#11 – The Investigator

Dan McCrum is the award winning FT journalist who exposed Wirecard as a fraud. Once a stockmarket darling valued at over €25bn, Wirecard crashed to worthless in June 2020, when its auditors could not confirm €1.9bn of cash. Dan pursued the story for six years and has now written a book about the saga. “Money Men” is an amazing account of how the company used every tactic possible to disguise its activities. This is an extraordinary tale and Dan, a brilliant raconteur, explains the highs and lows of his struggle to reveal the truth. We also speak to market participants on the buy and sell side to get their perspective.


Ordinarily, we summarise the conversation, but other than the usual introduction to Dan’s career, this episode has one subject, the saga of how Dan uncovered the fraud and how he and the FT kept their nerve. Dan’s colleagues, his immediate boss Paul Murphy and editor Lionel Barber, deserve praise for their support, especially Barber who is a brilliant journalist and was prepared to take on the German establishment.

We also wanted to put Dan’s work into perspective so we talked to:

  • Mark Hiley, founder of The Analyst, a research boutique which published over 40 sell notes on Wirecard over a similar 6 year period and
  • Freddy Brick, a partner at Muddy Waters, who explained the perspective of a short seller and who recounts the story of how Wirecard tried to bribe Carson Block. 

This is the story of a lifetime for most journalists but Dan is pretty ambitious and looking forward to his next big coup, which he suspects may lie in the crypto space. If you want to blow the whistle, you can contact him at danmccrum@ft.com. Tell him we sent you.


Dan McCrum is a multi-award winning journalist and author. His reporting for the Financial Times has been recognised with prizes from the London Press Club, the Society of Editors, the New York Financial Writers’ Association, the Overseas Press Club and the Gerald Loeb awards. He was also awarded the Ludwig Erhard Prize for economic journalism, a Reporters Forum Reporterpreis and a special award by the Helmut Schmidt prize jury for investigative journalism. In 2020, he was named Journalist of the Year at the British Journalism Awards.

Dan is part of the FT’s investigations team. He is a former editor of FT Alphaville, and his work includes helping to expose accounting problems at Wirecard, a German payments group; the listed law firms Quindell and Slater & Gordon; Globo, a UK software provider; and Folli Follie, a Greek company which invented €1bn of sales. In more than a decade at the FT he’s also been Capital Markets Editor, worked as the FT’s Investment Correspondent in New York, and had stints writing for the Lex Column.

Before that Dan worked briefly at the Investors Chronicle, and has at one point or another carried furniture, sold kids books on doorsteps, and painted but not really decorated.


dan mccrum2



For this podcast, there can obviously only be one book recommendation. “Money Men” is set to be a classic, like Bethany McLean’s “The Smartest Guys in the Room” which recounted the Enron scandal. I really enjoyed the book and it’s more of a thriller than anything else. Dan is a brilliant raconteur, and he brings the characters to life by painting intimate details of their personas, and giving incredible detail on their surroundings, friendships and similar facets of their personal lives. And one of the principal protagonists, Jan Marsalek, is really a larger than life character, with connections to the underworld and the Russian security services. You feel you really start to know these characters and although you know the ending – spoiler, the good guy wins and the bad guys get caught – you get caught up in the excitement and the highs and lows of the chase. 

McCrum was followed, he was scared his house was under surveillance, the FT’s offices were targeted with long range listening devices, and Dan was hacked multiple times. When he met with a whistleblower in Singapore, the documents he was given were kept in an isolated machine, well away from the FT network and even the internet. Much of Dan’s work was conducted in a safe room which had no external connections – this is more MI5 than finance.

Dan was originally given the tipoff about Wirecard by famed short seller John Hempton, an Australian hedge fund manager who is one of the world’s top experts on spotting frauds. He asked Dan if he would like to hear about some “German gangsters”. This was 2014 and it set Dan off on a journey which would change his life.

Wirecard purported to be a hot new German tech company, the sort every European fund manager, unable to invest in Silicon Valley, longed for. To Dan, and to many short sellers, everything about Wirecard looked a little too good. It was reporting fantastic growth, but there was little evidence of happy customers; small Asian acquisitions made no sense; and the company responded to critics in an unusual and defensive fashion. When Dan interviewed CEO Markus Braun, he was evasive and didn’t answer questions. When accused of fraud, he responded defensively rather than being shocked and outraged. Dan suspected all was not as it seemed.

Source: Behind the Balance Sheet from Sentieo Data

He followed the company over a period of several years and kept in touch with various short sellers but the stock price went from strength to strength. In 2017, the German regulator BaFin cleared Wirecard of wrongdoing and recommended a criminal investigation into market manipulation of the Wirecard stock price by short sellers and the FT, naming Dan and a colleague. McCrum became the victim. This was one of the lows.

His big breakthrough came when a Sikh lawyer’s mother contacted him – he found a whistle blower in Singapore. This gave him enough evidence to prove there had been a fraud in Asia and that the company was complicit in the cover-up. The FT published the story but the company continued to shrug off the criticism and the amounts involved were small in the context of the market capitalisation and investors accepted the company’s explanation that this was a minor local incident.

The plot continues, with a sting operation conducted in London to frame the FT for insider dealing, an offer of a bribe to Paul Murphy, Dan’s boss, over lunch. Under pressure, the company appointed KPMG to conduct an investigation into the internal frauds and the book traces the denouement as the journalist team and markets await the result of the EY 2019 audit. The account of the auditor’s efforts to track down €1.9bn in the Philippines is quite hilarious.

This is a great story and it’s well told. I loved some of the lines. One of my favourites was an account of a trip to Bahrain; in the Intercontinental Bar where the journalists hang out, he says “the two other people there may have been at the heart of international intrigue but they were focused on murdering Beyonce’s legacy through karaoke”.

Buy the book on Amazon.co.uk or Amazon.com (affiliate link, proceeds go to the FT FLIC charity).

“It’s a fantastic book. Think of Dan as a bespectacled James Bond with a keyboard instead of a gun.”


We met at a fundraising dinner for the FT charity, FLIC. Dan was the guest speaker and I made a short speech explaining why I am supporting the charity. Given my interest in forensic accounting and the amazing job which Dan had done on Wirecard, it was natural to ask and Dan kindly agreed to come on. What I hadn’t realised was that he is an amazing raconteur and we could have done with a  lot more time, but perhaps we shall get him back.


00:01 – Uncovering Wire Card’s Fraud

21:24 – Suspicious Business Practices Revealed

32:14 – Insider Trading and Whistleblowers

44:13 – Corporate Fraud in a Tech-Driven Market

53:32 – Challenges in Exposing Wirecard

01:06:33 – Bribery Attempts and Organized Crime



AI Produced and only lightly edited

STEPHEN CLAPHAM: Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment or indeed an unsuccessful one. Our goal is to inform, educate and entertain.

DISCLAIMER: We hope you enjoy this and every episode. Behind the Balance Sheet and affiliates and podcast guests may own shares or have an economic interest in securities discussed in this podcast which is aired for your education and entertainment only nothing in this podcast should be construed as investment advice or relied upon for investment decisions. Always do your own research.

STEPHEN CLAPHAM: This podcast is intended to educate as well as entertain and it has a more serious purpose. We are big supporters of the Financial Times financial literacy and inclusion campaign, a new charity which you can check out on F T dot com forward slash F L IC.


STEPHEN CLAPHAM: It’s the most disadvantaged in society who often get taken in by financial scams by payday loans and similar artful devices to park people with their money. We can change this. It’s a straightforward task of education. This really is a great cause and I urge you pleased to support it.


STEPHEN CLAPHAM: The podcast is sponsored by Sentieo and I asked them because I use the research platform almost every day for equity analysts. It’s in many respects the ideal tool. If I didn’t have a professional platform, I would need several different software systems. Cento saves me a lot of time and ensures my research can be done in one place.


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STEPHEN CLAPHAM: For more details. In a first for this podcast, I interview an author and this was so good. It won’t be the last time I promise. Dan McCrum is the F T E journalist who exposed the Wirecardfraud and has written an amazing book about that there, Money Men.


STEPHEN CLAPHAM: It’s been on sale in Germany for a few weeks and goes on sale in the UK from the date of publication of this podcast. The Wirecard story is truly amazing. It’s got more twists and turns than a best selling thriller or a bond movie.


