Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe. Wisn't the Joe? What
Speaker 1: do you think the most famous apocryphal quote about markets is?
Speaker 1: I guess it would have to be the one about
Speaker 1: markets staying solvent rather or markets staying irrational longer than
Speaker 1: you could stay solvent, or something like that. Right, that's
Speaker 1: gotta be it. I'm so glad you said that one,
Speaker 1: because that was exactly what I had in mind. Uh,
Speaker 1: did no one really actually say like, does no one
Speaker 1: really know actually said that or what? I think? It
Speaker 1: gets attributed to Cain's but there's some debate about whether
Speaker 1: or not he actually said it. You'll also see different
Speaker 1: versions of it. So the market can remain irrational longer
Speaker 1: than you can remain solvent, or the market can stay
Speaker 1: irrational whatever. But it's a situation I think that everyone
Speaker 1: is kind of familiar with where you look at something
Speaker 1: and you go, this is absolutely insane, and yet you know,
Speaker 1: like it keeps rising in value or people keep pouring
Speaker 1: money into it, and you feel like you're going crazy
Speaker 1: because no one else seems to see the thing that
Speaker 1: you see. Yeah, you see this phenomenal. In a lot,
Speaker 1: someone either calls something right but their way before other people,
Speaker 1: they don't make money on it. They if they're short,
Speaker 1: they get stopped out of their trade long before the
Speaker 1: market sort of repriced to normal. Uh. And it seems
Speaker 1: really tough because you're like, you know, if you're if
Speaker 1: you're in the investment side, you're losing money or you're
Speaker 1: losing reputation or as you put it, you know, just
Speaker 1: like starts to feel like you're the one who's going crazy. Yeah,
Speaker 1: So today I am very very pleased to say that
Speaker 1: we are going to be diving into maybe the ultimate
Speaker 1: example of this phenomenon. But we're gonna be talking about
Speaker 1: wire Card. Do you remember that company? Yeah? But I
Speaker 1: never really understood what they did. And so for no
Speaker 1: other reason because I'm going to finally understand what wire
Speaker 1: Card did or didn't do maybe didn't do well. All
Speaker 1: you need to know is that it was supposed to
Speaker 1: be this this fancy fintech company. I think at some
Speaker 1: point it had like a market valuation of almost thirty
Speaker 1: billion dollars or something crazy like that, and it was
Speaker 1: this big, like up and coming rising star in Europe
Speaker 1: and particularly in Germany, and of course it turned out
Speaker 1: to be a massive fraud. And now, you know, speaking
Speaker 1: of going crazy, speaking of reputational damage. Uh, I'm gonna
Speaker 1: go ahead and say this episode comes with with a
Speaker 1: big disclaimer, which is there is going to be a
Speaker 1: lot of media navel gazing ahead, because Yeah, I think
Speaker 1: in this instance it works because we're gonna be talking
Speaker 1: to the journalists who actually covered wire Card and you know,
Speaker 1: doggedly investigated this company any and basically kept saying it's
Speaker 1: a fraud, there's evidence of fraud, and no one listened,
Speaker 1: almost no one listened. And meanwhile, it feels like all
Speaker 1: of finance, from the accountants to the cell side to
Speaker 1: the German regulators were really fighting against um the truth
Speaker 1: about this company actually coming out. It's so it's wild
Speaker 1: that like this it's even possible, Like do you think
Speaker 1: the question is like does the company have the business
Speaker 1: it claims to have? Does the company have the money
Speaker 1: it claims to have? And yet even these things we
Speaker 1: should be sort of like independently verifiably yes or no.
Speaker 1: It could take a long time for the truth to
Speaker 1: come out. Yeah, And I'm always personally interested in the
Speaker 1: sort of what do you call like the inflection points
Speaker 1: between everyone going Okay, this is fine, and then suddenly
Speaker 1: everyone going, oh, actually there's billions of dollars or billions
Speaker 1: of euros missing from this company. It's not so fine.
Speaker 1: So alright, without further ado, I am very pleased to
Speaker 1: say we're going to be speaking with Dan McCrum. He's
Speaker 1: an investigations correspondent at the Financial Times and also the
Speaker 1: author of a new book all about wire Card. It's
Speaker 1: called money Men, A hot start up, a billion dollar fraud,
Speaker 1: A fight for the truth. And we're also going to
Speaker 1: be speaking with Paul Murphy. He is the f t
Speaker 1: S head of Investigations, also my former boss at ft
Speaker 1: Alphaville and veteran at at Lunching the right way, I
Speaker 1: would put it that way. All right, Dan and Paul,
Speaker 1: thank you so much for coming on our thoughts. Thanks
Speaker 1: for having us. So maybe just to begin with, shall
Speaker 1: we let's let's start at the beginning. So what exactly
Speaker 1: piqued your interest in wire Card down. So this was
Speaker 1: eight years ago and I was having a conversation with
Speaker 1: quite a well known Australian heads fund manager, John Hampton,
Speaker 1: and he just said to me, hey, Dan, would you
Speaker 1: be interested in some German gangsters, and that was the start.
Speaker 1: I just down the name, this funny little company called
Speaker 1: wire Card, and the best description of it then was
Speaker 1: sort of a European paper. It did something to do
Speaker 1: with payments, and it was worth about four billion dollars,
Speaker 1: And yeah, I didn't think much more of it then.
Speaker 1: I mean I looked at its business. It didn't really
Speaker 1: make much sense to me. And then this other short seller,
Speaker 1: a guy called Leo Perry, got in touch and we
Speaker 1: went and met for coffee, and he laid out in
Speaker 1: front of me these sort of really close written sheets
Speaker 1: of this theory that hang on a second, this wire
Speaker 1: Card is a big accounting fraud. So what was the well,
Speaker 1: what was the ostensible business before we get to sort
Speaker 1: of the gap between what was going on in what uh,
Speaker 1: what actually was going on? What was the ostensible business,
Speaker 1: what did they claim to be doing, what was the product?
Speaker 1: And did it have people actually using the surface. So
Speaker 1: it had this real business and it's a pretty simple business.
