Wirecard’s collapse in summer 2020 was one of Germany’s biggest accounting frauds since World War II. Prior to declaring bankruptcy in August 2020, the company was listed on the German DAX, a stock index similar to the Dow Jones.
Legal claims offer a glimpse into the world of corporate espionage and reputation management.
The story Matthew Earl tells of a black Mercedes-Benz that parked outside his house and started following him. He claims it was intended to send a deliberate message that he was under surveillance. A few days later, two men emerged from their car to deliver a legal letter from their client, a German payment company Wirecard. A man from the private research firm Kroll was said to have used a “pointy and intimidating” tone.
The method of delivery of the letter may be up for debate, but it was the beginning of years of lawsuit threats and accusations of wrongdoing against Earl. But according to legal claims filed by Earl, this is a new chapter in a “campaign of illegal harassment” run by Wirecard’s law firm, his Jones Day, Kroll, and others.
The claim, which has just been filed in London’s High Court, details Kroll’s allegations of covert surveillance, hacking of communications and proposed high-tech attacks by other unknown operators to intercept cell phone data.
Through its attorneys, Jones Day, they responded to a request for comment, stating that Kroll ‘acted fully in compliance with all applicable laws and regulations,’ Earle’s allegations were ‘misunderstandings,’ and the company categorically denied the allegations.
The lawsuit and the emails disclosed therein will provide a rare glimpse into the world of corporate espionage and reputation management, regardless of whether a legal claim against Jones Day or Kroll is successful, and may shed light on some companies’ attempts to remain silent, revealing the lengths they will go to protect their reputation.
Earl is the founder and fund manager of Shadowfall, a hedge fund that specializes in shorting, or betting against, falling stock prices. He was commissioned by Wirecard AG, a German payments company and member of the Dax Index of blue-chip companies, to provide oversight. Earl anonymously claimed that the company was committing fraud, but his warnings were not heeded. Four years later, in June 2020, Markus Braun, the CEO of Wirecard, was arrested and charged with fraud, embezzlement, accounting irregularities, and market manipulation. Braun has denied the allegations and claimed that he himself was a victim of the fraud.
Short selling can be viewed as controversial, and short sellers often publish their reasons for shorting a company in order to lower the stock price and make a profit. Earl, a former analyst at Citi stockbroker Charles Stanley, has long had a fight with a company he claims is overvalued.
An opinion piece published in London financial newspaper City AM in late 2019 explained the pros and cons of short selling. “There are some notable examples of short sellers identifying structural flaws in companies, prompting market corrections in their prices,” the report said. “In some cases, fraud and poor accounting practices are uncovered by prudent investor short-selling activity.”
While the article called for increased regulation of short sellers, it was notable for another reason. The article’s author, Ben Hamilton, is one of two Kroll employees named in Earl’s allegations. Hamilton’s profile on Kroll’s website lists his work as a former investigative journalist for the BBC and Channel 4, as well as tracking stolen cryptocurrencies, finding hackers in the FTSE 100 CEO’s email, dismantling the counterfeit ring is described.
Hamilton’s profile also highlights an unnamed “investigation that successfully identified an anonymous blogger who conspired with short sellers to manipulate the market for corporate stocks,” but neither his profile nor the article was published on The Wire. However, Earl’s allegations suggest that the particular incident cost Hamilton and Kroll quite a bit of time.
Earl published the first anonymous report on Wirecard AG on February 24, 2016 from Zatarra Research, a website he co-founded anonymously. The impact of this report was dramatic. Wirecard’s stock fell 21% on the day he went public.
Wirecard hastily responded, denying the allegations and trying to expose Earl’s identity. He eventually hired Kroll and other private investigators to conduct a large-scale program to track and monitor several short sellers.
Acquired by Duff & Phelps in 2018, Kroll, which has offices around the world, including the London skyscraper Shard, signed a deal with Wirecard in March 2016. According to the costs quoted in the claims, the service was not cheap. Kroll is said to have charged an initial retainer of €75,000 (£66,000) to cover a period of “about six weeks”. It was shown how the cost of “Hermanus” had increased. It allegedly charged €254,661 for around 750 hours of work by 16 individuals, including “computer forensics”, “surveillance services” and “source investigation”.
Other emails seem to indicate the efforts Kroll made to track down Earl. In August 2016, another Kroll employee allegedly sent Wirecard executives a secret photo of Earl and his colleague at London’s Victoria Station, with the company allegedly taking pictures of Earl’s home. Wirecard also hired at least five law firms and a public relations firm to tackle the issue, according to emails cited in the allegations.
A March 2016 report, allegedly prepared for Wirecard by an unnamed research firm, suggested even more extreme measures for the company to find critics, including a device that intercepts cell phones. It included the potential illegal use of the International Mobile Subscriber Identity (IMSI) catcher. Data sent over the network. “Getting information from mobile phones would be very valuable,” the report said. Earl claims Wirecard directed operatives to hack his personal communications. On December 8, 2016, many of these details were published online in what were claimed to be reported by a whistleblower within Zatara. Zatara consisted of only Earl and his collaborators.
The so-called whistleblower’s report, titled “Zatarra RIP,” includes verbatim excerpts from Earl’s Skype conversations with others, including journalists from Reuters and Bloomberg, as well as email pictures. It is said that Anonymous, previously claimed to have seen communications “on Skype, Twitter, Signal and SMS” in emails to Wirecard purporting to be from a Zatarra whistleblower.
Kroll’s attorney said in a statement: I have not, and certainly will not, engage in any hacking, blackmailing, or other illegal activities.
“Since entering into the contract with Wirecard, Kroll has discovered that Wirecard had contracted other private research firms prior to and during the contract. As I was not aware of their involvement, I cannot comment on the appropriateness of their actions or otherwise.”
There is no indication that Kroll or Jones Day were involved in the alleged hack. But the allegation is that the hacked information formed a central part of the legal strategy against Earl created by Jones Day, and that the U.S. law firm knew it was obtained by Wirecard, or should have known. Jones Day needed “plausible and apparently lawful grounds to identify the claimant,” the claim alleges.
It cites emails to Wirecard and Hamilton allegedly sent on December 8, 2016. Wirecard’s ability to threaten and subsequently bring a lawsuit” – provided that “Wirecard was not involved in obtaining such materials.” The email allegedly noted that a London-based attorney had asked Kroll to serve a legal letter “privately” to Earl. Richards did not respond to a request for comment.
For at least two days starting Dec. 8, 2016, the complaint alleges, a Kroll employee parked a black Mercedes E-class outside Earl’s home in the driveway. At 7:00 pm on December 9, Hamilton and another Kroll employee visited Earl’s home. After the letter was delivered, the campaign unfolded with legal letters. This was part of what Earl claims was an “aggressive legal and reputation management strategy” carried out by Jones Day on behalf of Wirecard.
Earl alleges that Jones Day and Kroll repeatedly misrepresented the truth in their communications about how much they knew. and that Kroll lied about what he knew about Earl’s months-long surveillance. Earl alleges that Wirecard, Jones Day, and Kroll’s actions amount to “a conspiracy intended to harm claimants through unlawful means.” He claims he is entitled to aggravated damages from law firms and investigators.
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Wirecard Krimi – eine unendliche Geschichte