STEPHEN CLAPHAM: Wirecard was ostensibly a highly successful payments company which eventually reached the heights of the Dax 30 the 30 largest quoted stops in Germany, which may be one reason why the German regulator Bafin cleared Wirecard of misdeeds in 2017 and recommended a criminal investigation into market manipulation of the Wirecardstock price and accused Dan and a Financial Times colleague. The FT was forced to hire lawyers and to launch an internal investigation in one of multiple measures used to conceal the fraud. War even attempted to bribe Dan’s boss as well as a leading short seller to cease their investigations. Yet, Dan and the F T kept at it. Dan’s investigation lasted an astonishing six years.


STEPHEN CLAPHAM: Many of the short sellers of course were forced to give up as the share price rose relentlessly but Dan was persistent in the face of threats with private investigators following him and the F T resorting to using a safe room code words and talking in corridors because they feared their own offices might be bugged.


STEPHEN CLAPHAM: The cast of characters stretches for four pages in the book and action moves from London to Munich to Manila.


STEPHEN CLAPHAM: Many of the scenes are quite incredible. I don’t know if they would be believable in a work of fiction, but the book Money Men is quite brilliant. We only cover a fraction of the saga in this short episode. And honestly, you should go out and buy this book today.


STEPHEN CLAPHAM: I’ll also write a review which you can find on our website behind the balance sheet dot com.


STEPHEN CLAPHAM: After my chat with Dan, I interviewed sellside research boutique, The Analyst which published over 40 sell notes on Wirecard over a six year period and famous short seller, Muddy Waters to get their perspective and to add some color, make sure you listen to the end as ever. I hope you really enjoy this episode.


STEPHEN CLAPHAM: Dan. Welcome to the podcast. Thanks so much for coming on.


STEPHEN CLAPHAM: I wanted to start with your career and you started a city group in the research department. Is that right? I mean, how did you then end up being the man that exposed the Wire Card, Steve?


DAN MCCRUM: Yeah. Thanks for having me on God, that’s a long time ago, isn’t it? I started in city on the grad program, sort of just working between research and the sales floor. And I basically write summaries of what the researchers had written, take this big report and condense it down so the sales guy could get on the phone with the client and just read that and, you know, it was fascinating.


DAN MCCRUM: Like stock markets are fascinating. I learned a huge amount about companies. I learned a little bit about, you know, how accounting works. Not very much. But I sort of reached a point where I looked around the room and I didn’t see anybody who I wanted to be.


DAN MCCRUM: And, there had been this nagging voice at the back of my head, you know, didn’t you want to be a journalist? So I kind of decided I would quit before, you know, markets crashed and there were lots more intelligent and educated people going for those sorts of jobs.


STEPHEN CLAPHAM: And yeah, I tried my hand at being a reporter. So what you just applied to the F T and they said, oh, you’ve been in the city, we normally get it the other way around. Right. One of your colleagues is just, has just moved from Alphaville to a hedge fund. Right. Oh, yeah. Yeah, Jamie has just gone in the opposite direction, hasn’t he? Which, I mean, good luck to him. It’ll be really interesting to hear how, how that is. I was very lucky in that. I managed to get a job on the Investors Chronicle, which is a great share tipping magazine. It’s a fantastic magazine.


STEPHEN CLAPHAM: You should all go out and buy it.


DAN MCCRUM: I also write for the, oh, of course. Oh, brilliant. I didn’t realize that, you know, very loyal, subscriber base.


DAN MCCRUM: And I was basically doing the same job as before learning a little bit about journalism. And the lucky thing was, it was owned by the same company Pearson, which owned the F T at the time and I could see the internal job ads. So I sort of looked into a job on LEX, you know, writing opinion for the back page of the F T and, you know, I was terrified.


DAN MCCRUM: Every day I sort of kept expecting to be tapped on the shoulder and someone go, yeah, we’ve just realized that you’re here. How on earth did this happen?


STEPHEN CLAPHAM: The, the next column is really challenging, right? Because it’s very, I mean, it’s very highly authoritative commentary and some amazing journalists been through there. I mean, Dominic Lawson, Lucy Kellaway, I mean, and Stuart Kirk. who is work with for a long time.


STEPHEN CLAPHAM: So, in your biography, you talk about other frauds before WireCard. We will get to Wire Card. But I was just curious because one or two of those eg Quindell – these were, I mean, fairly obvious frauds, right?


STEPHEN CLAPHAM: And they just carried on and carried on and let’s just say on Quin the serious fraud office investigator for many years and then closed its investigation and no one’s convicted just in case anyone’s wondering. But yes, it’s certainly there was enough grounds there to suspect a lot of fraud. Right. Well, I, I, I should correct myself.


DAN MCCRUM: They looked like frauds and it definitely had a counting problem. Yeah. No, definitely ganging issues. Yeah. And yeah. So writing about these sort of, of things was this incredible in education in how those sorts of businesses work. And what happened was Quin was attacked by some short sellers in like 2014.


DAN MCCRUM: And I started to get interested after that sort of saying, hey, what’s going on here? Let’s try and understand the business. And it was basically a tech Gobbledy press release machine. So it was, it was something to do with insurance.


DAN MCCRUM: But it turned out they were basically a listed law firm, which is really unusual and there were only two of them, Slater and Gordon was another one in Australia and both of them had major accounting problems and basically collapsed. And the thing about Quindel was it had this rabid band of investors who had made a lot of money buying at retail.


DAN MCCRUM: And whenever I wrote anything about Quindel, they would all appear in the comments and it became this sort of thing that the other readers would show up for because it was so funny because you would have these guys sort of go, you don’t know what you’re talking about. This is a great British company. Why are you bashing it? Do your work, all of that sort of stuff, presumably.


STEPHEN CLAPHAM: No, you don’t get that sort of push back or did you get quite a lot for that sort of push back with Wire Card.


DAN MCCRUM: I mean, the pushback from Wirecardwas like Quin Dell on steroids.


DAN MCCRUM: You know, with some friends in the security services. I mean, I mean, the thing about workout and this is the, I mean, this is why I felt I just had to write the book was as a journalist, you’re not supposed to become the story, right?


DAN MCCRUM: And with Wire Card, that kind of just happened, it took over my life and turned it upside down and the deeper I dug into this company, which started out as, you know, oh, it’s this curious little German payments company and the more I looked into it it was like, oh, there seem to be hackers involved and private detectives and they’ve got some very angry lawyers and then there are these bizarre moments where, you know, my editor Paul Murphy who worked with me on the whole thing, you know, he pulls me aside and he goes, yeah, Dan, you know, you know, the chief operating officer at this wire car company.


DAN MCCRUM: So he’s been flashing around some documents to speculators in London and they’ve got the recipe for the nerve gas. No, on them. I think he’s got some sort of rushing connection and at that point you’re just going, what is happening in the world.


STEPHEN CLAPHAM: I mean, this was the, like amazing thing. I mean, I, I, I really enjoyed the book and well done. For, for writing it.


DAN MCCRUM: Thank you.


STEPHEN CLAPHAM: But it was almost like if it had been a work of fiction, it wouldn’t have been incredible because some of this stuff, I mean, you talk about a meeting between Nick Gold, a football agent and a, and a representative of Far Eastern Invest and it just, if, if that, if that meeting had taken place in a work of fiction, you, you’re gone.


STEPHEN CLAPHAM: Well, no, of course, that couldn’t happen. Why is it so fantastic? I mean, it was, it just a work of Marc imagination that, that he was a mad guy.


DAN MCCRUM: I mean, it’s, I mean, so, I mean, I think you’ve hinted at some of this here. It just sort of, it, it’s like this cat and mouse game sort of, we go backwards and forwards and each step just becomes crazier and more unbelievable the next. And you’re literally pinching yourself saying this can’t be real.


DAN MCCRUM: And so, so the main bad guy he mentioned, Jan Mars, fascinating character, this Austrian whiz kid. So he drops out of high school in Vienna speaks multiple languages and he goes to work for a tech startup. It’s the late nineties, everyone’s doing that and he gets poached to join Wire Card, but it turns out he’s not quite as Whizz as people think and he almost destroys the company because he’s working on this big project.


DAN MCCRUM: It doesn’t work out. But by that point, he’s the only one who understands it. So he’s too important to fire. And this sort of pattern repeats. He constantly takes the company to the brink of disaster, but somehow comes up with a way of getting out of it.