Speaker 1: It processes credit and debtor car payments. So as you
Speaker 1: have like an online shop selling flip flops, then it
Speaker 1: would help you get money from customers who wanted to
Speaker 1: buy your flip flops. It's as simple as that. Lots
Speaker 1: of businesses do this. But the thing about WORKUD was
Speaker 1: it was growing way faster than everyone else and it
Speaker 1: was also really profitable, quite unusually profitable. And that's the key, right,
Speaker 1: You can't normally do both of those things. So one
Speaker 1: of the things that you wrote about very early on
Speaker 1: was wire cards, I mean basically a roll up strategy
Speaker 1: wherewith they would buy all these smaller payment processors in
Speaker 1: far flung places, and they would buy them in kind
Speaker 1: of a weird way. Could you talk about that a
Speaker 1: little bit, yes, So what worker had done was it
Speaker 1: spent about five years buying up these little businesses all
Speaker 1: over Asia, you know, sort of a few tens of
Speaker 1: million here, a few tens of million there, and it
Speaker 1: said this was part of its big growth strategy, and
Speaker 1: every time it bought it, it was this big acceleration
Speaker 1: in the business. But what happens when I went and
Speaker 1: looked at those businesses is actually bought. You could see
Speaker 1: in sort of local filings or local press releases that
Speaker 1: the numbers didn't match what work I was claiming for them.
Speaker 1: And then you had a closer look and you like,
Speaker 1: actually these businesses and really bad shape. You know, the
Speaker 1: audisers would say this, you know, there's a risk this
Speaker 1: isn't a going concern. And what it added up to
Speaker 1: was there was this mismatch between what the company was
Speaker 1: claiming and what it was doing on the ground. And
Speaker 1: you could see little transactions, you know, which seemed like
Speaker 1: money was maybe going out the side door, and it
Speaker 1: looked to me like there was accounting fraws. They were
Speaker 1: just using these these acquisitions to play some tricks with
Speaker 1: the accounting as they bought them. You know. It's funny
Speaker 1: going back to you mentioned that the original catalyst for
Speaker 1: this was a conversation with John Hampton, and we had
Speaker 1: John on the podcast I think maybe last October, maybe
Speaker 1: it was actually in the middle of last summer, and
Speaker 1: I remember he made a point that was like, any
Speaker 1: time you see a financial firm growing fast period, that's
Speaker 1: like a good red flag to begin with it, Like
Speaker 1: finance is kind of boring, and so if you see
Speaker 1: any sort of company in finance making a lot of progress.
Speaker 1: And of course what was that other company, green Cell
Speaker 1: was the other one that he was h I think
Speaker 1: that was actually what we're talking about on the podcast,
Speaker 1: and of course that also it was a fast growing
Speaker 1: finance company that that imploded. What did it look like though?
Speaker 1: You know, when you say okay, there seemed to be
Speaker 1: some gap between numbers here and numbers, They're like, can
Speaker 1: you give give a little bit more detail onto what
Speaker 1: these discrepancies looked like from your perspective? So why I
Speaker 1: would do funny things like it would say, hey, we're
Speaker 1: buying this company in December, and it would actually announce
Speaker 1: the deal and agree it then, and then it would
Speaker 1: make a big down payment, so we would say, hey,
Speaker 1: we haven't actually signed the documents to take ownership of
Speaker 1: the assets yet, but so because we're you know, we're
Speaker 1: heading towards as takeover, will make a kind of a
Speaker 1: deposit like a down payment, and they were claim to
Speaker 1: send a bunch of cash out the door, so say
Speaker 1: ten million euros out of a forty million euro deal,
Speaker 1: which I would send out before the year end finished.
Speaker 1: And what that looked like to me was the thing
Speaker 1: about accounting fraud is your profit looks great, but when
Speaker 1: the auditors walk in at the start of the year
Speaker 1: to do the ordit, the first thing they're going to
Speaker 1: say is can we see the bank balances and they're
Speaker 1: going to be expect them to be full of cash
Speaker 1: because you've just had this really profitable year. So what
Speaker 1: it looked like was this trick to go, well, the
Speaker 1: cash is going to be short, will pretend we've sent
Speaker 1: it out to these guys, and that will hide the fraud.
Speaker 1: And so every year the deal has got bigger, because
Speaker 1: when you're do an accounting fraud, the numbers get bigger
Speaker 1: every year. And one of them, you know, and the
Speaker 1: mechanics of that were quite quite complex. But one of
Speaker 1: the things you can look at with these companies is, yeah,
Speaker 1: if they're growing really fast, maybe it's too good to
Speaker 1: be true. And the funny thing about wire Card was
Speaker 1: it was growing really fast and claimed to be really profitable,
Speaker 1: but it kept raising money, kept going to shareholders, aren't
Speaker 1: asking for them to inject some cash, or you know,
Speaker 1: kept going to the banks and asking for more debt.
Speaker 1: And that was a big red flag. Paul, Maybe this
Speaker 1: is a good place to bring you in. But how
Speaker 1: how did the rest of the world perceive wire Card
Speaker 1: at that time, to be frank we didn't know much
Speaker 1: about it at all. The kind of you know, it
Speaker 1: was an unlikely subject that Dad had picked up. I
Speaker 1: knew from my own experience that it's very difficult to
Speaker 1: tell a story like this of accounty fraud, of balance
Speaker 1: sheet manipulation, and so I was intrigued by it because
Speaker 1: I knew he was on a kind of quite a
Speaker 1: tough assignment. But you know, it's it. I'm sometimes asked that,
Speaker 1: you know, how do we choose a subject to investigate
Speaker 1: to throw kind of resources at the fact of the
Speaker 1: matter is is that often, you know, the targets of
Speaker 1: our kind of investigative work just present themselves to us.
