current employees are already used to this passive and unchallenged/unchallenging mode of work, giving them a raise will not move the needle. You need (sorry for the Dilbert-ism) a paradigm shift. Either get 10 contractors and they can define a new baseline-speed, or get 1 director, 2-3 managers, 5-10 new staff from the private sector, that they will redefine processes/speed/scope etc. and the existing staff will either have to pick up their pace or slowly be substituted (one-at-a-time). I have seen this happening many times in the private sector when a M&A happens.
The KPMG report was a good moment. As was earlier this week when EY refused to attest the 2019 balance sheet. Maybe not perfect, but still enough profit potential if you ask me.
Short sellers seem to be a much more reliable indicator of something corrupt going on in a company than the big auditors. You could be forgiven for thinking they are in on the scam and working to keep the director's bonuses rolling in right until the final months before a company collapses.
I suppose governments couldn't ignore the obvious forever and they are being forced to actually doing their job now.
In the UK Carrillion comes to mind as a big one, and more recently Thomas Cook. There have been many others.
I suppose there are a lot of reasons to short sell a stock, and as a laymen I always felt it was just traders manipulating the stock market casino at the cost of real businesses.
Not sure who was/is shorting Tesla, maybe they just don't like Elon, or maybe there is something going on.
With the "big four" accountants/auditors seemingly being corrupt, and governments ignoring this, or worse being complicit, how else can the financial health of a company really be known?
It now comes down to a hedge fund with the skills to do so realising a company is cooking their books, shorting it as quietly as possible. Then they drop their PDF on Twitter and watch everyone else get screwed.
Rather than EY/KPMG etc. doing their job and warning investors/regulators before the problem gets so big it crashes the stock.
Another example, NMC Health being shorted by Muddy Waters at the end of last year, a FTSE 100 company with EY as the "auditor" since 2012.
My understanding is, that short sellers look for reasons to assume a company is over-valued (for whatever reason), calculate an more reasonable evaluation and then short sell for that value.
Doesn't mean it is always fraud. Oesn#t mean they are always right. But more foten thn not, they seem to be very rational about it. Given the amount of money they are moving around, they better are.
For Tesla, it means that, more likely than not, it has nothing to do with Elon. And more with things like:
- Is Tesla a car manufacturer or a "tech" comapny? If the former, it is over-valued, if the latter, it is much less so.
- Some, I'd say questionable, business deals. E.g. the Musk family bail out of Solar City, the sometimes not so clear intercomapny lending between Musks enterproses (SpaceX, Tesla,...)
- Musk seeming lack of focus on Tesla, he does work drectly on a lot f other ventures in parallel
- Musk's pubic behaviour, which seems of compared to other CEOs. Especially in the car industry, which has again a ot to do with the first point
- Corporate governance, that seems to be abit strange in Tesla's case. Normally, when publicly traded comapnies have that kind of trouble with the SEC, it is a bad sign.
Sure, Musk plays a role in all of that. But liking or not liking him is, IMHO, the least reason why someone would put millions at the table to short Tesla.
Regarding the big four, so. If you think back to the time before Enron and SOX, it was a lot worse. Since then, the Big Fur had split up operations, auditors have to change every coupe of years.
That being said, they could a lot stricter. I was way to deeply involved in one audit once, and I wouldn't have signed of balance sheet. Well, they kind of did only bcause the subsidiery I was involved in contributed a tiny fraction and everthing else added up. But still.
Also, Wirecard is a German company, so a lot of the SEC rules don't apply. Doesn't make it any better so.
If you think Tesla is an exception, perhaps you should revisit your assumptions. Their story is not over,it is just beginning.
These stories all work the same way: "Obviously there is no fraud here, this is a short seller scam!" to "this company was always a fraud, obviously." Most people have their head in the sand on the way up, and pretend they knew all along when it implodes.