DAN MCCRUM: He’s this sort of cons, like, he’s so charming. Everyone talks about, you know, he could talk for hours and you’ll be completely fascinated. And, he loves, you know, Fancy dinners. He wears, you know, the most expensive bespoke shirts, not just bespoke suits and he’s stylish. Everyone who encounters it. Him, they all start to try and dress like him as well.


DAN MCCRUM: He sort of, you know, wraps people up in his orbit. But then there’s this other side to him, which is, I mean, either he is a spy or he’s got a bit, a bit of a James Bond fixation and he likes hanging out with spies. So there’s one example where, he, he never goes on holiday, like he tries to go on holiday.


DAN MCCRUM: He’s got this long suffering partner who occasionally he takes to like, you know, fabulous spas, things like that. But whenever they try and go on holiday, two days later, he’s back at work, complete workaholic. So his friends who include this Russian mercenary, say to him, ok, what do you want to do for a break?


DAN MCCRUM: And he says, I want to do something which no one else in the world can. So the Russian guy says, well, how about, do you want to come take a walk around Palmyra in Syria where the Russian mercenaries have just conquered from Isis. He’s like, sure. Yeah. So he does. And there’s in, he had this, like base of operations, this mini palace in Munich.


DAN MCCRUM: And there was a little chunk of, sort of, you know, rubble from, a Palmyra statue or something which he picked up on this little sightseeing joint. So, did you meet Mar there? No, I never met Mar. It’s this incredible thing where, I mean, it’s a strange, it’s a strange life when you genuinely have an adversary. Yes.


DAN MCCRUM: And I try and bring that across. I knew that he was the bad guy and we had to try and expose him. And there’s all these, you know, I’m trying to work out what is happening inside the company. What is the fraud that’s going on? And he’s always at the fringes, you know, people refer to him. They’re like, oh, that’s one of Marc companies as if that explains things.


DAN MCCRUM: And so I could never quite put him in the frame. But yeah, I never actually met him. The only time there was a meeting was when my editor Paul Murphy, he had a couple of lunches with them, which started out the premise being there was, a bribe on the table $10 million to make the Financial Times stories go away.


STEPHEN CLAPHAM: Now, for those of you who are listening to the podcast and not watching a video clip. I should point out that Dan is not wearing a designer shirt and $10 million. I mean, that’s quite tempting. So, what is it that allows you to rise above all of this and pursue an adversary in such a dogged fashion? Because most people would have given up. W w why did you, was it just that in, in your blood? And you had to pursue it?


DAN MCCRUM: I mean, journalist brains maybe work a little bit differently. There’s this great book, Bill Buffer Among the thugs. It’s all about, hooliganism in the eighties. And he goes and spends a lot time load of time with Manchester United fans who go on these rampages around Europe.


DAN MCCRUM: And he describes this moment where the Italian riot police charge them and he finds himself underneath the car being battered with batons and he says part of his brain is going, ah, oh my God, what is happening to me? Yikes gotta stop, you know, getting a head injury and then the journalist part of his brain is going, wow, this is an amazing story, isn’t it? How am I going to write this and tell, tell everyone about it.


DAN MCCRUM: So there’s that aspect to it. I mean, it was, you know, it was this puzzle like I knew it was this great story because I started out, I mean, when was it God, it’s eight years ago that I first started looking at this So it started, you were tipped off by John Hempton. Yes, John Hempton, the Aussie hedge fund manager.


STEPHEN CLAPHAM: So John is an amazing analyst. I mean, he’s probably one of the as smart as people around in, in hedge funds and particularly at sniffing out fraud. So what happened? He tipped you off and then how does it start? So you John, he says, oh, you want to take a look at War Card? How how does it, what do you do? What, what, how did you, how did you get started?


DAN MCCRUM: But what he actually said to me was, would you be interested in some German Gangsters?


DAN MCCRUM: And, and I think at the time I just jotted the name down work. I, I had a look at it and I was like, I can’t make head or tail of this. You know, that was one of the tricks you use. If you’re a fraud, you make your business very complicated. And if anyone questions it, you just say, ah, you don’t understand it.


DAN MCCRUM: And so then it was a couple of months later. And, actually because of Quindel this British hedge fund manager called Leo Perry, really smart. He actually, it turned out had a bit of a hand in, some of the information which was put out there on Quin Dale. He’d seen my work on that and he got in touch.


DAN MCCRUM: The phrase in journalism is, stories, get stories. So he calls me up and says, can we go for a coffee and we meet in the cafe, Hero by Mansion House, sit down and he sort of brings out these closely typed notes and it’s basically his theory of what’s going on inside and to sort of summarize it very simply.


DAN MCCRUM: It had spent five years buying up lots of weird little companies all over Asia. And when he looked at the details, nothing matched what Wirecardwas saying about these deals and the businesses looked in bad shape.


DAN MCCRUM: They weren’t worth nearly as much as Wirecardsaid there are all sorts of problems with them and it was like, aha, maybe there’s something going on here and that’s what set me to work and to start with, I mean, was doing ok, processing sort of semi legal payments for porn sites and gambling sites.


STEPHEN CLAPHAM: And then they started to experience more competition as their former coo moved to an Israeli company where he pursued their poker customers. So that was when they needed to turn to fraud to engineer.


DAN MCCRUM: The, the new growth is that I think that’s the moment. So, so the potted history of Wirecardis, this German trainer distributor who’s an entrepreneur looks a bit like, you know, an aging rock star. He has a conversation with someone who works for Larry Flint on a plane. Ends up starting a porn business has to take payments for it.


DAN MCCRUM: That leads him to start a payments business which becomes Wirecardand they sort of double down, double down, double down becomes this great business. But there’s this moment when, you know, the world is changing, processing payments for gambling is a lot harder than it used to be. Get, you know, the US makes it illegal.


DAN MCCRUM: All that porn stuff is going away because free porn and at that moment, the van’s distributor, the aging rock star guy, he doesn’t like the look of the business anymore and he leaves and he also his friend who is effectively running the whole thing leaves and takes some of Wire Card’s best poker clients with them.


DAN MCCRUM: So you kind of have this moment when Wirecardis in crisis, there’s a whole other thing with, you know, the dark lord of the internet, but there’s too much detail to get into today. And, and I think that is the moment when Wirecardcan’t grow like it used to anymore. And that’s when they have to start cooking the books and that led you to interview Marcus, bro.


STEPHEN CLAPHAM: Tell, tell us about that.


DAN MCCRUM: Ok. So Marcus Brown is, a funny character and normally if you, if you’re the Financial Times, you knock on the door of startup, they’re like, yeah, let’s tell you about our great business and they were different and this was one of the first red flags.


DAN MCCRUM: They were like, oh, no, we can’t talk to you. We’re too busy with the results come to Munich and we’ll have some junior product manager, you know, tell you about our exciting business.


DAN MCCRUM: And then when I send them a bunch of detailed questions all about, you know, little points about their accounting, they came back with an email which effectively said this is very suspicious. These questions are very similar to those. We’ve been asked by a short seller. Are you in league with them? Are you naively being used by them?


DAN MCCRUM: And that was like, oh, I think we’ve hit a hit a nerve here. And so this leads to this, my one and only interview with workers chief executive Marcus Brown and he’s a very cold character, like all the staff say it, he’s very aloof, you know, very proud and he doesn’t seem to have managed the business on a day to day basis. He’s much more a figurehead.


DAN MCCRUM: He would deal with sort of the outside analysts, but he, he doesn’t travel like the rumor was that he was afraid of flying and he would just sort of sit in his office, you know, checking the share price on his phone, sipping peppermint tea and, and he didn’t do many interviews.


DAN MCCRUM: And when I spoke to him, I sort of realized why because he’s, he’s like a former management consultant and it was all sort of blue sky jargon, you know, all that stuff about, you know, oh, we’re just like apple. But then he’ll, you know, with three sentences of dense technical blah. And that went on for quite some time. And you’re like, ok, I’ve got, I’ve only dimly aware of what you’re talking about.


DAN MCCRUM: It’s something to do with payments. But then we get to the point where I’m like, ok, effectively. So here’s everything. I’ve looked at these funny companies you’re buying in Asia looks like you’re hiding something, aren’t you making your profit? And what I always find strange is, you know, he did say, yeah, that’s bullshit.


