Wirecard AG (Germany)
ISINs: DE0007472060, DE000A2YNQ58
Relevant Period: July 10, 2012 - June 25, 2020
Deadline: March 30, 2021
Wirecard AG (“Wirecard”), was formed in 1999 and is considered one of the world’s leading payment system companies. Wirecard provides electronic payment and risk management solutions as well as services in the areas of mobile payments, e-commerce, digitization and financial technologies. In 2018, Wirecard had transaction volumes of over €150 billion and a market capitalization of over €20 billion. Since early 2019, Wirecard has been the subject of accounting fraud allegations and has lost about 90% of its market capitalization.
The downslide of Wirecard started with a report by the Financial Times (“FT”) on January 30, 2019, which referenced an internal presentation of Wirecard describing suspicious and most likely fraudulent money flows at Wirecard’s Singapore branch between 2014 and 2018. Another FT article on February 7, 2019 alleged that Wirecard generated sales revenues at its subsidiaries in the Asia-Pacific region using sham transactions in order to meet profit targets there. Over this short period from January 29, 2019 to February 8, 2019, Wirecard’s share price lost over 40% in value. However, Wirecard denied all allegations and accused the FT of assisting short-sellers with making profits off incorrect news. Wirecard even started lawsuits to quiet negative news and involved the German police to go after persons spreading negative information.
Wirecard’s price eventually recovered during 2019 until further accounting fraud allegations surfaced in an October 15, 2019 FT article, which alleged that Wirecard fraudulently inflated sales and profits at its Dubai and Ireland businesses. The FT even disclosed documents supporting its allegations of accounting fraud, resulting in another 12% drop in Wirecard’s stock price, starting a downward trend that continued well into December 2019.
This prompted Wirecard to engage KPMG for an external audit, which ended in a report published on April 28, 2020. While Wirecard was promising that the KPMG report would quiet any doubters, it revealed many gaps in Wirecard`s accounting and reporting, including a statement, that KPMG “cannot make a final judgment on whether the documentation and information are complete, correct and free of contradiction” due to incomplete documentation provided by Wirecard. This caused the stock price to drop another 26% from its April 27, 2020 closing price. Prompted by Wirecard to calm the market, KPMG published an addendum to the report on May 3, 2020, but it was inconclusive and only confirmed Wirecard’s unwillingness/inability to provide KPMG or its auditors EY with enough documentation to make a final determination and to be transparent to investors. Not surprisingly, EY withdrew its sign-off on the financial statements of Wirecard for its 2019 annual report, which was announced for June 4, 2020 but postponed to June 18, 2020. In the meantime, Wirecard’s offices were raided on June 5, 2020 amidst investigations into potentially fraudulent transactions, insider trading and other crimes committed by CEO Markus Braun and other executives at the company.
On June 18, 2020, Wirecard delayed the publication of its 2019 annual report once more, because its auditor, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (“EY”), was unable to confirm an amount of €1.9 billion in Wirecard’s balance sheet, representing almost a quarter of its consolidated total assets. On June 22, 2020, Wirecard confirmed that the €1.9 billion allegedly held in a trust account with banks in the Philippines do not exist, retracting previous statements regarding its TPA business as well as preliminary numbers of its 2019/2020 financial results. Wirecard also informed the market that it was potentially facing immediate debt payment obligations of approximately €2 billion. These events resulted in a drop of 85% in the company’s stock value from €99.50 (Xetra opening price on June 18, 2020) to close at €14.44 (Xetra) on June 22, 2020. Finally, on June 25, 2020, Wirecard informed that it had filed for bankruptcy. It is becoming increasingly clear that the Wirecard case is one of the biggest economic scandals in Europe in recent years. The German financial supervisory authority BaFin is investigating if the fraud goes back to the annual report 2016 and additional defendants such as its auditor EY have come into the spotlight for their failures in the connection with the downfall of the company.
Bayer AG (Germany)
ISINs: DE000BAY0017, DE000A189F04, DE000A189FZ7
Relevant Period: May 22, 2016 - November 29, 2019
Deadline: April 15, 2021
On May 23, 2016, Bayer AG (“Bayer”), a German pharmaceutical and life science corporation, announced that it made an offer to purchase Monsanto Corp., a U.S. agriculture corporation, despite Monsanto’s pre-merger issues relating to its glyphosate-based weed killer Roundup. Bayer should/could have been aware of these issues when acquiring Monsanto, which have now resulted in tens of thousands of lawsuits with risks for billions of dollars of jury verdicts against Bayer as its legal successor, and consequently have a negative effect on the stock price of Bayer. Bayer knew or should have known about the risks resulting from the merger with Monsanto due to the fact that the glyphosate-based product from Monsanto was already highly contested for a long time and because of the obviously hidden information concerning the risks that made a comprehensive due diligence impossible. On September 14, 2016, Bayer entered into an agreement with Monsanto to purchase its shares for $128 a share, a 44% premium over Monsanto’s May 9, 2016, closing price. Due to regulatory requirements, the acquisition was not completed until June 7, 2018. Since, then the value of Bayer’s common stock has gradually plummeted connected mostly to the unsuccessful defense of high-profile personal injury lawsuits triggered by the Monsanto/Roundup issues, resulting in multi-million U.S. dollar verdicts against Bayer. After the announcement of the first verdict of $289 million against Bayer, its stock price dropped from August 10-13, 2018 by 10.76%, resulting in a market capital decrease of €9.36 billion. On October 22, 2018, Bayer’s stock price sunk another 13.38% when the San Francisco’s Superior Court of California reduced the punitive damages award to US$39 million. Then, on March 27, 2019, a jury awarded a different plaintiff $80 million in damages citing that Monsanto “acted with malice or oppression” by not placing a cancer warning on Roundup’s product label. The stock price declined another 18.55%. On May 13, 2019, a jury awarded $ 2.055 billion to two plaintiffs who claimed that Roundup had caused their cancer. Even though, the court later reduced the punitive damages award to $69 million. Bayer has appealed these verdicts, and is vehemently arguing that Roundup does not pose a threat to human health. However, since July 30, 2019, Bayer is in mediation to settle thousands of U.S. lawsuits claiming that the company’s Roundup weed killer causes cancer. Analysts expect a settlement to reach an amount of $8 billion.