Speaker 1: And this was one of those. Because you know, Dan
Speaker 1: started writing about it and that the reaction of the
Speaker 1: company was odd, to say the least. You know, it
Speaker 1: was out of kilter. And that's simply you know, I
Speaker 1: could see it pete Dan's interest and he was going
Speaker 1: deeper and deeper into this subject. But it also piqued
Speaker 1: my interest as well. So this is one of the
Speaker 1: crazier things about this entire story, which the reaction um
Speaker 1: that Dad got as he was writing these things, and
Speaker 1: suddenly it seemed like, I don't even know how to
Speaker 1: describe it, but I know, you had people attacking you
Speaker 1: on Twitter, you had the regulators in Germany who eventually
Speaker 1: started a criminal investigation into you the reporters at the
Speaker 1: Ft for writing negative things against wire Card, and then
Speaker 1: you also had at one point people that seemed to
Speaker 1: be spying on the Ft. So could you talk a
Speaker 1: little bit more about that reaction because it seems surreal,
Speaker 1: and reading the book, it actually does read like a
Speaker 1: spy thriller in some respects because of the massive reaction
Speaker 1: you got. Yeah, it was this kind of slow but
Speaker 1: steady escalation of weirdness, like it almost had like a
Speaker 1: cat and mouse quality where we would try and write
Speaker 1: one thing about them, and then the reaction would be weird,
Speaker 1: and the longer we went on, the weirder it got.
Speaker 1: So it started with angry, angry legal letters, fairly standard approach.
Speaker 1: But one of the first times I sent work questions,
Speaker 1: they came back and around, hang on a second, are
Speaker 1: you in league with short sellers? Like either corruptly or
Speaker 1: you know, am I just naively being used by them
Speaker 1: to attack this company? It's like, that's weird. We've fit
Speaker 1: a nerve here, haven't we. And then we all started
Speaker 1: getting these phishing emails from hackers who were very persistently
Speaker 1: trying to get us to give away our passwords, and
Speaker 1: not just a bunch of journalists at the FT, but
Speaker 1: you know, other people who could be identified as critics
Speaker 1: of wyre Card elsewhere. And then we realized private detectives
Speaker 1: were involved. And then well and then this ampster. You didn't, Paul,
Speaker 1: you got offered ten million dollars? Were you tempted? Paul? Well? Actually,
Speaker 1: I mean I was so surprised by the approach. I
Speaker 1: wandered back into the FT news room and the news
Speaker 1: editor at that time as Peter Spiegel, who's who's now
Speaker 1: in New York, and I said, you know, this has
Speaker 1: just happened. Peter, what do you think? How should we react?
Speaker 1: And he said, I want some You just assumed it
Speaker 1: was a setup. We already knew this was a very
Speaker 1: very strange company. You know, aside from all the kind
Speaker 1: of you know, the phishing emails, the kind of the
Speaker 1: kind of clown spying operation, we were also dealing with
Speaker 1: an avalanche of online abuse. You know, Dan was taking
Speaker 1: you know, was taking the front of it, but it
Speaker 1: was also any other journalists, other journalists on Alphabel, myself,
Speaker 1: the editor of course, everybody was accusing us of as
Speaker 1: of being corrupt in some way, which in itself was
Speaker 1: just kind of crazy. You know that it was you know,
Speaker 1: this was you know, the time, this was kind of
Speaker 1: pre Trump. It wasn't as though they were, you know,
Speaker 1: just copying what was happening in America. It was this
Speaker 1: was this we gradually came to understand this was the
Speaker 1: wild called playbook. Let's go back to the very beginning, Dan,
Speaker 1: because you mentioned that in your first conversation, and also
Speaker 1: I want to talk to about working getting tips from
Speaker 1: short sellers and allegations of being in league with them.
Speaker 1: But before we get to that, you know, you mentioned
Speaker 1: that the first thing that John Hempton said is like
Speaker 1: something about gangsters. And we so we every wady we
Speaker 1: talked about the accounting fraud. But who were the people
Speaker 1: when he said, are you interested in gangsters? Here's this
Speaker 1: German company. What are we actually talking about? And what
Speaker 1: did he see in terms of the people that were
Speaker 1: involved with this payments company? So there were two theories.
Speaker 1: Like John looked at it and said, yeah, this looks
Speaker 1: like in accounting fraud. There's also this other side to work,
Speaker 1: because if you're processing international payments, well then there's an
Speaker 1: awful lot of interesting things you could do with that
Speaker 1: if you're not worried about the laws. So the suspicion
Speaker 1: was that wire Card was basically processing payments for every
Speaker 1: kind of nasty thing online that you might care to imagine.
Speaker 1: And those two theories sort of we're going on for
Speaker 1: quite a long time. And in terms of the gangsters,
Speaker 1: I mean, I think he might have had in mind
Speaker 1: the chief executive Marcus Brown, who is this sort of
Speaker 1: his former KPMG management consultants who just sort of spoken
Speaker 1: tech goobty book. But what we started to learn, as
Speaker 1: you know, the more we got into it, that the
Speaker 1: real weird sort of gangster slashed by behind it was
Speaker 1: this bizarre character Yan Marcella. He's kind of like an
Speaker 1: Austrian whiz kids, like, speaks multiple languages, dropped out of
Speaker 1: high school to run a tech startup, and everyone goes
Speaker 1: on about how elaquent and charming. I mean, you had
Speaker 1: lunch with him, right, I mean, And and he's this
Speaker 1: sort of charismatic guy who was the heart of you know,
Speaker 1: everything work I was doing, But there's this weird other
Speaker 1: side to him, and he comes across as someone who's
Speaker 1: like the consummate improviser. He's constantly getting into these scrapes
Speaker 1: and almost destroying the company. But then he's got this
Speaker 1: other side to him where even now we're not really
Speaker 1: sure whether was he a spy or did he have
Speaker 1: just some sort of James Bond fixation where he's you know,
Speaker 1: trying to hang out with Libyan militia groups or you know,
Speaker 1: for his holidays, he likes to go for a stroll
Speaker 1: around Syria with the Russian Army, as one does, right, Paul,
Speaker 1: what was lunch like with him? Well, Um, the first
Speaker 1: lunch I had was a kind of stilted affair. This
Speaker 1: was the one where we thought there was a chance
Speaker 1: that he'd offer me a bribe, and there are other
Speaker 1: people around the lunch table, and it was it was
Speaker 1: just a very kind of stiff affair because he was
Speaker 1: obviously anxious about meeting me. You know, we were discussing,
Speaker 1: you know the fact that I knew that his company
Speaker 1: was running a kind of black operation against the ft
Speaker 1: because he didn't offer a bribe at that On that occasion,
Speaker 1: we organized a second lunch together which was just myself
Speaker 1: and Master Lick, And if I'm prank, he was actually
Speaker 1: it was a kind of fascinating conversation, mainly discussing telegram
Speaker 1: the messaging gap, which at the time was planning a
Speaker 1: huge token offering. I mean, the guy was interesting. Can
Speaker 1: I ask a sort of big question and it maybe
Speaker 1: a little more I don't know if it's philosophical goal
Speaker 1: or just sort of but like, what's the deal with Germany?