DAN MCCRUM: But he, he used a couple of tactics which are sort of notable. So he asked a question instead of answering it. Why would I do this? He, he didn’t deny it. He sort of referred to outside authority. Why are all these analysts love us? We have a very prestigious accounting firm, Ernst and Young auditing our figures.


DAN MCCRUM: You know, I’m Wire Card’s biggest shareholder and the, the tone of it was strange as well like he was, oh gosh, yes, someone’s asked me if I’m a fraudster again. I get this all the time. Let me explain to you why everything is above board instead of, you know, if I said to you, Steve, you stealing all this money, you get angry, you’d be like, what do you talk about? No, I’ve never stolen anything.


STEPHEN CLAPHAM: It’s funny because this is a standard, I mean, these are everything you said are standard techniques of people who are trying to obfuscate and, you know, obviously if you’re working at hedge fund, you learn, either get trained or learn how to understand, you know, if people are, are, are telling the truth or not.


STEPHEN CLAPHAM: And, you know, I’ve been doing, doing that job for, for a long time and, you know, assessing management can be, can be quite tricky, but knowing that somebody’s honest is actually more straightforward and I’ve had instances where people have tried to obfuscate and I’ve jumped to the wrong conclusion because I think, well, something wrong here.


STEPHEN CLAPHAM: But why is it that when you get a character like that, that is not answering the question that doesn’t get angry?


STEPHEN CLAPHAM: I mean, I, I can, I remember vividly we, I had a meeting with the chief executive of a Russian company and they were raising money and my colleague who was Russian said, why are you, you know, I said, why are you raising the money? And he said, oh, I want to put some money into my local football club.


STEPHEN CLAPHAM: And my colleague laughed and said, oh, so you’re a bit like Abramovich and the guy jumped up and started shouting and how dare you compare me to. And you know, when people are genuinely upset, they show it and that seemed people would, a normal person would be genuinely upset if you ask them if they’re a fraudster.


DAN MCCRUM: But as an as a hedge fund analyst, that’s not the question you can really ask I mean, that’s one of the great fun things about being a journalist is you get to ask people very rude questions, they kind of have to answer, you know, because if you’re an A I mean, this is one of the things about, you know, how the cell side works and analysts generally is there’s very little incentive for an analyst to ask difficult questions to put out a cell recommendation because one, no one rewards them for sale recommendations.


DAN MCCRUM: I remember one of the things I think was it Tim Allen who was an engineering analyst at Citigroup work when I was there?


DAN MCCRUM: I always remember him telling me he was like, you know, if you ever become an analyst, your first job at a new place, never do a sell recommendation because no one will thank you for it. Like if you say buy this and it goes up and you make the money great.


DAN MCCRUM: They’ll remember that. But if you’re going to tell them to sell and even if you do save them money by doing it, you’re kind of having to say they’ve made the wrong decision in the first place and no one likes to hear that.


STEPHEN CLAPHAM: That’s an interesting theory as to why there’s so few sell recommendations. I always thought that, you know, the main reason was that upset the management and you didn’t really want to fall out your main source of.


DAN MCCRUM: Oh yeah, exactly. That’s another one as well. Yeah, because they will just not take your questions on conference calls. They won’t speak to you. They have the power in that relationship.


STEPHEN CLAPHAM: So you had this interview with the chief executive and it didn’t go well. And then presumably you wrote up that your suspicions were confirmed, what, what happened next.


DAN MCCRUM: So one of the challenges of trying to write about accounting fraud is unless you have really solid evidence, you can’t use the F word in print because you’ll get sued out of existence. And so it took me a long time to write the first sort of stories. They were called the House Of Wirecardseries.


DAN MCCRUM: And they sort of frame Wirecardas this puzzle. Why is it doing these strange things? Why don’t its numbers work? And I mean, I think, I mean, and then like a whole bunch of crazy stuff kind of happens.


DAN MCCRUM: Some short sellers get involved and they present this other theory that Wirecardis a big money laundering enterprise because it processes payments and it was growing faster than everyone else and was also much more profitable than anyone else. And normally you can do one or the other, right? You can’t do both at the same time. That’s very challenging. Well, OK.


DAN MCCRUM: But I, I don’t think and has wire cards margins, I could be wrong. I haven’t checked in a while.


STEPHEN CLAPHAM: I’ve forgotten what cards margins are about 55%.


DAN MCCRUM: So pretty close, I think. Ok, so, so you can do it. But I think, and is probably much more open about how they’re doing.


STEPHEN CLAPHAM: Say we’re not, the price is still quite high.


DAN MCCRUM: And, and so there were these two competing theories is why cut of f or is it a money la enterprise? And one kind of excuse the others, I think, you know, some investors looked at it and said, well, maybe it’s making these profits in gray areas.


DAN MCCRUM: And that’s the reason it won’t talk in detail about where it makes its money and how, and the real breakthrough was this moment in October 2018. So the stories hadn’t worked.


DAN MCCRUM: Wirecardhad gone on to gone from strength to strength and had just entered the dax 30 index and I’m on the train going into work and I get an email on Monday morning from a whistleblower saying, would you be interested in some dirty doings at a financial company? And it turns out it’s Wirecardand actually it wasn’t the whistle blower who got in touch.


DAN MCCRUM: It was his mother. So the whistleblower is this lawyer who works in Singapore called Pav Gill. Amazing guy had this sort of amazing life, but he had been raised by his mother who, you know, she was sort of the victim of an arranged marriage.


DAN MCCRUM: Turned out her husband was a drunk, she got rid of him, raised Pav by herself, you know, whilst working as a banker and he became a lawyer and he was working inside wire cards. Asian headquarters discovered the head of the finance team. There was cooking the books.


DAN MCCRUM: It’s really amateurish frauds, you know, like sort of cutting and pasting the logo of some random company slapping it onto a Wirecardinvoice and then submitting that for payment by the accounts team. And the numbers were all quite small, like €2 million here, €2 million there.


DAN MCCRUM: But when, when they did an investigation and reported what was going on to Munich, the whole thing got squashed. And suddenly this guy, Jan Malek is put in charge of it and the lawyers who were doing it in, in Singapore are like, hang on a second.


DAN MCCRUM: We’re not sure what Jan’s involvement in here is here, but he’s definitely a witness to what’s going on at the fringes again and he gets forced out.


DAN MCCRUM: But what they did is they, they basically said to him, well, you can resign or we’re going to fire you. He said, ok, fine, I’ll resign, but they didn’t March him out the door there and then they gave him to the end of the week. And so the next morning he goes into work sticks a little portable hard drive in and takes a copy of all the documents that they’ve been doing of their investigation and that’s what he gives to me.


STEPHEN CLAPHAM: So that’s fantastic ammunition for you. I mean, this is the end of 2018. Yeah. Why did it take so long for the whole thing to unravel? Because at this point you’ve got quite good evidence and then the spotlight must really be on them because you’ve got, you’ve effectively got proof that there is at least a small fraud going on and that the company hasn’t really done what they should do about it.


DAN MCCRUM: So, there’s a, yeah, so we publish start of 2019. There’s a fraud in Singapore, small, but what on earth is going on there. And and also remember there’s a great hedge fund manager called Eduardo Mars who runs a Poten and he did the whole presentation, I think, what was it called?


DAN MCCRUM: Wirecardwhere short sellers go to retire because he’d been, he’d been shorting the company for years and years. And what really wound him up was everyone was focusing on the amounts involved, you know, $30 million in the context of a €2 billion company.


DAN MCCRUM: He saying it’s the practices, the practices are what matter why on earth is the head of their finance team there doing all these stupid little frauds and why didn’t they fire him the second they found out?


DAN MCCRUM: But the thing that you find with the fraud is, it’s very hard to convince people when money is at stake, particularly their own money. And if you’ve been invested in Wirecardfor years, you feel like a genius. It’s gone from sort of €4 billion market cap when I start looking at it to 25 its peak. So people don’t want to see it.


DAN MCCRUM: But also Wirecarddid something very effective. It always demonized its critics as being in league with short sellers and and this is where Nick Gold comes in. I think you mentioned him at the beginning. So we should probably explain this likely mad scenario.


DAN MCCRUM: So we get into this sort of rhythm where the Financial Times publishes a story. Wiard says, no, it’s not true. And by the way, you’re corruptly involved with short sellers and the German authorities buy that. They start investigating me and my colleague, Stefan Palmer who worked on the stories with me.