DRRT is committed to filing a case against Bayer AG in Germany, has received co-funder commitment. Hence, DRRT is currently preparing for the filing of the case, including further economic analysis preparations and legal analysis of the case.
Vale S.A. (Brazil)
ISINs: BRVALEACNOR0, BRVALEACNPA3
Relevant Period: November 16, 2015 - July 03, 2019
Deadline: May 31, 2021
Vale, S.A., incorporated and publicly traded in Brazil, is the world’s largest iron ore mining company with 80,000 employees and annual revenues exceeding $36.575 billion. The first dam collapse of the Samarco dam, which was co-owned by Vale and Australia’s BHP Group, took place in November 2015, causing 19 facilities, the destruction of two villages, and significant environmental contamination. The Samarco dam was constructed utilizing a primitive upstream design, the most inexpensive way to construct a dam, and unsurprisingly, the most prone to failure.
On January 25, 2019, a second chemical waste dam, owned and operated by Vale, near Brumadinho, Minas Gerais, a small town in southeastern Brazil, collapsed. Although the environmental impact of Brumadinho was not as severe as the Samarco disaster, the human impact was staggering resulting in 249 fatalities. This second dam disaster caused Brazilian authorities to issue severe fines and to arrest several top company employees. As a result, Vale’s stock price dropped over 20% causing the company to lose close to $10 billion in market capitalization. In the immediate aftermath of the Brumadinho catastrophe, Vale suspended its planned dividend, share buybacks, and executive bonuses. Moreover, the Brazilian court issued three orders freezing $2.9 billion of Vale assets. Additionally, Brazil's environmental agency (Ibama) fined Vale $66.3 million for pollution and other regulatory violations related to the breach. On September 20, 2019, Brazilian police announced criminal charges against Vale, and its employees.
According to the Wall Street Journal, Vale’s executive manager for strategic planning, Lúcio Cavalli, said at a press conference in 2015, shortly after the Samarco disaster, that Vale did not have any upstream dams in its portfolio. Other Vale executives also told investors that Vale had no upstream dams. When an analyst asked in a July 2016 conference call about a possible ban on upstream chemical waste dams, the head of Vale’s iron-ore division, Peter Poppinga, responded that “such a prohibition wouldn’t affect the company” and “we don’t have those dams.” Yet, Vale was still operating almost 30 upstream chemical waste dams at that time.
When Fabio Schvartsman, was named Vale CEO in March 2017, he committed to changing Vale’s safety record, vowing “Samarco never again” among a variety of other false and misleading statements made to restore investor confidence.
Further, in the months since the dam collapse, prosecutors have identified ample evidence that employees at Vale and the Brazilian division of Germany’s TUV SUD, which inspected the dam, were aware of elevated risks associated with the structure with Reuters reporting that Vale misrepresented the steps it had taken to mitigate safety issues following the first dam collapse in 2015. On January 21, 2020, Brazilian prosecutors charged Fabio Schvartsman with homicide and charged Vale, TUV SUD, Schvartsman, and 15 individuals with environmental crimes stemming from the dam collapse.
With clear and obvious knowledge of the existence of its upstream chemical waste dams and the risks associated therewith since an internal report of 2009 and later even more-so after the Samarco collapse in 2015, Vale decided to mislead and defraud investors through false assurances and statements concerning operational safety. As a result of the publicly available information, and ongoing government investigations, there is strong evidence against Vale holding liable for shareholder losses that were a direct result of Vale’s material misstatement omissions.
The material misstatements and omissions made by Vale violated the Brazilian Civil Code and Brazilian Corporation Law. The Statute of Limitations to file these claims under the applicable Brazilian law is three years and is set to expire on January 25, 2022. As a publicly traded company on Brazil’s Sao Paulo stock exchange, Vale’s bylaws mandate that any shareholder disputes with the company must be arbitrated in front of the B3’s affiliated Market Arbitration Chamber (“MAC”), an institution of the B3 - Brasil Bolsa Balcão S.A., formerly BM&FBOVESPA in Brazil. DRRT has requisite experience under the authority of MAC. Accordingly, DRRT has already retained a highly respected local arbitration firm, as well as a highly acclaimed Brazilian economist.
Institutional investors can join a fully-funded and insured opt-in arbitration group of similarly situated, institutional investors. The confidential representation of investors is risk-free and cost-free and purely based on a back-ended success fee. If you wish to obtain an analysis of your potential claims Brazil under the authority of MAC, please provide your transaction data for the ISINs listed above covering the Relevant Period to Valeinvestorclaims@drrt.com. As customary, all data and information received will be analyzed on a confidential basis.