Speaker 1: They opened it a criminal investigation into people reporting um
Speaker 1: on you. But also like there are all these other
Speaker 1: things that go on with Germany, Like there was the
Speaker 1: car company with the big diesel scandal, and they're always
Speaker 1: having these trouble with the banks that seemed to lose
Speaker 1: a lot of money all that time. Like is there
Speaker 1: what's the Is there some issue with like German corporate
Speaker 1: culture or the sort of connection between regulators in Germany
Speaker 1: and companies such that there isn't checks and balances or
Speaker 1: aren't auditing sort of domestic auditing, Like why does this
Speaker 1: why do these big scandals seem to recur there? Well,
Speaker 1: you do have the old scandal in the US. Joe, Yeah,
Speaker 1: that's true. We've we've we we we've had a few
Speaker 1: I guess yeah, no, Joe, it is something that fascinated us. Okay,
Speaker 1: so you know, we couldn't. I personally could not understand
Speaker 1: why the German elite, the German establishment collectively decided that
Speaker 1: my colleague Dan McCrumb was was corrupt, that we were
Speaker 1: just kind of we would the f team was just
Speaker 1: allowing Dan to kind of roll out these kind of
Speaker 1: you know, defamatory, kind of destructive articles about wire Card.
Speaker 1: Why did they believe that? I think it's fair to
Speaker 1: you know, it's obviously were generalizing here about German business
Speaker 1: and political and financial society. But there has been over
Speaker 1: the years a kind of you know, a tendency for
Speaker 1: them to distrust what we would call kind of Anglo
Speaker 1: Saxon capitalism. You know, there was the kind of hedge
Speaker 1: funds and locusts, all those sort of examples. Also it
Speaker 1: was the German bank that loaded up on all the garbage,
Speaker 1: like prior to the Great Financials too, like the greensil
Speaker 1: didn't they have opened up their own bank in Germany.
Speaker 1: Like it feels like, you know, I always have this
Speaker 1: sort of view of Germany is like this sort of uh,
Speaker 1: small c conservative culture, and yet it seems like they're
Speaker 1: they're always like running into trouble, particularly when it comes
Speaker 1: to finding it well. I think there's an interesting point
Speaker 1: here about how frauds does exploit trust. So Germany is
Speaker 1: this very high functioning economy where most people aren't psychopaths,
Speaker 1: and you get a lot done that way, and it's
Speaker 1: very efficient if you go about your life and your
Speaker 1: business assuming the person on the other side of the
Speaker 1: table isn't trying to rip you off. And that's a
Speaker 1: good thing. That saves us all a lot of time
Speaker 1: and effort checking things that we don't have to. And
Speaker 1: so there's an argument here that what work and what
Speaker 1: these big, complex frauds exploit is that element of trust
Speaker 1: because people literally don't see it coming because it is
Speaker 1: so unusual. Now, that doesn't explain everything, because once you
Speaker 1: start to go, hey, there's some serious evidence here, you know,
Speaker 1: look at this we you know, we're printing documents that
Speaker 1: show there's a fraud, and people are still going, yeah,
Speaker 1: I think it'll be fine, or I think the ft
Speaker 1: is corrupt. That's still weird, and you need a bit
Speaker 1: more of an explanation for it. The thing that amazed
Speaker 1: me at the time was also the German press really
Speaker 1: seemed to automatically sort of arrange themselves against the FT,
Speaker 1: and even I remember one of our former colleagues at
Speaker 1: the FT who was then working at the handles Blat
Speaker 1: was they published an article I can't remember what with
Speaker 1: the exact headline was, but there was a picture of
Speaker 1: like a credit card, and the caption underneath the credit
Speaker 1: card was like, I'm an FT journalist, can I pay
Speaker 1: for that bribe with credit card? Like basically insinuating, not
Speaker 1: even insinuating, just stating out right that the FT was
Speaker 1: accepting bribes in exchange for coverage, which it's just as
Speaker 1: you know, as journalists and former colleagues, that just seems
Speaker 1: such a weird position to automatically take yes, and we
Speaker 1: were quite shocked. There was also the example of the
Speaker 1: commerce bank analyst putting out a note, you know, an
Speaker 1: actual you know, research note, saying, oh, Dan's just you know,
Speaker 1: Dan's corrupt. We've known that for years, ignored when he's writing,
Speaker 1: I mean, you know that. As a young journalist before
Speaker 1: the Internet, I used to go to UM international press conferences,
Speaker 1: some of which were held in Germany, and one thing
Speaker 1: I remember is on the first occasion I went to
Speaker 1: one was that the chief executive would do a presentation
Speaker 1: and the assembled German press would all applaud the chief executive,
Speaker 1: and all the kind of British press would be standing
Speaker 1: there kind of shaking their head saying what the hell
Speaker 1: is going on here? You know, were journalists as you know,
Speaker 1: we're here to kick the tires, not to applaud the
Speaker 1: chief executive. And I think it's fair to say that
Speaker 1: there's there's you know, there's there is a different relationship
Speaker 1: between you know, the German financial press and the corporate world.
