What is going on with exchange-listed companies in Germany? High-flier Wirecard AG collapsed after its massive fraud was finally exposed - although warnings about the company and its stock were sounded months before by the Financial Times and other analysts. Now the Baden-Baden based leasing company GRENKE AG is coming under scrutiny for its accounting and business practices. The Wirecard debacle exposed the gaps in securities oversight in Germany; the banking and insurance regulator BaFin completely failed in uncovering the fraud until it was too late. Evidently, BaFin has not exercised any oversight of GRENKE, although the group does own a bank. That oversight has up to now been the responsibility of the under-resourced DPR (Deutschen Prüfstelle für Rechnungslegung).
Germany is one of relatively few countries to split accounting enforcement between a private-sector watchdog and the markets regulator. Since Wirecard’s collapse, the Finance Ministry says BaFin needs investigative powers, and the Justice Ministry canceled its contract with DPR, which will now expire at the end of next year. A key reason why BaFin wasn’t able to unearth the wrongdoing at Wirecard is that the regulator only directly oversees banks and insurers. Wirecard was classified as a technology company, even though it owned a bank. Grenke, which finances the leasing of computer and communications equipment, also owns a bank.
Grenke has commissioned KPMG to conduct a review of its finances, and, for the time being this seems to have assuaged investors: Grenke's share price has recovered somewhat from its recent losses. However, the stock recovery may be short-lived. The report by short-seller Fraser Perring and his firm Viceroy Research is pretty devastating. Here is the introduction to the exhaustive report:
Grenke’sglobal expansion through the purchase of dozens of undisclosed related party franchises is a fraudulent scheme perpetrated on a mass scale, designed to either hide fake cash or siphon off millions of euros to undisclosed related parties, or both. Grenke’s banking division has been a conduit for the proceeds of crime and money laundering, and could face the loss of its banking license. Grenke’s leasing model facilitates and encourages rampant fraud from resellers, resulting in bad debt, protracted legal disputes and the defrauding of small businesses, the government, and charities. Legitimate leasing of small ticket tech is becoming increasingly redundant, in outdated and fast diminishing business segments.
Before you dismiss Viceroy and Fraser Perring as a greedy investor looking to get rich on his short position in GRENKE AG shares, remember this: Perring was one of first to sound the alarm on the fraudulant South African retailer Steinhoff as well as Wirecard AG. So far, Perring is batting 1000.
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