The Justice Department is examining whether scandal-plagued German payment company Wirecard AG played a critical role in an alleged $100 million bank-fraud conspiracy connected to an online marijuana marketplace, the Wall Street Journal reported. Two businessmen have already been charged in the alleged fraud, accused of conspiring with third-party payment processors and others to trick U.S. banks into approving credit-card payments for marijuana products. The men were able to do this, prosecutors said, by using phony companies with accounts at offshore merchant banks that in turn earned steep fees off the transactions. The Manhattan U.S. Attorney’s office and the New York field office of the Federal Bureau of Investigation are examining whether Wirecard played a role in the alleged conspiracy by serving as both a payment processor and an offshore merchant bank. The authorities are also considering the possible role of several former or current top Wirecard executives. The attention from U.S. authorities adds to the myriad legal woes facing Wirecard, which was once more valuable than any German bank, including Deutsche Bank AG. The company has rapidly unraveled following revelations last month that more than $2 billion it had claimed to have may never have existed.
Markus Braun built Wirecard AG from an obscure firm based in a small town outside of Munich into a global electronic-payments giant, the Wall Street Journal reported. From its perch at the crossroads of online commerce, Wirecard extracted fees for processing credit-card transactions on behalf of businesses. It pushed into emerging markets, bought up smaller firms and struck partnerships to recruit more customers. In its financial statements, sales and profits ticked steadily upward. Wirecard claimed to process $140 billion of transactions a year on behalf of a quarter million businesses, making it a rival of Square Inc. and PayPal Holdings. It was briefly valued at more than any German bank. Then it came apart at light speed — an unraveling reminiscent of energy firm Enron Corp.’s rapid collapse nearly two decades ago. On June 17, Wirecard was valued at more than $14 billion. Eight days later, it filed for the German equivalent of bankruptcy. Wirecard revealed on June 18 that $2 billion it had told its auditors was in a pair of Philippine banks wasn’t there at all. The sum is equivalent to the company’s entire profit over more than a decade. The company and its auditors say that the missing money probably never existed. German regulators and prosecutors are digging into the company’s books to unravel whether one of Europe’s most promising financial-technology firms used fictitious revenue to inflate its sales and fool investors about the health of the company.
More than 40 million workers have filed for unemployment benefits since the early days of the coronavirus pandemic — over seven times the number of requests in all of 2019. And all of those claims have been convenient cover for identity thieves filing bogus applications that could cost billions of dollars, the New York Times reported. “Fraudsters have been able to hide in the flood of data,” said Pam Dixon, executive director of the World Privacy Forum, a public interest research group. “It is a perfect storm of identity fraud. Anyone who has experienced a major breach in the past three or four years could fall victim to this.” The coronavirus has made the unemployment system, which is administered by the states, an attractive target in other ways, too: The CARES Act relief package added an extra $600 a week to successful claims and expanded eligibility to self-employed and similar workers, who are not subject to the same employment verifications that typically apply. Having your application flagged for review doesn’t necessarily mean someone else tried to pose as you — it just means your state thought it warranted further inspection. Fraudulent claims have forced states to dial up their scrutiny and deploy systems that mark potentially suspicious claims.
Jack Abramoff was charged with fraud yesterday in connection with the sale of a new cryptocurrency that was touted as superior to bitcoin, the Wall Street Journal reported. Abramoff, a disgraced former lobbyist who served time in prison, was charged in San Francisco federal court with conspiracy to commit wire fraud over his role in the sale of the proposed digital coin, called AML Bitcoin, which raised over $5 million from 2,400 investors, authorities said. He was also charged with failing to report as a lobbyist, the first-ever criminal prosecution for such a violation, the U.S. attorney’s office in San Francisco said. Abramoff agreed to settle related civil claims filed by the Securities and Exchange Commission, according to the regulatory agency. The settlement, subject to court approval, would require him to give back $50,000 in commissions and agree to be barred from working in the securities industry and as an officer or director of a public company, the SEC said.
A distressed energy-trading company overstated its assets by more than $3 billion using “routine and pervasive” forgery, while its founder oversaw years of disastrous bets on oil derivatives, a report filed with a Singapore court said, the Wall Street Journal reported. The study by interim judicial managers, or court-appointed independent administrators, offers the first detailed account of the implosion of Hin Leong Trading Pte. Ltd., a closely held Singapore company that owes $3.5 billion — mostly to banks, including HSBC Holdings PLC. The administrators, from PricewaterhouseCoopers Advisory Services Pte. Ltd., estimated Hin Leong’s true assets at just $257 million, or about 7 percent of liabilities, raising the prospect of steep losses for creditors. They recommended a merger with other companies owned by the controlling Lim family. The two-month investigation found serious irregularities and convoluted accounting. It found the group overstated assets by an “astonishing amount,” pointing to a $2.23 billion shortfall in accounts receivables — payments due from customers — and inventory stockpiles apparently inflated by $812 million. The higher asset values helped paper over years of losses, the report said: The $1.35 billion in profits Hin Leong reported since 2010 from trading energy futures and swaps was in reality a loss of about $808 million. Founder Lim Oon Kuin, also known as OK Lim, had said in an earlier court filing that the company had hid about $800 million in futures losses.
The U.S. Supreme Court yesterday placed limits on the Securities and Exchange Commission’s practice of forcing defendants to surrender profits obtained through fraud as part of its enforcement of investor-protection laws in federal courts, Reuters reported. The court reaffirmed the agency’s authority to seek disgorgement, a part of its civil enforcement arsenal aimed at passing on funds acquired in fraudulent schemes to the original investors. But the 8-1 ruling, authored by liberal Justice Sonia Sotomayor, limited the scope of what can be sought via disgorgement to no more than the net profits of the conduct at issue. The court also decided that disgorgement generally must go to investors.
Senate Democrats are calling on the Trump administration to release more details about an alleged criminal operation designed to defraud state unemployment programs across the country, fearing these systems remain vulnerable to attack amid the worst economic crisis since the Great Depression, the Washington Post reported. The lawmakers’ concerns stem from a memo the U.S. government circulated in May indicating scammers may have harnessed stolen Social Security numbers and other personal information to obtain weekly jobless benefits. The attack appeared to target states including Washington, Massachusetts, Rhode Island and Florida at a time when roughly 40 million Americans were seeking benefits as a result of the coronavirus and in need of financial support. Little else is known about the incident, leading lawmakers including Sen. Patty Murray (Wash.), the top Democrat on the Senate’s leading health committee, and Sen. Ron Wyden (Ore.), who leads the party on the Senate Finance Committee, to demand answers. They also called on the government to dedicate new resources toward helping states defend themselves against similar criminal operations, particularly as they race to get critical jobless aid to Americans who need it most.