DAN MCCRUM: And then each time we so then we go away and do a whole load more work. Publish a new story. Wiard announces it’s suing us. Then we do another story. Wiard announces it’s got a billion dollar investment from Softbank, the big Japanese technology conglomerate. And so every time we do a story, we’re like, what is it going to take?


DAN MCCRUM: So we reach this moment where suddenly I sort of have, you know, the light bulb flicks on and I’m looking at some of the documents which I’ve got from this pile from have in Singapore and I started going hang on a second.


DAN MCCRUM: I don’t think that company was in business, but here it is in the Wirecardbooks saying it’s sending the load of payment processing every month and I look it up and no, hang on. It was a bank to binary, a nasty FX options broker which got shut down by the US government and like, well, hang on it got shut down there. So how on earth is it still sending Wirecarda load of business?


DAN MCCRUM: And I start looking at the others. I’m like, hang on a second. It doesn’t exist out of business. So I start to realize this is the big lie. They’re literally just making it up. The customers are fake, the profits are fake, the sales are fake. And so this is, I think the moment of triumph, we’ve got them.


DAN MCCRUM: So we go to Wirecardfor questions to ask them about it. That’s how it works. As a journalist, you can’t just publish, you have to ask people first get their response and they come back with this tape or this, they talk about this tape.


DAN MCCRUM: And what you have is this guy called Nick Gold who is like, he’s a sort of just a big bundle of charisma. Like he runs a nightclub called the Box in Soho. And you know, he’s sort of surrounded by beautiful women.


DAN MCCRUM: He’s one of those guys who like is immediately the life and soul of the party self deprecating jokes like he’d hang out at the Chilton firehouse in London and you know, he, he’d be like, he’d be jumping over the bar to make drinks for everyone. Jumping back over people be stopping by. He’s, he’s that guy.


DAN MCCRUM: And so he has this meeting in his office near the Chilton firehouse where I walk is a premiership football agent with this guy who was supposedly a representative of Far Eastern money and gold has been primed. He’s like, you need to give this guy a good trading idea and then what they’ll do is they’ll trade together and they’ll split the profits.


DAN MCCRUM: And it’s basically that, you know, he wants these Far East guys to do the trading with their money and then send him the cut of the profits. And what he says they should do is sell wire cut because he’s heard there’s a new Financial Times story coming and that sounds quite bad, right?


DAN MCCRUM: And it did sound bad and at this moment of this is it, we’ve got them, they come up with this tape and it’s like slam the brakes on, they leak it to the German Press. You know, there’s all these lurid stories saying Financial Times and leaked with speculators. And so instead of publishing, suddenly the F T announces that it’s investigating me and my editor Paul Murphy.


STEPHEN CLAPHAM: And I mean, what was Nick Gould’s connection to all this? I mean, was he paid by Wirecardor do you know, I mean, have you spoken to him?


DAN MCCRUM: Have you asked him Oh, yeah. So I’ve asked, I’ve asked Nick about this and what you have to understand is there is this sort of strata of finance in London and elsewhere that Paul Murphy calls the bandits and that should be understood as a sort of a term of endearment rather than pejorative because, I mean, I tell the story in the book how he got to know these guys.


DAN MCCRUM: He was, so Paul Murphy is this sort of very old school reporter. He’s been doing it for, I mean, at least since the nineties. And and he was working for the Sunday business funded by the Barclay brothers and he quits to go back to the Guardian as finance editor. But his boss, Jeff Randall says, I know you’ve got this story.


DAN MCCRUM: I want you to get it. And what had happened is this broker had gone bust and this Roly poly banker had sort of waddled up to him and handed over two carrier bags full of documents and what it exposed was this insider trading ring in the city. And he basically blamed this somehow for the broker going bust.


DAN MCCRUM: So Paul gets on a jet to Monaco at the Barclay brothers expense and spends two weeks wining and dining. All of these guys gets to know the whole band it seen and they’re mainly sort of, you know, retired businessmen, you know, people with money who basically love trading, sharing gossip, maybe takeover gossip, that sort of thing.


DAN MCCRUM: And he gets back and he writes the whole story complete with, you know, carrier bags of cash, changing hands of borders, all the people involved and he hands it in and the lawyers go there is no way you can write, publish any of this. And so what he ultimately does to cut a long story short is he, he’s like, well, he can’t expose these guys, he’ll turn them into sources.


DAN MCCRUM: And, and so he sort of knew a whole bunch of these guys in this world and that’s where Nick Gold comes from, you know, rich businessman. I mean, so he’s a nightclub owner, but I think he also had quite a substantial stationary business, but, you know, who wants to talk about that.


DAN MCCRUM: And so, yeah, and it’s all these guys who like they trade together, they share tips and it’s, you know, it’s not like deep thought out investment. It’s like, oh, what’s right? Ok. That’s a good idea. Get on your phone, make the trade and it’s all, spread betting because it’s tax free.


STEPHEN CLAPHAM: And you would have thought that high activity, shorting Wirecardwould have been sufficient to put pressure in the share price and undermine people’s confidence. The, the company managed to skate over this.


STEPHEN CLAPHAM: I mean, you, you have to admire in a slightly perverse way how well they executed all this. It makes me just wonder, you know, I mean, these are obviously very smart people. I mean, why didn’t they just make money legitimately?


DAN MCCRUM: I mean, there was a diabolical genius to, it wasn’t there. And, and again, I mean, come back to this character Slack and Brown. So Brown, I think, really wanted to be chief executive of a company.


DAN MCCRUM: And he had this prestigious position, but he was kind of a figurehead like the trainer guy and pornographer put him in place because he didn’t want to be the face of a public company. I mean, there’s barely a photo of him that you can find online. And so Brown was, I mean, he even talked about it. People tell me, you know, he saw himself sort of more as a chairman than, you know, a chief executive.


DAN MCCRUM: And you know, one guy in the book, he talked to me about, you know, the conversations he’d have with Brown and he, you know, he would change the subject if you started to talk about some of the racier parts of processing. So I’m not really convinced that he could have run a proper, you know, effective payment processing operation.


DAN MCCRUM: And then you have this other kid. Yeah, male who is 10 years younger. I mean, he’s basically my age, I’m sort of mid forties. So when he became coo he was 30 and charmer knows technology, really smart, but at the same time, no formal qualifications. I mean, he didn’t even finish high school, let alone a degree.


DAN MCCRUM: He always said he was too busy, can’t drive again, too busy and he couldn’t really work it where else he was sort of stuck with Wire Card, but he didn’t really have the experience. And so you get this picture of him, like they referred to him internally as sort of Wire Card’s chaotic genius.


DAN MCCRUM: And so he was chief operating officer, but he had no staff, which is weird. Right. And no team, he would just fly around the world constantly doing deals sort of everywhere and nowhere, not really accountable to anyone.


DAN MCCRUM: So I kind of think Wirecarddid have a real processing business, but it was losing money for a very long time. And, you know, you can run quite a large business for a long time if it doesn’t matter if you lose money. Right?


DAN MCCRUM: And you know, so there probably was a moment when Wirecardcould have continued as a legitimate business, but it would have had to stop growing. And that’s the thing.


STEPHEN CLAPHAM: So how did it all unravel in the end?


DAN MCCRUM: I mean, so two things killed it really one is we published a story in the Financial Times on in October 2019, which basically said this is how the fraud is being committed. These are the fake companies, here are all the documents which show what’s going on. And you know, I’m very proud of that. It’s like here is the evidence of what is happening. This is a fraud and that in a sense, killed the company.


STEPHEN CLAPHAM: It was, you know, and you should, it took you how long to, to, to write that article?


DAN MCCRUM: I mean, we, we, so I had that moment of revelation in May and it was six months, although I mean, we were delayed for three months by the internal investigation. But let, let’s say, I mean, it was three months of, you know, just trying to work out, ok, which company could it possibly be ringing every company trying to get an answer?


DAN MCCRUM: You know, because they’re trying to talk, I’m trying to talk to them about, have you ever worked with Wire Card? No, why are you asking me about Wire Card? You know, so just all of that thing to get the answers to build it then to try and write it, make it understandable.


DAN MCCRUM: And, you know, Lionel Barber, the editor of the F T, he was quite angry by this point and he’d been with us every step of the way. And so had the lawyer. So it was a sort of team of the four of us who were really very closely involved in every story. And he had said to us which is unusual for a newspaper, but he was like, I want us to draw blood this time. I want an exo and that’s what we were trying to do.


