SoftBank Faces Scrutiny For $1B Investment In Wirecard

As the Wirecard scandal unfolds, SoftBank Group Corp. is facing questions about its investment in the embattled German payment services provider, CNBC reported.

Last year, the Tokyo-based global conglomerate holding company paid 900 million euros ($1 billion) for a 6 percent stake in Wirecard. But even then, there were concerns about Wirecard’s accounting practices, the network reported.

Today, Wirecard is fighting for its survival as its Founder and former CEO Markus Braun resigned after auditors revealed that 1.9 billion euros ($2.1 billion) were missing from the German payment processor’s accounts in two Philippines banks. Within days, Braun, 50, was arrested on charges of accounting fraud and market manipulation.

Following Braun’s arrest, German Finance Minister Olaf Scholz said lawmakers must tighten regulations because the payment services company has pointed to monitoring gaps by the nation’s financial watchdog.

The deal with SoftBank has now raised eyebrows due to a deepening accounting crisis at the Munich, Germany-based company.

Wirecard’s financials were in good health, according to SoftBank. Its business was growing and Wirecard would later get an investment-grade credit rating from Moody’s. Since then, Moody’s has downgraded the company’s rating to junk, CNBC reported.

Last fall, SoftBank did a second deal with Wirecard and repackaged the convertible bonds into exchangeables, which are also repaid in stock, the network reported.

Neil Campling, an analyst at Mirabaud Securities, told CNBC that the transaction was structured in such a way that SoftBank took no financial risk.

A KPMG audit was conducted for Wirecard last fall. The Netherlands accounting firm said it was unable to conclude whether revenues booked from three partner processing companies ever existed for 2016, 2017 or 2018, CNBC reported. Wirecard declined to comment.

SoftBank said it relied on the same data used by the Federal Financial Supervisory Authority, Germany’s independent financial regulatory authority. 

“Allegations that continued to surround the company after the release of the 2018 audited financials, and our investment, led us to push for the independent audit that helped to uncover the apparent fraud, which had gone undetected for years,” a SoftBank Investment Advisers spokesperson told CNBC by email on Tuesday (June 23).