Speaker 1: It doesn't have, perhaps in areas, doesn't have the same
Speaker 1: combative relationship that you would see in in New York
Speaker 1: or London. There's a funny aspect of this is slightly
Speaker 1: media and evil gazing, but there's a funny aspect of
Speaker 1: German privacy law, which which means that sort of the
Speaker 1: practice of quote approval where you have a conversation with
Speaker 1: a journalist and then instead of them just writing a
Speaker 1: point you said up in the story, they then go
Speaker 1: back to you with here is everything you said. Are
Speaker 1: you happy with it? And it's a small subtle thing,
Speaker 1: but it's sort of completely routine in the German media,
Speaker 1: partly for reasons of media law. You then sort of
Speaker 1: have to have this very friendly relationship with your source,
Speaker 1: you know, respectful. It's quite hard to know do a
Speaker 1: got tree if you've then got to go back to
Speaker 1: them and say, did he definitely say this? I mean,
Speaker 1: I'm not saying all German press does this, and you
Speaker 1: know some German outlets like Sue Dorgea's item properly did
Speaker 1: go after work. But you've you've also got to credit
Speaker 1: the company with some pretty effective tactics. What they did
Speaker 1: is they turned it into a battle between the Financial
Speaker 1: Times and why I can't you know? They cooked up
Speaker 1: this witness statement from a guy in a nightclub saying
Speaker 1: that he knew a story was coming, and then go
Speaker 1: and give it to prosecutors and say, look, FT generalists
Speaker 1: are corrupt. We've got the evidence. And that's sort of
Speaker 1: allowed the German press to sort of sit back and go, well,
Speaker 1: this is very complicated. There's a lot of allegations flying around,
Speaker 1: and let's just munch some popcorn and watch this battle unfold.
Speaker 1: It seks to worst noting just to to add to that,
Speaker 1: it's worth noting that because the German press reacted in
Speaker 1: that way, and because you know, Buffin decided to launch,
Speaker 1: you know, kind of a criminal investigation into Dan himself
Speaker 1: and also into our colleague Stefaniam. That meant that the
Speaker 1: ft had to double down, you know, because you know,
Speaker 1: the German establishment was questioning the integrity of the Financial Times,
Speaker 1: and so we were going to stay on that story,
Speaker 1: you know, we were not going to back away from it.
Speaker 1: So their allegation is like, oh, you're corrupt, you're in
Speaker 1: league with short sellers, and this happens in media like
Speaker 1: anything you write any negative, anything negative about a company
Speaker 1: at all, people talking about all you're in league with
Speaker 1: the short sellers. But you were like initially tipped off
Speaker 1: by two separate short sellers. So the idea that like
Speaker 1: there it's not corruption. But you know, for a lot
Speaker 1: of investigative journalists often that's sort of an initial tip
Speaker 1: or something like that. Can you talk about like how
Speaker 1: you think, I mean, obviously like you probably hear from
Speaker 1: short sellers all the time, and these days short sellers
Speaker 1: published their own reports and stuff, But can you talk
Speaker 1: to just sort of vice philosophically or maybe in terms
Speaker 1: of journalists best practices about how you think about your
Speaker 1: responsibilities and reporting responsibility. When you get an initial tip
Speaker 1: from a short seller who presumably has some interest in
Speaker 1: seeing their company implode. Yes, So short sellers are fascinating
Speaker 1: sources and great sources. And you know, I find the
Speaker 1: fascinating characters as well, you know, I mean there's a
Speaker 1: bunch of them in this story, some of whom are
Speaker 1: really quite interesting in extraordinary. But whenever you deal with
Speaker 1: any of these guys, you have to be aware of
Speaker 1: their financial interests. And that's true of pretty much anyone
Speaker 1: you talk to as a financial journalist. You know, the lawyers,
Speaker 1: the bankers, the management have got stock options. Every single
Speaker 1: person is either getting paid to talk to you or
Speaker 1: talking their own book. So the idea that short sellers
Speaker 1: are somehow different in that regard just because they're a
Speaker 1: bit more cynical than the other ones, you know, it
Speaker 1: doesn't really carry much weight. And and the reason why
Speaker 1: I started talking to short sellers were simply just because
Speaker 1: I found them interesting people Like I met Carson Blocks,
Speaker 1: one of the most famous ones, and you know, I
Speaker 1: went to meet him and he was like completely like
Speaker 1: anyone else who had met him finance up until that point.
Speaker 1: You know, I mean, he he comes across in this
Speaker 1: you know, almost slightly californiaan bro manner whilst also completely
Speaker 1: eviscerating fraudulent companies. And he had all these amazing stories
Speaker 1: of you know, scuttle butts, you know, the rumors that
Speaker 1: were floating around, who's the who's the CFO of a
Speaker 1: tech company who's known to every maitre d in San
Speaker 1: Francisco for splashing money around that sort of terrific little gossip,
Speaker 1: and I kind of thought, well, this seems journalistically interesting.
Speaker 1: And the thing is when the way I deal with
Speaker 1: them is, you know, if someone comes to me and says, here,
Speaker 1: I've done a bunch of work and there's something up
Speaker 1: with this company, that I basically say, thank you very much,
Speaker 1: take that away and see what I think of it,
Speaker 1: and can I reproduce it? Is its solid? Can I
Speaker 1: go and find the documents? Myself is the other evidence?
Speaker 1: And there's nothing wrong with that. That's like lots of
Speaker 1: sources come and tell your things and then you deal
Speaker 1: with them, and then you just have to be careful about,
Speaker 1: you know, not then going back to them and saying,
Speaker 1: you know, you can't go thank you very much. That
Speaker 1: was amazing. We're going to publish a story on Tuesday,
Speaker 1: but we don't. You don't do that with other sources
Speaker 1: where price sensitive stories. I'd added a couple of things
Speaker 1: to that one. You know, yeah, it really is no
Speaker 1: different than talking to say, bid gossips, people speculating or mergers.
Speaker 1: What you have to be careful of is, you know,
Speaker 1: the flow of information. If it becomes a two way flow,
Speaker 1: it starts to look suspicious. The other thing I'd say
Speaker 1: is that short sellers, certainly my experience, they tend to
Speaker 1: do deep research and that is part at least partly
Speaker 1: because the downside for them is infinity. You know, you
Speaker 1: can buy a stock and the most you can lose
Speaker 1: is the money you put on the table. But if
Speaker 1: you're shorter stock, that stock could go to the moon.