DAN MCCRUM: And so from that moment on it was Wiley Coyote, it had gone off the cliff and its legs were spinning and it was just, when’s it gonna plunge? But it stayed like that for eight months. And this is the thing that still astonishes me. I was convinced we printed enough evidence for, you know, the police knock on the door and start making their inquiries.


DAN MCCRUM: But companies get to investigate themselves. I don’t think there’s another area of life where this happens. Wirecardappointed KPMG to come and conduct a special audit take six months, they do all of that and KPMG says we couldn’t find any evidence that all these sales you’re claiming are real. And Wirecardflips out on its head and says KPMG didn’t find any evidence that there was fraud.


DAN MCCRUM: I mean, it sounds crazy when you say it like that, but that’s, you know what they were working with and so everything boils down to the audit. Ernst and Young have signed off on wire cards accounts every year for a decade. Will they sign off again?


DAN MCCRUM: Because if they do that’s a big wet blanket over the whole thing, even if it’s a qualified audit, maybe Wirecardcan make its way through. And so will they sign and what it comes down to is two pieces of paper. And, and I mean, this is one of the most farcical sections in the whole book where how they come to get these two pieces of paper which involves sort of going to the office of a Manila divorce lawyer who’s a youtuber.


DAN MCCRUM: He’s got one of those plaques for like 100,000 subscribers on his wall. And he’s the guy that Wirecardsays is in charge of accounts which hold €1.9 billion of Wire Card, the European financial institutions cash and it’s in these special accounts at two Philippine banks.


DAN MCCRUM: And so there’s a whole bunch of people involved audited for me Y KPMG Wirecardlawyers. And they get in this convoy of cars which the divorce lawyer has arranged for police motorcycle out riders to help them cut through the traffic in Manila in the Philippines.


DAN MCCRUM: And they go to the first branch and they don’t go to the headquarters, they go to this tiny branch on a little road with, you know, like a bicycle shop and garages and things like that on it and go into this tiny branch where they all crowd in and there’s basically just enough room for them and the staff and one of them jumps up and it’s like, hello?


DAN MCCRUM: Yes and I’m like, hi, hi, we’re here about Wire Card. It looks blank and then you know, the divorce lawyer looks at him and says yes, you know Wirecardand he like ah yes Wirecardand he produces this envelope and then they repeat a whole other thing.


DAN MCCRUM: But these envelopes are basically two pieces of paper which show Wirecardaccounts have €1.9 billion in them. And that’s all the evidence that E Y has that this money exists and this is in March 2020. And as the months progress, E are starting to get a little bit nervous about this. You know what with everything else going on?


DAN MCCRUM: And they’re trying to ask the bank to separately confirm it and they’re asking why a card can they actually transfer some of this money to Germany? And why a card? You know, Marcus Brown keeps saying yes, yes, no. The money is definitely on its way, it will come soon, but you know, nothing happens.


DAN MCCRUM: And so eventually someone seeing it at E Y has to get in touch with the chief executive of each bank directly and say what’s going on and these two letters come back and what the letters say is, these accounts are spurious and what happens in Germany is everyone has to Google the word spurious because it’s quite as an obscure English word.


DAN MCCRUM: And then all hell breaks loose.


STEPHEN CLAPHAM: The I mean, the the book is astonishing because as I said earlier, it is stranger than fiction, right?


DAN MCCRUM: It’s mad, isn’t it?


STEPHEN CLAPHAM: And in fact, many of these stories, I mean, the the visit to the bank in, in Manila, the remote branch reminded me of a story about a Chinese fraud where they did exactly the same thing where they, they took the fund manager to the branch. And, you know, he, they showed him on the computer in the branch, the hundreds of millions in the, in the account.


STEPHEN CLAPHAM: And he went away very satisfied already to buy the shares. And they were 40 minutes away in the car. And then he realized he’d left his coat in the bank. And so they told the driver to turn around and went back to the branch and they were disassembling it.


STEPHEN CLAPHAM: And of course, these, you know, when you’re doing a multi 100 million or billion fraud, then you can deploy a lot of resources in order to cover it up. But the, the book’s amazing. I mean, normally I ask people to recommend a book and I’m not going to do that because it’s obvious which book we should recommend. Just wonder now. I mean, you’ve done this. What do you do next?


DAN MCCRUM: Oh, well, the next story, I mean, I’m sure someone out there has, has something that they think should be in the public, some skullduggery or wrongdoing and hopefully they’ll get in touch because it’s my theory that there’s a huge amount of skullduggery going on and has been on the last several years.


STEPHEN CLAPHAM: I mean, you know, most of it is honest companies flattering their earnings in order to make their bonuses, the bonuses for their CEO S and CFO S. But sometimes once you’ve done that for a while, I mean, you know, this is a kind of the Enron thing.


STEPHEN CLAPHAM: So once you’ve made up a bit of revenue the following year, you’ve got to do a bit more and do a bit more and that’s often how these frauds develop. So, I mean, you think, do you think you’re gonna be pretty busy?


DAN MCCRUM: I think there’s some pretty big frauds out there. I mean, money’s been free for a decade and we’ve also had this weird market. I mean, why I card exploited this very effectively where they sort of sprinkled technology over everything as a sort of fairy dust. Our business uses technology and it’s like, oh, well, it’s clearly worth 10 Times what a normal business is worth.


DAN MCCRUM: And, you know, you, at the same time you’ve had people like Softbank just spraying money around. And so I think you, we’re gonna find a lot of corporate frauds like that. A lot of people have just been juicing the numbers because no one’s really checking nobody ever checks.


DAN MCCRUM: And, and then we also just have crypto which is, I mean, it boggles my mind that, you know, we, we talk all about Wire Card, which is, you know, I mean, people lost €20 billion something in that region.


DAN MCCRUM: But then you have crypto frauds happening all the time and like people having normal conversations where they describe a Ponzi scheme business model as if that’s normal and fine. And so, you know, I I’m a longstanding crypto skeptic.


DAN MCCRUM: I mean, I was saying Bitcoin would go to nothing when it was like $1000 so clearly, I know nothing but I remain of the view that at some point we will look back on the crypto madness as this sort of collective mania. It’s interesting.


STEPHEN CLAPHAM: I, I mean, I think crypto is quite a weird sort of area. I’ve been trying to learn about it and I, I’ve been watching it and, you know, I think when I, I can see where Bitcoin is going and when it gets to my target, I think I might start to look at it quite seriously.


DAN MCCRUM: I don’t see this is the, this is the danger, Steve, you see this time and again, with crypto, what happens is people invest mental energy and effort in learning about it because it is genuinely fascinating.


DAN MCCRUM: But what they do is they mistake that interest and the fascinating bits of the mechanics for sort of some sort of financial rationale for the whole thing.


DAN MCCRUM: And there just isn’t all of these crypto schemes are hammers looking for nails and there are no nails and never mind the fact by the way that if you’re buying Bitcoin, then you’re engaged in some sort of horrendous anti environment global warming project due to the absurd amounts of energy involved. So crypto has successfully rebranded itself from a currency to an asset.


DAN MCCRUM: And sure there are enough people around who are sticking a bit of money into crypto because why not and that’s gonna last quite a long time. But it’s sort of like the N F T stuff is the canary in the coal mine here.


STEPHEN CLAPHAM: Well, yeah, I mean, there’s a, a Hilaria Matt Levine has been hilarious about the, the, movement and, you know, I kind of get, I kind of get all that one thing you mentioned. Softbank. I mean, Softbank was pretty heavily involved here. It was pretty heavily involved in Greenville. Have you spent any time thinking about what else they’re involved in?


DAN MCCRUM: Softbank is a fascinating company, isn’t it? It really is. And you know, Masa son who runs it really got into trouble in the first dot com boom, but was basically bailed out because he made a couple of incredibly, you know, once in a lifetime bets, visionary lucky, you know, like Alibaba and that bails out an awful lot of bad stuff. What I think the problem is, is premising $100 billion of investment funds on that strategy.


DAN MCCRUM: And I think with Softbank, what we see is a result of that.


STEPHEN CLAPHAM: It is, I mean, it’s, it’s quite funny your, your former home, the, the, the lex column suggested that what they should do is buy back their stock, which I was quite, I got quite a lot of debt and I thought, well, they’ve obviously been, must have been listening to the wrong, the wrong source. I thought I was, I thought it was hilarious.


