Wirecard fraud; Bankrupt Hertz Suspends $500 Million Stock Sale; 20-Year-Old Robinhood Customer Dies By Suicide; I finished my climb

By Whitney Tilson

Monday, June 22, 2020

1) Huge kudos to Carson Block of Muddy Waters Research, Gabriel Grego of Quintessential Capital Management, Roddy Boyd of the Southern Investigative Research Foundation, Dan McCrum of the Financial Times, and many others for completely nailing the massive fraud at German payments processor Wirecard (WDI.DE), which was once considered the country’s pre-eminent fintech player.

After its auditor, EY, refused to sign off on the company’s accounts last week, the stock has fallen by 85% in the past three trading sessions… wiping out more than $10 billion in market value.

Since Wirecard is a German company, many Americans may not be following this story… But what happened here is worth studying because it’s a brilliant case study in a dozen different ways – the ineptness and complicity of regulators and the media, how an obvious fraud could continue for so long, etc.

I’d been warning my readers about it for more than a year. On March 20, 2019, I wrote:

In my e-mail on March 6, I included Carson Block’s brilliant essay about Germany’s disgraceful and misguided attacks on short sellers who are exposing frauds there: Why Elon Musk Should List Tesla Shares in Germany. Block specifically mentioned Wirecard, which many savvy short sellers I know have long believed is a total fraud. He wrote:

Right now, German authorities are subjecting journalists, short sellers and analysts to criminal investigations for exposing alleged fraud and money laundering at one of their now largest public companies (by market cap). That company, a payment processor called Wirecard, until recently had a market cap over €20 billion. As the operator of a global payments business, it should be responsible for ensuring illicit money from criminals and terrorists are kept out of its network, which is a gateway to the global banking system.

Last night, investigative journalist Roddy Boyd of the Southern Investigative Research Foundation (“SIRF”), who has an extraordinary track record exposing corporate fraud and malfeasance, revealed the results of his latest in-depth look at the company – and it’s damning: Wirecard AG: Something Is Terribly Wrong Here.

On October 21, I wrote:

Short-sellers have long targeted German payment-processor Wirecard, with little to show for it but unending pain as the stock rose more than 300% from early 2017 through August 2018… But they may have the last laugh, as evidence of fraud continues to mount and the stock tumbles. Kudos to Dan McCrum of the Financial Times for some excellent investigative journalism: Wirecard’s suspect accounting practices revealed.

I concluded: “This company has a market cap of around $15 billion and could blow sky-high…”

On December 12, I added:

Kudos to the Financial Times for its ongoing courageous reporting on German payments giant Wirecard, which many smart short sellers I know think is a house of cards. Here’s the latest (if you think Wirecard didn’t know all about this surveillance operation that targeted short sellers, please contact me, as I have a bridge to sell you…): Wirecard critics targeted in London spy operation.

For more on this sordid scandal, see this 31-post Twitter thread.

2) In my e-mail on June 12, I wrote:

This is one of the scummiest things I’ve ever seen. It will be a total disgrace if the court overseeing the Hertz (HTZ) bankruptcy and/or the SEC allow Hertz to issue equity!

Since then, jeers to the court, which approved the offering, but cheers to the SEC, which – in the nick of time – stepped in to block the $500 million fleecing of a bunch of naïve, day-trading Robinhood-type investors… Bankrupt Hertz Suspends $500 Million Stock Sale as SEC Poses Questions on Deal. Excerpt:

Bankrupt rental-car company Hertz Global Holdings Inc. suspended its sale of up to $500 million in shares after the Securities and Exchange Commission said it had questions about the deal.

The SEC staff informed Hertz about the review process earlier this week, the company said in a securities filing Wednesday. “Sales… were promptly suspended pending further understanding of the nature and timing of the staff’s review,” Hertz said.

Companies customarily hold off on selling new shares when the SEC tells them it has questions about the offering and how the company has disclosed risks and other information to investors. Hertz’s deal is more unusual than most because the company is in bankruptcy and has said that process may render its common stock worthless.

The SEC’s intervention also is unusual because Hertz already had an effective set of disclosures for the fundraising. The company filed its disclosures in May 2019, and the SEC approved it in June of last year.

3) Speaking of Robinhood, this is what can happen when regulators fail to rein in companies that exploit many folks’ investing ignorance combined with a desire to gamble and get rich quick: 20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance. Excerpt:

The note found on his computer by his parents on June 12, 2020, asked a simple question. “How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?” The tragic message was written by Alexander E. Kearns, a 20-year-old student at the University of Nebraska, home from college and living with his parents in Naperville, Illinois. Earlier that day, Kearns took his own life.

Like so many others, Kearns took up stock investing during the pandemic, signing up with Millennial-focused brokerage firm Robinhood, which offers commission-free trading, a fun and easy-to-use mobile app and even awards new customers free shares of stock. During the first quarter of 2020, Robinhood added a record 3 million new accounts to its platform. As the Covid-19 stock market swung wildly, Kearns had begun experimenting, trading options. His final note, filled with anger toward Robinhood, says that he had “no clue” what he was doing.

I’ll believe this when I see it:

Robinhood’s founders have since responded to Kearns’ death by suicide, pledging major changes to their platform – especially around options trading.

4) I finished climbing The Nose of El Capitan on Saturday!

It was one of the most exhausting yet amazing adventures of my life – and for a great cause. (It’s not too late to support my climb and the thousands of KIPP charter school students who are making it to and through college – here’s the donation page.)

I’ll do a full write-up when I get a chance (I have more climbing to do first!), but in the meantime, here are four pictures below.

In the first, I’m on the port-a-ledge where I slept all three nights (quite comfortably!). In the second, I’m climbing under the Great Roof, a famous feature on the route. In the third, my thumb happens to point to where we started three days and 2,500 vertical feet earlier (you can also see the “pigs” – the heavy bags we had to haul that contained our water, food, sleeping bags, etc.). And in the final one, my guide Paul and I are at the top (with Half Dome in the background).

After we hiked back to the valley, I celebrated by doing a back flip into the Merced River – I posted the video here.

Best regards,


Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.