Speaker 1: And I actually sometimes wonder, you know, if if Dan
Speaker 1: hadn't brought down wire Card at the point he did,
Speaker 1: you know what would have happened if wire Card had
Speaker 1: become one of the meme stocks. You know, what if
Speaker 1: what if? You know, it was the most shorted stock
Speaker 1: in Europe, major stock at the time, certainly in Germany.
Speaker 1: You know, if that stock had been said to the moon,
Speaker 1: it would still be there. I suspect they probably would
Speaker 1: have bought a touch back. Yes, um, that's right, because
Speaker 1: at one point their market value I think was higher
Speaker 1: than Deutsche Bank, which again is absolutely crazy. Did any
Speaker 1: of the short sellers make money on the stock that
Speaker 1: you're aware of or did it just sort of drag
Speaker 1: on for for too long? So, I mean you talked
Speaker 1: about like how markets can be a rational much longer
Speaker 1: I think you can be stay solvent right at the beginning,
Speaker 1: and for some of these guys, they were losing money
Speaker 1: for years. I mean I talked to them. This very
Speaker 1: smart guy at wid and Marks who's kind of like
Speaker 1: like Brazilian. He's like Central Casting's idea of a hedgephone manager,
Speaker 1: you know, Brazilian. He lived in California for a long
Speaker 1: time surfer. When we're doing this, he had long black hair,
Speaker 1: and when we're sitting there talking he had literally plumbed
Speaker 1: every avenue that he could to try and expose wire
Speaker 1: can't and he's like, m you know, I think we're
Speaker 1: going to have to catch the chief executive at some
Speaker 1: sort of dodgy party with Harvey Weinstein before anybody is
Speaker 1: even gonna care, because it was just so frustrating and
Speaker 1: they were and they just kept losing money. But then
Speaker 1: right at the end. So there's this moment in June
Speaker 1: where work comes out and says, yeah, we the orders
Speaker 1: aren't going to sign our accounts because one point nine
Speaker 1: billion euros is missing, and everybody who's been following it
Speaker 1: knew in that second it wasn't missing. It had never existed,
Speaker 1: and this company was toast. But the weird thing was
Speaker 1: its share price didn't go to zero straight away. It's
Speaker 1: sort of, you know, it drops like fifty or sixty
Speaker 1: and then sort of hovered there because there were all
Speaker 1: these investors who begin so caught up in the idea
Speaker 1: of work Card that they still thought maybe there was
Speaker 1: a way back. And that was the moment that all
Speaker 1: the short sellers took advantage of and sold every single
Speaker 1: share and put an auction that they could get their
Speaker 1: hands off. And so it was that single one or
Speaker 1: two days after why a Card announced it was all over,
Speaker 1: that they made back all the money and more and
Speaker 1: actually made profits on this sort of year's long campaign.
Speaker 1: So I was actually going to ask what was where
Speaker 1: were the auditors? And when you started poking around and
Speaker 1: asking these questions and looking at the you know, what
Speaker 1: you saw is early evidence of accounting fraud. You know,
Speaker 1: identifying like is the money in an account or not?
Speaker 1: Does not seem like it should be that hard of
Speaker 1: aum a thing for an auditor or any accountant to
Speaker 1: track down. Where were they the whole time until they
Speaker 1: finally came out and said, the money is not there,
Speaker 1: we can't find it. Dad's best to talk on that.
Speaker 1: But I just say, rule, you know, a kind of
Speaker 1: a base rule of financial journalism. Is there ever ever
Speaker 1: trust the orditor us? You know, just you know, namely
Speaker 1: one major fraud that has been revealed by an auditor?
Speaker 1: Maame what so? I think the best example of this
Speaker 1: is kind of like the last almost year of wire
Speaker 1: Card's life. We published this story in October saying this
Speaker 1: is how they're committing fraud. Here are all the documents,
Speaker 1: Here are all the names of the fake clients. This
Speaker 1: isn't real. And so why Card launches this special audit
Speaker 1: to look into all of these allegations. You know, it's
Speaker 1: a company, it gets to investigate itself. So the auditors
Speaker 1: for a decade e y, and they're bringing this new
Speaker 1: lot from KPMG, And there are these sort of crazy
Speaker 1: moments where like they all fly to Manila and wire
Speaker 1: Card has told them yes, we do have lots of cash.
Speaker 1: We've got this one point nine billion euros of cash.
Speaker 1: But it's not an art bank accounts. It's in special
Speaker 1: bank accounts in the Philippines managed by a lawyer. So
Speaker 1: they all go to this lawyer's office and he walks
Speaker 1: in and he's a divorce lawyer who gives advice on YouTube.
Speaker 1: He's got he's got like one of those sort of
Speaker 1: gold plaques on the wall saying he's got a hundred
Speaker 1: thousand subscribers. And he walked and he walks in, and
Speaker 1: there's this whole speech about how like he's the friends
Speaker 1: of the president, and he went to the same fraternity
Speaker 1: at him as university, and he's a very important and
Speaker 1: powerful guy. And then they all go down into some
Speaker 1: cars to go to the banks where these special accounts are,
Speaker 1: and they've got some police motorcycle outriders, and there's sort
Speaker 1: of this bizarre convoy sets off and they don't drive
Speaker 1: to the headquarters of the bank's nearby. No, they drive
Speaker 1: to forty minutes to with this little branch road where
Speaker 1: this tiny outpost to the bank where they can barely
Speaker 1: all fit in it. It's supposedly looking after more than
Speaker 1: a billion dollars of wire cards money, and the you know,
Speaker 1: the lawyer explains, he just does that because it's convenient
Speaker 1: for where he lives. This is in the book, by
Speaker 1: the way, and it's amazing the scene and yeah, I mean,
Speaker 1: I'm just giving you, like the very potted version of
Speaker 1: it here. And the thing that I think is really
Speaker 1: striking is that the auditors at this point have been
Speaker 1: sort of so desperate for information and so desperate to
Speaker 1: like sign off on things, that they're almost relieved that
Speaker 1: there's something there. It's not like there's nobody here. It's
Speaker 1: all completely weird, and they seem to have convinced themselves
Speaker 1: that yes, why a Card is this chaotic startup. It's
Speaker 1: grown so quickly, it doesn't have proper processes in place,
Speaker 1: and a sort of group think sets in because they
Speaker 1: have been with it the whole way, and they've sort
Speaker 1: of understood and they've signed off on everything, and they
Speaker 1: sort of agreed to this weird, chaotic money making magic
Speaker 1: that why Can generates its profits. They're kind of like, okay, right,
Speaker 1: we get that this is a bit unusual, but you know,
Speaker 1: there's something there. We can put a little tick in
Speaker 1: our box. Was there ever a moment where, you know,
Speaker 1: this had dragged on for quite some time, and I know,
Speaker 1: um the f T as a newspaper, and Lionel Barber,
Speaker 1: the former editor, was very supportive of you. But there
Speaker 1: were times clearly where your career was probably strained by
Speaker 1: all of this. You had criminal charges against you, You
Speaker 1: had you know, sell side analysts, the accountants, the financial
Speaker 1: regulators in Germany all saying that this company was fine.