STEPHEN CLAPHAM: But I, I mean, I’ve been, I’ve been fascinated by Soft Bank. I’ve been, I saw Masa speak for the first time in 2016 and he spoke with the Gold Goldman Sachs at an amazing macro conference with, you know, Howard Marks Mike Bloomberg and Massa. And, and when he spoke, I mean, I, he said, oh, yeah, I gave Steve jobs the idea for the iphone.


STEPHEN CLAPHAM: He didn’t quite say that, but that was the kind of the and bizarre. It’s been absolutely bizarre. So it’s interesting that he was involved in Wirecardand he was involved in Green and we’ll see what else he’s been involved in. Thank you so much for doing this. It’s been a pleasure talking to you and the book is amazing. Well done.


DAN MCCRUM: Oh, thank you so much. It is. I think hopefully out now and thank you for having me on to, talk about it. It’s been great fun. Thank you.


STEPHEN CLAPHAM: I’m joined now by Mark Hiley, who is the founding and managing partner at The Analyst, which is a research boutique in London, which I’ve got a high, high regard for. And they do really good work, especially on the short side where we don’t have that many short selling experts in Europe.


STEPHEN CLAPHAM: And I wanted to talk to Mark because the analyst published, I think over 40 Mark, reports on Wirecard, obviously there wasn’t a buy report among them and this just to get the South side perspective on this because obviously we, we heard from Dan, the journalist and we’re also going to hear from Freddie Brick at Muddy Waters Capital.


STEPHEN CLAPHAM: So Mark, welcome to the podcast. Just tell me, how did you get involved in Wirecardin the first place?


MARK HILEY: Well, thanks very much for having me. Delighted to be here. So, yeah, our, our history or my history on Wirecardgoes back quite a long way. We started writing about the stock as a short recommendation in 2014, late 2014. So across the sort of six years from the first note to the 47th note and why cards collapse, an interesting journey.


MARK HILEY: How did we get into the story? I I saw them present at a German investment conference. I think it’s called the Eigen Capital Forum in Frankfurt. And it would have been Marcus Braun throwing up some presentation about the future of payments. And it just didn’t make any sense to me. Like I sat there for 45 minutes.


MARK HILEY: I couldn’t understand what they did. I had a look at the stock looked like it was on a ridiculous valuation. And I I said to my analyst at the time, can you, can you have a look at this? You know, we need, we need a few new short ideas in Europe. We’re building a business. This would be pretty commercial and he went off looked at the accounts.


MARK HILEY: Cash flow statement looked a bit off and we looked at the acquisitions they’ve been doing in Asia.


MARK HILEY: And, you know, they just look, look weird, to be honest, they were buying very small businesses in Asia. And if you look at the subsidiary filings immediately, post acquisition, the the sort of these small businesses became quite big businesses under wire cards, new accounting techniques.


MARK HILEY: So we put out a short note, got, actually got a bit of commercial traction in the market the day it was published, the stock was off about 10% for one day only.


MARK HILEY: And then, you know, the the rest is sort of history. The stock subsequently went to the moon and then, and then back pretty much to zero.


MARK HILEY: So this is how we got into the story.


STEPHEN CLAPHAM: So how do you maintain your composure when this is going against you? Because obviously if you’re in a hedge fund and the short goes against you, you gotta, you, you got to reduce as a, as a sell side short seller, you just keep on plugging away.


MARK HILEY: Yeah. So look as a, as a research business, not running money, you have the privilege of being able to take a long term view and sit through the volatility and we do that because we think it helps our clients.


MARK HILEY: Now they have a problem of managing a bet size and if you go short Wirecardand it triples becomes three Times bigger bet and, and you have to trim it and, and lock in losses. So that’s a problem. But we, we tried to sort of stay sane if you like by grounding the research in the fundamentals.


MARK HILEY: There was two things I wrote down when I started the research, I was like, ok, these two things would change. My view. Number one, a reduction in the gross debt. And number two, an improvement in the free cash flow conversion and across six years of accounts and 20 four quarters of Wirecardbeating and raising the estimates.


MARK HILEY: Neither of those two things ever happened and you know, the gross debt continued to build and build and build. And even though they changed their sort of definition of free cash flow a few Times and invented some new accounting items to hide, to balance the books.


MARK HILEY: The sort of my underlying estimates of free cash flow never, never improved. So I I sort of was able to stick with it from a fundamental point of view and then, you know, we’ll get on to this. But the amazing work, Dan and the F T did you know that sort of lend support that, you know, I wasn’t just sort of one guy on his own in Clapham North. What do they call it Howling at the moon or something?


MARK HILEY: So we sort of had like a growing community of people publicly asking questions alongside the fundamental analysis. We were doing and that sort of kept us on the, on the pitch. It was pretty difficult at Times and then at various points in the coverage, we did fieldwork. So another thing we, we found was like, it’s just very hard to find a business as big as Wirecardpresented to the investment community.


MARK HILEY: So, you know, you could go to Munich Airport and get a, you know, get a TV, and you’d see Wirecardon the back of the till receipt. But at the same time, you, you could not find a big business in Germany. And we, you know, we went to India, we, we couldn’t really find their business beyond a few messy offices and, and sort of empty shipping containers at the end of the street.


MARK HILEY: So all of that kind of kept us sane, I suppose.


STEPHEN CLAPHAM: And did you know from the start that it was a fraud or you just thought, oh, they’re kind of cooking the books and, and when did you realize that it was actually fraudulent?


MARK HILEY: Yeah, I, I, I think in equity research by side sale side, you, you never quite know 100% some things of fraud.


MARK HILEY: I think you start off with a suspicion and pattern recognition and the body of evidence grows and you get into the story and then you see patterns again and again in the public accounts, you know, inflated acquisition numbers which don’t make sense. Changes of accounting promotional rhetoric in the investment presentation, blah, blah, blah.


MARK HILEY: But, but to actually prove out a fraud in equity research in a regulated research business is really, really difficult, if not impossible because we’re never gonna get, you know, we’re never gonna look at bank statements. We’re never going to speak to insiders. We’re never going to see messages between the CFO of Asia and someone down the line issuing a fake receivable and defrauding a bank in Indonesia.


MARK HILEY: And that’s obviously the work which journalists can do, which is like absolutely incredible long form investigative journalism. We would never be able to do that. So we can only take our research so far where we get to the point where, you know, on the balance of probability, this looks like a massive fraud.


MARK HILEY: And actually, if you look at it on a stock based risk reward, your Wirecardat one point was sitting with a 15 or $20 billion market cap, a couple of 100 million of best case free cash flows massive downside. So it looks like a really, really good short idea. Yeah. And you’ve got massive optionality on it being a fraud and, and a zero. So that’s normally the, the way it works. You never quite get there.


STEPHEN CLAPHAM: And when you publish something like that, do you send it to the company? Do you, did you have any contact with the company? No, because he told us that Carson got called up by somebody who, you know, offered him millions of euros not to publish.


MARK HILEY: That never happened to us.


MARK HILEY: We we did speak to the company early on. We had, you know, 2014, 15, we had email exchanges and got back heavily redacted replies from the investor relations team which sort of gave us some suspicion that the legal was involved in sort of editing email conversations with analysts.


MARK HILEY: We were invited out to the headquarters in, in Munich. We declined the visit. We didn’t think we’d learn anything and actually meeting a management team is the worst way to discover a short idea.


MARK HILEY: And then over the years, we, we did our own field work, did our own due diligence without, without the company, we saw them present obviously and we had shareholders who we were trying to get out of the stock and raise a warning sign and they were like, oh, no, you know, just go to Munich, just, just go and meet Marcus. He’s a visionary. Just spend one hour with them. We’ll help you get a meeting with the company.


MARK HILEY: I was like, you know, thanks, but no, thanks.


MARK HILEY: I, I, I, I’ll stick to my own, stick to my own work.


STEPHEN CLAPHAM: So did you, did you spend much time with the shareholders? And, and what was their pushback? I mean, because the numbers don’t lie, right?


MARK HILEY: No numbers don’t lie. But if the numbers are made up to such an extent. And, you know, it’s, it’s hard for, for people to, to believe, you know, the scale of the fraud and quite often shareholders would have, you know, a small position 50 or 100 basis points in a big European generalist fund.


MARK HILEY: So maybe looking at it as one of 50 or 100 stocks. And you say, well, if you, if it doubles great, if it goes to zero, I’m not too worried, but I don’t think it’s a zero because the numbers are great and the investment banks say it’s great and I met the company.


