Yahoo Finance ‘I was stupid to hold Wirecard – I knew it was dodgy'
A fund manager has admitted that he held in his portfolio shares in a company he knew to be “dodgy”.
The company was Wirecard, the German payments processing firm that collapsed last month after its claims to have billions of pounds in cash proved fictitious.
The fund manager, Thomas Brown of the Miton European Opportunities fund, said he had been “stupid” to trust the firm’s accounts. He admitted that he had had doubts about Wirecard.
“We knew that Wirecard was dodgy. We thought they were a little bit murky in what they were doing, [although] we never really thought to ourselves, maybe all the numbers are totally made up,” he said. He blamed the firm’s auditors for not verifying that Wirecard’s cash existed and himself for trusting the auditor, EY.
“Fundamental research starts with the report and accounts, so that’s where we started and we were stupid enough to trust the auditor,” he said. “Now it turns out that EY had not checked the cash. Rather than go to the banks and say ‘please can we have bank statements for these accounts’, they just accepted an email from Wirecard staff for what the cash is.”
The damage to Mr Brown’s fund was limited by the fact that it held a fairly small percentage of its money in the German firm. A rival fund manager, Alexander Darwall of the European Opportunities investment trust, had held a far larger stake, although he managed to sell it at a profit before shares in the firm became worthless.
Barry Norris, who runs the Argonaut Absolute Return fund, said: “The annual report is an opinion, not a fact. If it is not fund managers' responsibility to ascertain the veracity of the accounts for themselves, what value are supposedly active fund managers adding for their premium fee?
"If you simply have a very diversified fund and can in effect tolerate having a couple of frauds that become worthless, that is a scattergun approach which might lead fund buyers to conclude a tracker fund could do the same job.”
A spokesman for Premier Miton Investors said: “When we invested in Wirecard we felt it had a fundamentally attractive business model which would deliver strong results. As is often the case following ongoing analysis of a company, there were some areas where we felt that there was a relative lack of clarity.
"We held a relatively small exposure to this company in our overall portfolio. Clearly, however, we were unaware of the nature of the failures within the company that have recently become apparent.”
A spokesman for EY said: "There are clear indications that there has been a large-scale international fraud at Wirecard expertly designed to circumvent all the checks and balances, including reviews conducted by investigating parties, including at least a special investigator and EY audit procedures.
"It’s also clear that this fraud involved the collusion of multiple individuals at third-party entities; its objective was to deceive investors and the public.”