Speaker 1: Was there ever a moment where you worried that, you know,
Speaker 1: the fraud would never come to light. So so there's
Speaker 1: this moment where worker cooks up a conspiracy and it
Speaker 1: looks so bad that the Financial Times finally announces that, okay,
Speaker 1: we're going to conduct an internal investigation into me and
Speaker 1: Paul to clear the air. And I very clearly remember
Speaker 1: that phone call because Lionel called me up to tell
Speaker 1: me about it, and he'd always said he completely trusted us,
Speaker 1: he knew we weren't corrupt, and you know, he said,
Speaker 1: it's obviously going to clear you. I'm not worried about that,
Speaker 1: but you know, this is just a tactic we have
Speaker 1: to do to get ahead of work card. Otherwise no
Speaker 1: one will pay attention to the story which we knew
Speaker 1: we had, which was going to kill them. And even
Speaker 1: though I knew everything he's saying was right, it was
Speaker 1: you know, when it was like I was hearing in
Speaker 1: his voice at a distance and it was just sort
Speaker 1: of this moment of like everything collapsing in and it's
Speaker 1: like revery ship. I think they're going to get aware
Speaker 1: of it. And it was also really worrying as well,
Speaker 1: because at this point, you know, we knew there were
Speaker 1: Russian spies maybe involved. There were some pretty nasty characters,
Speaker 1: and I'd been like cycling home on my bike worrying about, well,
Speaker 1: if I get knocked off by a bus or something here,
Speaker 1: that's gonna be very convenient for everyone. You kind of
Speaker 1: tell yourself as a journalist, you get a certain protection
Speaker 1: because if that happens to you, that's quite a high
Speaker 1: profile thing, and that's going to really attract the attention
Speaker 1: of the authorities more than a easy, teric financial crime.
Speaker 1: But in that moment when you're like, okay, so even
Speaker 1: the fts investigating us, maybe we are for it's like, well,
Speaker 1: I feel quite exposed and if this doesn't work out,
Speaker 1: my career is finished. When did the tide turn, Like,
Speaker 1: what was the thing that I mean you mentioned in
Speaker 1: that letters came out and said, yeah, the money is missing,
Speaker 1: But what was what finally turned the tides to get
Speaker 1: this sort of rethink and suddenly you sort of realized
Speaker 1: that people were started believing you. The turning of the
Speaker 1: tide is related to the As Dan was just saying,
Speaker 1: this point, when we were investigated internally to check whether
Speaker 1: we were actually corrupt, we reached a point where we
Speaker 1: were essentially at kind of hand to hand combat with
Speaker 1: this company, and both Dad and I were so infuriated
Speaker 1: that they've managed to kind of to sty me what
Speaker 1: we were trying to do. You know, the fact that
Speaker 1: we were investigated internally allowed wire Card to raise i
Speaker 1: think one point four billion dollars in cash from we
Speaker 1: didn't even talk about soft banks, and which is yeah,
Speaker 1: which is like another just yeah, obviously soft throws up
Speaker 1: and gives them a billion dollars soft in the head bank.
Speaker 1: As I say, you know, kind of when we came
Speaker 1: out of when we were cleared by the internal investigation,
Speaker 1: you know, Dan came out of that, you know, the
Speaker 1: fighting fit, and there was an absolute determination then that
Speaker 1: we had to you know, put this matter to rest.
Speaker 1: We discussed it in dept at the time and how
Speaker 1: we would do that, and you know, the argument was
Speaker 1: around we had We knew that we had to put
Speaker 1: real tangible evidence in front of people, and the way
Speaker 1: we did that was a decision to you know, do
Speaker 1: a story explaining how the customers were fake and therefore
Speaker 1: the cash was fake. But also we we made the
Speaker 1: decision to actually publish the documents we had. A key
Speaker 1: thing was an internal spreadsheet. I don't know down how
Speaker 1: how many pages along, how many sheets long? Was That
Speaker 1: spreadsheet was very substantial. It was a sort of document
Speaker 1: that just couldn't be fabricated. And you also brought together
Speaker 1: all the chats and emails around that actual document. It
Speaker 1: was putting that kind of tangible evidence in front of
Speaker 1: the reader that killed it. That was done in October
Speaker 1: the fifteenth, I remember the day, two thousand nineteen. We
Speaker 1: knew at that point that this business was dead. We
Speaker 1: knew it was a fraud. In actual fact, it took
Speaker 1: another kind of seven or eight months to disintegrate, just
Speaker 1: to wrap the whole thing up. What what's your top
Speaker 1: tip for spotting a potential fraud? What should people be
Speaker 1: looking for. There's a famous American short sellet Forward Mark
Speaker 1: co Holders. He has this phrase I love, which is,
Speaker 1: there is never just one cockroach in the kitchen. So
Speaker 1: if you find one, I you're going to find more
Speaker 1: of them. Almost as simple as that. If you find
Speaker 1: that a company that you can look for, you know,
Speaker 1: financial indicators. Are they growing very quickly but also taking
Speaker 1: on loads of debts? Are they growing really quickly and
Speaker 1: really profitable in a way that's too good to be true?
