Wirecard Trial Sets Up FTX Parallels and Enron Echoes
Thursday marks a red letter day in annals of fraud — the type that destroys companies and careers.
No, not that crypto exchange.
You might be forgiven for automatically defaulting in your mind’s eye to FTX, which continues to dominate headlines as the spectacular crypto collapse continues to send shockwaves through the digital asset ecosystem.
And yet: Thursday (Dec. 8), in Germany, the trial of three former Wirecard executives begins, and as Reuters has noted, the former chief executive Markus Braun and two colleagues face as many as 15 years in prison if they are convicted.
Wirecard, of course, stands in contrast to the relatively new-fangled business of crypto, where the German firm’s focus had been on processing online payments for websites and enterprises.
Beyond those differences, there some parallels with Enron, which predates Wirecard, and FTX, which came after.
One central feature: Growth, particularly through acquisitions. Wirecard bought up firms around Asia. Enron grew through buying electric utility outfits. FTX sought to buy Voyager and made investments in companies such as BlockFi and Robinhood.
Opacity also has been a hallmark through the three firms. As the world knows now, in the case of FTX. money deposited by FTX customers reportedly had been lent to Alameda. Enron was a textbook example of creating and using off-balance-sheet entities to help access capital and to help manage trading risk.
In 2020, by way of example for Wirecard, auditors would not sign off on the company’s financial statements due to a missing €1.9 billion ($2.3 billion) in cash balances. As reported over the summer, the company allegedly faked data and documents. FTX, too, now seemingly cannot account for about $8 billion, where founder Sam Bankman-Fried said that amount has been “misaccounted.”
Each of firms promised to disrupt their chosen verticals with scale, technology and market share (and international reach). Each had been lauded for their charismatic and forceful leadership teams. Enron’s collapse and FTX’s implosion are things of the past — and it remains to be seen what the legal repercussions of FTX will be. Wirecard’s former executives will learn their fate over the next few days or months.
History may not always repeat itself, but it sure does rhyme. In a recent interview with Karen Webster, Saule T. Omarova, a professor of law at Cornell University who specializes in the regulation of financial institutions, banking law, international finance and corporate finance, said of FTX:
“We should have seen something like this coming because of the incredible speed with which this market has grown and the lack of any legal or regulatory compliance culture in this new sector, run by a lot of interesting [sic] personalities who are not necessarily part of the financial establishment.” There was a notable lack of internal controls, too.
We’ve seen this movie before. And unfortunately we’ll see it again.