MARK HILEY: Yes. So our business, we, you know, we, we have a client, you know, clients on who share on shareholder register and who have short positions. We see our job is to make money for people with short positions and to save money, protect, protect shareholders.


MARK HILEY: And their pushback for shareholders pushback was generally gets one of very few European tech growth companies potentially has a scalable platform growths. Amazing.


MARK HILEY: We’ve seen the product management visionary get it sort of a unique opportunity. And remember a lot of them made a lot of money, right? So people who were early in, made a lot of money before went to zero. People who are early into this story, we might have been buying it at 5 10 €2050.


MARK HILEY: So when she’s sitting on a 500% profit on a long position, you know, if you got some guy ringing you up saying, oh, it might be a fraud. The accounting was really dodgy. I don’t know if you, I just don’t know if people have that much time for that, that conversation or there’s a cognitive dissonance. Right. They don’t want to hear it.


STEPHEN CLAPHAM: Yeah. It’s very funny because that’s exactly what Dan said. So I said, you know, why did this go on for so long? I think one of the reasons is that people think that they think that they’re brilliant and they trust the management because they’ve made money and they don’t believe that that game could evaporate quite so quickly.


STEPHEN CLAPHAM: I suppose if we were looking at that today, then people who have been in the tech sector in 2022 have experienced the 80% fall in Avian which came to the market at $100 billion evaluation with no sales.


MARK HILEY: So perhaps a bit more experience. Yeah. Yeah. And, and yes, also, you know, Wirecardis a rare event, right? You know, Enron Steinhoff NMC. Actually, it’s not that rare, but, it’s quite a rare event.


MARK HILEY: So if you, if you’ve looked at 1000 stocks and you own 100 you know, the chance of one of your stocks being like a massive fraud and the biggest fraud that Europe has seen or public markets worldwide, then, you know, that’s just not like something people are factoring in probability wise into their, into their thinking and the system is set up to perpetuate these things, right?


MARK HILEY: The audit, the bankers, the management, the the sell side coverage, the accountants, the lawyers are supporting the perpetuation of the story.


MARK HILEY: So then when someone tells you something that, you know, is, is outside of your normal sphere of vision, then what do you do? You turn around and say, oh, the F T has been corrupted by hedge funds. Come on. That’s we talk to absurd. Like let’s, let’s get real about this.


STEPHEN CLAPHAM: You know, that, that was the most absurd part of it. That the idea that FT was in cahoots with the hedge funds. I don’t even begin to understand the thinking behind that premise and how the regulator could, could pick that up. But Mark, listen, thank you so much for coming on. It’s been really interesting. It’s been a fascinating story. I don’t know if you read the book yet, but I think you, you’ll get a lot of fun reading it.


MARK HILEY: I’ve preordered it on, on Amazon. So it’s gonna be my summer holiday reading if I can wait till the kids break up. Great.


STEPHEN CLAPHAM: Thank you so much.


MARK HILEY: Thanks very much, Steve.


STEPHEN CLAPHAM: So I’m really pleased that I’m joined by Freddie Brick, who’s a partner at Muddy Waters Capital and Muddy Waters, of course, were involved in War Card. Freddie, what was it like to be short of Wirecardwhich stayed, I mean, astronomical valuations for such a long time. Tell us, tell us how it looked like from your perspective.


FREDDIE BRICK: Just sure, Steve, thank you for having me on.


FREDDIE BRICK: You know, we, we honestly, in many ways were pretty lucky. We were, we were kind of briefly short Wire Card, off the top of my head.


FREDDIE BRICK: It was around 2015 or 16 when some of the, Zara, reports came out the, the Matt Earl, research and, I, I say, I say we were fortunate to only be short for a brief period of time because I, I knew a lot of short sellers who held on to the bitter end or at various points over this, you know, near 15 year history were, were short the stock and while obviously on the day, it collapsed, they’re ultimately vindicated.


FREDDIE BRICK: I think net net, most of them will tell you that they either lost money or a decent amount of sanity, spending time on it. So it’s, it’s one of these bizarre things with frauds where the person who usually makes the most money in shorting them is the last guy in the show.


FREDDIE BRICK: It’s, it’s never usually the people who have done the vast majority of the, the work or, or certainly in early. So that’s, you know, that, that’s kind of a brief history of, of being Short Wire Card.


FREDDIE BRICK: You know, I think the, you know, the really amazing thing about Wirecard as you alluded to it is how long it went on.


FREDDIE BRICK: You know, I, I certainly remember the early stuff that Dan Macro had written that, inside the House Of Wirecardpiece. And, you know, I think from our side, and again, we, we weren’t really that encyclopedic, we, we kind of saw it as somewhat protected by the German State, which I, I think has now been fairly well documented.


FREDDIE BRICK: You know, from our side, we felt it was, it was nyon possible as an activist trade just because it was fairly obvious to anyone who’d done any real work that this was a fraud. It became even more obvious after the F T S journalism on the, you know, the findings in Singapore and, and Dubai and in the Philippines. And yeah, we, we fell short activist.


FREDDIE BRICK: There was nothing additional that could ever be said that would get someone to, to sell the stock. So we, we just didn’t think there was a lot of point working on it additionally. And then with the, with the kind of German state protectionism, you know, we had time under investigation in, in Germany, which I think is well known for our critical research on Strea.


FREDDIE BRICK: And I believe there were a couple of people who had previously gone to prison in Germany for writing on wire cards. So they, you know, the regulatory environment was incredibly hostile and I think that did in some way deter people, you know, when they kind of weight the upside downside of spending time and money on continuing to short and research why I Card. I, I think that played pretty heavily on a lot of people’s minds.


STEPHEN CLAPHAM: So Freddie, one of the, one of the stories in the book is that Wirecardattempted to bribe your colleague Carson Carson Block not to publish or to say positive things about War Card. Tell us, tell us about that story.


FREDDIE BRICK: Yeah, that was one of the stranger things that I’ve ever, I guess experienced that we was sitting in the office and you know, we, we, we will collaborate and, and work together on projects. It’s not like a silent process where two people work on this and two people will work on this. We, we will know what we’re working on at, at any given time.


FREDDIE BRICK: And you know, Carson came over to me and he said, you’ll never guess who just called me. So I, I didn’t guess correct. And then he’s like, so and so called, I’m like, ok, he said it’s, it’s one of the strangest phone calls I’ve ever got because I, I was just offered €5 million or, or dollars not to publish on my card tomorrow. And I said, well, I mean, as far as I’m aware, we are not publishing anything on my card tomorrow.


FREDDIE BRICK: Can we take the money?


FREDDIE BRICK: Jokes aside? We, we obviously never really considered that. But yeah, it was, it was truly bizarre and I think it gave us a real taste. I, I, I subsequently that there was another short seller, I think who was offered money and they, they may have even tried to bribe some journalists as well not to cover the company. I, I do believe that that was a real offer.


FREDDIE BRICK: You know, so I, I don’t think it was hyperbole. I, I really do believe they were prepared to pay people significant sums of money to, to stay quiet.


FREDDIE BRICK: Yeah, it gave me a real taste for like what we thought was probably some sort of like organized crime or nefarious guys behind it. And yeah, generally speaking, we’ve taken a policy that life’s short and making it shorter by going up against organized crime is, is not necessarily worthwhile. You got semi honest, you can go, yeah, a regular run of the mill crooks is, is fine.


FREDDIE BRICK: You know, guys who, you know, are connected to Russian mafia or you know, Glencore. We stay away from those guys.


STEPHEN CLAPHAM: Well, Freddie, listen, it’s been great talking to you. Thank you so much for taking the time. I really appreciate it.


FREDDIE BRICK: Sure. Thanks for having me, Steve.


MARK HILEY: Thank you.


STEPHEN CLAPHAM: Well, that was an amazing story and I think it was useful to look at the saga from three sides, from the perspective of those market participants as well as from Dan’s perspective. But there is no question, who is the star here? Dan McCrum has done a remarkable piece of investigative reporting and has written a fantastic book.


STEPHEN CLAPHAM: Money man deserves to do well.


STEPHEN CLAPHAM: And in fact, I think it’s bound to be a best seller.


STEPHEN CLAPHAM: I hope you enjoyed this episode. Don’t forget to subscribe and we look forward to seeing you next month.