Wirecard short sellers hit jackpot after shares dive 60%

LONDON (Reuters) - Short sellers' months-long pursuit of Wirecard WDIG.DE paid off spectacularly on Thursday when shares in the German fintech company plunged a record 60%.

FILE PHOTO: The headquarters of Wirecard AG, an independent provider of outsourcing and white label solutions for electronic payment transactions is seen in Aschheim near Munich, Germany April 25, 2019. REUTERS/Michael Dalder

Short sellers, who bet on shares falling, had piled into the former stock market darling amid persistent questions about its accounting.

Wirecard’s announcement that its auditor EY could not find evidence for 1.9 billion euros ($2.1 billion) in cash balances and was refusing to sign off on its 2019 accounts resulted in a dramatic payday for some.

“I just made a fortune,” a German-based trader told Reuters. He said he had profited 750,000 euros ($844,125) in less than 30 minutes.

The trader, who declined to be named, said he got lucky as borrowing Wirecard shares was getting increasingly difficult and costlier due to the high demand.

“I managed to short before the first auction.”

Short-sellers were paying a 17.5% premium to borrow Wirecard shares as of June 16, one of the highest in Europe, data from industry tracker FIS’ Astec Analytics showed.

More than 16% of available shares were out on loan as of that date, the data showed.

“Shorts had been building. To the point where last week the borrow was impossible,” said Mark Taylor, a trader with Mirabaud.

In-house auditor EY had regularly approved Wirecard’s accounts in recent years, and its refusal to sign off for 2019 provided dramatic confirmation of the failings highlighted in an external probe by KPMG last month.

Wirecard said it was working with EY to clarify the situation.

It is a stunning reversal of fortune for the company, which two years ago entered Germany’s prestigious Dax 30 index.

German financial watchdog Bafin, which had previously suspected short sellers of colluding to manipulate Wirecard’s share price, has shifted its attention to the company and launched multiple investigations.

Prosecutors raided Wirecard’s headquarters in a Munich suburb on June 5 and opened proceedings against the company’s management board as part of the market manipulation probe that was initiated by Bafin.

Wirecard has said it was cooperating with the investigation and the allegations against it were unfounded.

($1 = 0.8885 euros)

Reporting by Thyagaraju Adinarayan. Editing by Carmel Crimmins