Wirecard ban is ābizarreā and ābackwardsā, claims Fahmi Quadir
22 March 2019 New York
Image: Shutterstock
Fahmi Quadir, founder and CIO of Safkhet Capital Management LLC, has criticised the German Federal Financial Supervisory Authority (BaFin), for banning short selling on Wirecard.
In a letter addressed to Jean-Pierre Bussalb, head of short selling section, Quadir called the ban ābizarreā and ābackwardsā, and noted that as a trading strategy, short selling is widely acknowledged as beneficial and a necessary countervailing force to maintain market efficiency.
BaFin short selling on Wirecard in February, claiming that its falling share price has caused uncertainty in the market.
Safkhet Capitalās has held a significant short position in Wirecard equity and remains significantly short since its inception in January 2018.
Quadirās letter said: āOn 30 January [2019], Wirecard shares fell just 13 percent despite investor disappointment on weak fundamentals, emerging information related to potential fraud from internal Wirecard employees, and a dizzying near 300 percent share rally since 30 January, 2014.ā
āI ask you if BaFin was aware of these elementary facts when it evoked the short selling Bogeyman through its āmarket manipulationā probe. I am a proud participant in various public markets globally and until 30 January, I had never seen a regulatorāon such an immaterial price declineāso prematurely provide tacit support to an issuer facing serious allegations of fraud while demonising the financial media.ā
Quadir also highlighted in her letter that the discourse leading to the ban and the divergence of Singapore and German regulatory action, enveloped in Wirecardās facile dismissals of serious allegations of fraud is inarguably problematic.
She also criticised the accuracy of BaFinās statement: āYou further state that the ban will not have far-reaching market impact within Germany. Yet, you also argue that the price and volatility of Wirecard will have far-reaching market impact and necessitates a ban. Not only are both statements contradictory, neither statement is fully accurateā.
āI agree with BaFin that recent Wirecard-related activity does pose a dire threat to German markets. Market participants are quickly realising that German regulators cannot be relied upon to effectively or objectively engage with the markets and are deliberately besmirching their fundamental duties. When such a degree of doubt is introduced as far as regulatory intent, market integrity quickly disintegrates.ā
Elsewhere in the letter, Quadir asserted that short sellers stand to profit if fraud is exposed to the markets and facilitates downwards price discovery but explained that this precise economic incentive is why BaFin should listen carefully to the short selling information tradersāthe more credible and material this information, the greater profit.
She argued: āThe current ban on Wirecard short sales removes this critical incentive. And yet, no market participant is more acutely aware of the criminal repercussions of disseminating misinformation than short sellers.ā
Additionally, Quadir condemned BaFinās supposed lack of deep understanding, she remarked: āMarket history and scientific study are near-unanimous in understanding the critical role of short sales in the market.ā
āDespite the decades-old Bogeyman story perpetrated by failing companies, the data indicates it is all but a strawman. Those charged with safeguarding financial markets should know better than to perpetrate such a deceptive narrative.ā
Quadir added: āWe unequivocally support actions taken to address all forms of market manipulation. However, such seemingly unilateral regulatory effort, prompted without sufficient evidentiary disclosure, can create a toxic environment where whistleblowers will avoid coming forward for fear of civil or criminal penalty for telling the truth. BaFinās actions may set a dangerous precedent for market cosseting and capitulation to corporate influence.ā
In a letter addressed to Jean-Pierre Bussalb, head of short selling section, Quadir called the ban ābizarreā and ābackwardsā, and noted that as a trading strategy, short selling is widely acknowledged as beneficial and a necessary countervailing force to maintain market efficiency.
BaFin short selling on Wirecard in February, claiming that its falling share price has caused uncertainty in the market.
Safkhet Capitalās has held a significant short position in Wirecard equity and remains significantly short since its inception in January 2018.
Quadirās letter said: āOn 30 January [2019], Wirecard shares fell just 13 percent despite investor disappointment on weak fundamentals, emerging information related to potential fraud from internal Wirecard employees, and a dizzying near 300 percent share rally since 30 January, 2014.ā
āI ask you if BaFin was aware of these elementary facts when it evoked the short selling Bogeyman through its āmarket manipulationā probe. I am a proud participant in various public markets globally and until 30 January, I had never seen a regulatorāon such an immaterial price declineāso prematurely provide tacit support to an issuer facing serious allegations of fraud while demonising the financial media.ā
Quadir also highlighted in her letter that the discourse leading to the ban and the divergence of Singapore and German regulatory action, enveloped in Wirecardās facile dismissals of serious allegations of fraud is inarguably problematic.
She also criticised the accuracy of BaFinās statement: āYou further state that the ban will not have far-reaching market impact within Germany. Yet, you also argue that the price and volatility of Wirecard will have far-reaching market impact and necessitates a ban. Not only are both statements contradictory, neither statement is fully accurateā.
āI agree with BaFin that recent Wirecard-related activity does pose a dire threat to German markets. Market participants are quickly realising that German regulators cannot be relied upon to effectively or objectively engage with the markets and are deliberately besmirching their fundamental duties. When such a degree of doubt is introduced as far as regulatory intent, market integrity quickly disintegrates.ā
Elsewhere in the letter, Quadir asserted that short sellers stand to profit if fraud is exposed to the markets and facilitates downwards price discovery but explained that this precise economic incentive is why BaFin should listen carefully to the short selling information tradersāthe more credible and material this information, the greater profit.
She argued: āThe current ban on Wirecard short sales removes this critical incentive. And yet, no market participant is more acutely aware of the criminal repercussions of disseminating misinformation than short sellers.ā
Additionally, Quadir condemned BaFinās supposed lack of deep understanding, she remarked: āMarket history and scientific study are near-unanimous in understanding the critical role of short sales in the market.ā
āDespite the decades-old Bogeyman story perpetrated by failing companies, the data indicates it is all but a strawman. Those charged with safeguarding financial markets should know better than to perpetrate such a deceptive narrative.ā
Quadir added: āWe unequivocally support actions taken to address all forms of market manipulation. However, such seemingly unilateral regulatory effort, prompted without sufficient evidentiary disclosure, can create a toxic environment where whistleblowers will avoid coming forward for fear of civil or criminal penalty for telling the truth. BaFinās actions may set a dangerous precedent for market cosseting and capitulation to corporate influence.ā
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