Speaker 1: You know, all those sorts of like financial things, you know,
Speaker 1: have they got a big receivables balance which is growing
Speaker 1: faster than their sales. But when it comes down to it,
Speaker 1: are they lying about something? Because if they learn about anything,
Speaker 1: then they'll probably lie about the lot els. That's a
Speaker 1: good one, all right. Well, Dan and Paul, it was
Speaker 1: so good to have you and do do a bit
Speaker 1: of media navel gazing. So thank you so much and
Speaker 1: congrats on you know, bringing down Wire Card and also
Speaker 1: on the book. Yeah, oh, thank you so much. It's terrific.
Speaker 1: That was really fun. Thank you so much. So Joe, obviously,
Speaker 1: I found that conversation very enjoyable and I cannot imagine
Speaker 1: what Dad actually went through at various points in that
Speaker 1: entire odyssey. It just seems like, honestly, the entire world
Speaker 1: was sort of arranged against him. Yeah, it's just so
Speaker 1: wild to me, and I think it's really telling. But
Speaker 1: it's so wild to me that you can have this
Speaker 1: company in which it's all made up and it takes
Speaker 1: so long for the truth to come out, even though
Speaker 1: you think it's like, Okay, someone go check to see
Speaker 1: if the money is there or if the customers are real. Yes,
Speaker 1: the money is there, Okay, it's real, No, the customers
Speaker 1: are whatever it is. You would think like some of
Speaker 1: these things would be really binary, and yet despite the
Speaker 1: binary nous, it could just like take forever for it
Speaker 1: to actually, uh to actually come out. It blows my mind,
Speaker 1: but I mean I get how it works. It just
Speaker 1: you think these things would be faster. Well. I think
Speaker 1: the other thing it shows is that the system. You know,
Speaker 1: there are a lot of safeguards built into the system,
Speaker 1: but those safeguards and the system itself only really works
Speaker 1: when everyone is sort of a good faith actor. And
Speaker 1: I think when when you have a really audacious fraud
Speaker 1: like wire card, where you have a bunch of senior
Speaker 1: executives who you know, are not only willing to go
Speaker 1: on the offensive and say like, oh, these journalists are
Speaker 1: in league with short sellers. You guys should be pursuing them,
Speaker 1: not us. And they're also quite willing to hire hackers
Speaker 1: and start their own, you know, criminal publicity campaign and
Speaker 1: things like that. I think, like the system doesn't work
Speaker 1: when you have those kinds of actors operating in it,
Speaker 1: and I think that's part of why they were able
Speaker 1: to get away with it for so long. Also, just
Speaker 1: thinking back to the auditors, you know, what kind of
Speaker 1: what kind of company like brings the auditors to the
Speaker 1: Philippines and goes, we're going to show you the money,
Speaker 1: and then they they take them to this random bank
Speaker 1: and they're like, oh, see it's here, Like that is
Speaker 1: just such a crazy thing to do. It feels like
Speaker 1: there's no I mean, obviously the auditors should have been
Speaker 1: more suspicious of it, But at the same time, if
Speaker 1: you were an auditor, you'd probably be going like, well,
Speaker 1: why would you know? This is so strange? It kind
Speaker 1: of maybe it is true. Yeah, I think we're just
Speaker 1: not used to people outright lying and we so yeah,
Speaker 1: you know, you sort of have like a range of
Speaker 1: like okay, maybe uh, you know, a range of expectations
Speaker 1: for how people are going to behave And I thought
Speaker 1: that was interesting. It's like, okay, by and large corporate
Speaker 1: Germany is a fairly like high trust, well functioning system,
Speaker 1: but then that creates the space for companies to just
Speaker 1: like brazenly lie and you just like don't have your
Speaker 1: antending you don't have your radar. I also think, you know,
Speaker 1: Canada sort of seems the same way, where it's like
Speaker 1: buying are just sort of like high functioning you know,
Speaker 1: reasons sort of like market system, and then you occasionally,
Speaker 1: you know, semi regularly get these like gigantic frauds. It
Speaker 1: seems to go hand in hand where it's like in
Speaker 1: the course of a day to day job, even if
Speaker 1: your job is to like verify the truth on some level,
Speaker 1: which is auditors, like you're sort of like not really
Speaker 1: prepared for like pure lie. Yeah. I think that's right,
Speaker 1: Like I think those kinds of systems only really work
Speaker 1: when everyone's acting in good phase. My mind that it
Speaker 1: could take so long, like it's not you know, it's
Speaker 1: like some companies the business model is unsustainable and their
Speaker 1: short sellers like this is an unsustainable business model, but
Speaker 1: it takes a while for whatever to happen. But the
Speaker 1: idea is still that, like you can just like make
Speaker 1: up money or make up customers, and it takes so
Speaker 1: long for the company it will be forced to admit.
Speaker 1: It kind of blows my mind. And you can see
Speaker 1: how they, like drive journalists crazy markets can stay a
Speaker 1: rational ger than you can stay solvent. We've come full circle.
Speaker 1: Uh quote. That's why that's why it's persisted despite it's
Speaker 1: dubious prominence, because it's so true. Yeah. Alright, um, this
Speaker 1: has been another episode of the All Thoughts podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy Alloway,
Speaker 1: and I'm Joe Wisenthal. You could follow me on Twitter
Speaker 1: at The Stalwart. Follow our guests on Twitter. Dan McCrumb
Speaker 1: He's at f D. Paul Murphy is on Twitter. He
Speaker 1: doesn't really tweet what his handle is at Murphy p.
Speaker 1: Follow our producer Kerman Rodriguez at Kerman Arman. Follow the
Speaker 1: Bloomberg head of podcast, Francesco Leave at Francesca Today, and
Speaker 1: check out all of our podcasts a Bloomberg under the
Speaker 1: handle at podcasts for listening to year to