Shorts and Wirecard

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Short sellers have been raking it in on their Wirecard shorts, but most haven’t cashed their positions out yet. Analysis from one firm shows that just 12.5% of Wirecard shorts have been covered over the last week, which means most short sellers are letting their position ride in hopes of further declines.

Wirecard stock was already tanking after the company said billions of dollars was missing from its balance sheet. Then the ADR shares of Wirecard plummeted another 74% today into penny stock territory after the Germany company announced that it has begun insolvency proceedings.

The company announced today that it will file for insolvency proceedings in Munich “due to impending insolvency and over-indebtedness.” The announcement comes after Monday’s announcement that the US$2.1 billion that was previously believed to have been missing from the balance sheet probably didn’t exist.

The company said in a press release that there is a “prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist.” Wirecard also said it previously “assumed” that the trust accounts that supposedly held that US$2.1 billion had been established “for the benefit of the company in connection with the so called Third Party acquiring business.”

According to CNBC, Wirecard tried to locate the missing money, which was supposedly held by a pair of Filipino banks. However, both banks denied that they did any business with Wirecard. Documents that supposedly showed that Wirecard had deposited money with them were found to have been falsified.

Just a week ago, Wirecard was valued at $14.5 billion (€13 billion), but after today’s stock crash, its valuation tumbled to less than €500 million. Before June 18, the company’s valuation was even higher. The decline is a startling turn in what has been a high-flying tech stock in Germany for quite some time.

Also this month, former CEO Markus Braun was arrested on allegations of inflating the company’s balance sheet. Additionally, the Philippines is trying to find former COO Jan Marsalek in connection with an investigation of those who may have been involved in the case.

Wirecard Shorts Let It Ride

Data from S3 Partners shows that short sellers raked in $2.6 billion in paper profits off Monday’s plunge, and that didn’t even count today’s decline.

Analysis from Ortex shows that just 12.5% of Wirecard shorts have been covered within the last week, which leaves about 16.8 million shares or 15% of the float still being shorted. The analytics platform estimates that open short positions were worth at least €1.6 billion at the beginning of the incident. Hedge funds that are shorting the stock now stand to gain much more.

According to Ortex, some hedge funds have even increased their short positions in Wirecard over the last week. Among the funds that are shorting the German tech firm are Maverick Capital, Coatue Management, Coltrane Asset Management, Samlyn Capital, Viking Global Investors, Darsana Capital Partners, and Slate Path Capital.

According to MarketWatch, Slate Path, TCI Fund Management and Marshall Wace had the largest short positions as of Wednesday. Slate Path gained $206 million, while TCI was up €161 million and Marshall Wace was up €136 million over the last two days, according to data from Breakout Point.

“In a week when the share price dropped by over 90% and the CEO was arrested, it would have been easy for hedge funds to take a profit and run,” Ortex Co-founder Peter Hillerberg said in an email. “However, our data shows that the vast majority of short sellers have been holding their positions, and in some cases increasing them, in anticipation of a further reduction in the share price. It looks like their patience will pay off.”