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How $2 Billion Went Missing

In this episode of Industry Focus: Tech, Dylan Lewis chats with Motley Fool contributor Brian Feroldi to discuss a $2 billion scandal at Wirecard (OTC: WCAGY). Learn about the company and its business, how the situation unfolded, and why it went undetected for so long. They also talk about financial scandals in general and what the mechanisms to stop them are, how investors can do their due diligence while investing and much more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on June 26, 2020.

Dylan Lewis: It's Friday, June 26th, and we are talking about how $2 billion just goes missing. I'm your host Dylan Lewis, and I'm joined by Fool.com's runner-up-participation-trophy recipient, [laughs] Brian Feroldi. [laughs] That's a pretty good one; a lot of hyphens in there.

Brian Feroldi: Thank you. And to be fair, I did earn that participation trophy this weekend [laughs] when we talked about Tesla; we did a deep dive on Tesla over the weekend, and my team lost. So, you know, I got a solid participation trophy, though, almost.

Lewis: Well, the best part of being in a two-team competition is, if you're not first, you finish second.

Feroldi: That's right. [laughs]

Lewis: [laughs] You know, you don't necessarily finish last; it's all about how you frame things. Brian, the lead here, $2 billion going missing. Probably one of the more captivating subject lines that we could throw out there for a story that has recently blown-up, but one that has been going on for quite some time. U.S. investors may not be super-familiar with this name; folks in Europe, I guarantee, are, though. Wirecard, a company that, I think June 18th, was hit with a huge accounting scandal and kind of a, mea culpa! that the numbers that they were set to report may be not as good as they had originally hoped, and that the financial position of the company not what it had originally appeared to be.

Feroldi: Yeah, mea culpa, is I guess a nice way of putting it, Dylan, though, the bottom-line here is the auditors said they could not find €1.9 billion of the company's cash; that's more than $2 billion. Now, prior to the scandal, I had heard the name Wirecard before, but it wasn't a company that I followed closely. So, I was actually quite surprised to learn that this German payment processor was actually a part of the German DAX 30, which is kind of like their DOW, and at one point this company was bigger than Deutsche Bank. So, this is a big company that we don't really talk about a lot.

Lewis: Yeah, we can navel-gaze a little bit with the U.S. markets. And I think it's good to get outside of that; and particularly for this story. Because I think a lot of the stuff with this business is, you know, the core elements of the company are ones that we see in companies that we like here. You know, this was, for the uninitiated, a payments processor. And so, they were a fintech business. You know, anyone that listens to this show, or the Monday show, knows we are huge fans of payments companies, it's a great business to be in. And Wirecard was one of those War on Cash type businesses. I think that they were also using a very [laughs] similar slogan with the idea of cashless society and talking about how they were going to lead people there, they were going to be bringing us to a point where people were leaning more on credit cards, maybe prepaid debit cards, NFC payments, all of these different types of mobile options, but getting people away from cash.

The story with this stock took over. And I think Europe was actually, Germany in particular, pretty happy to have a tech darling, and that was a big part of the narrative behind this business.

Feroldi: Yeah, this was like their Square, this was like their PayPal. This was an important company for them to hang their hat on as a shining example of how the U.S. doesn't have a monopoly when it comes to the fintech world.

And to your point, Dylan; yes, this is an area that both of us absolutely love. Any good fintech story immediately captures my interest, because these companies tend to have moats and they're just riding a megatrend worldwide of the shift away from cash and check toward electronic payments. So, if we ever did a deep dive on this company, I'm pretty confident that I would have come back and said, boy! Am I interested in this business.

Lewis: Yeah. I think if we look just at the financials and just what the company was giving us, it would've been very easy to walk away with that impression. The reality is, while we're finding out about this accounting scandal now, there has been reporting and a lot of questions about this business for a long time. And we are going to, kind of, give a quick overview of what they do and how they got to that position, and then, kind of, get you up-to-speed on the timeline with some of these allegations and all of this coming to surface.

And so, in Wirecard's case, you know, we talked about before, but they are a payment facilitator. And so, basically, merchants are accepting payment information, they go out there and they're a middleman that says, OK, we are going to communicate with the bank. We're going to communicate with the merchant, make this payment happen. Now, for the most part you would think that they would be handling a lot of that stuff, and that's true for areas where they have licenses. And so, they have the ability to help people make payments online, via mobile, point-of-sale, physical and virtual cards. They have some Near Field Communication stuff as well. But they also help to facilitate transactions in areas where they didn't necessarily have the licenses or relationships to operate. And so, as you might imagine, a high growth company, looking to scale, what they did was they partnered with local third parties in foreign markets that did have those licenses.

And I think, Brian, on the surface, nothing seems too weird about that.

Feroldi: No, completely agree. It makes total sense that they needed to have these relationships with these third parties in some of their international markets set up. It was a way to quickly get the company up and running in these geographies and a way to get them scale. We know in this business, Dylan, that scale, scale, scale is what matters here. With each transaction that happens, these types of companies only keep a couple of pennies for every dollar that flows through their network. Now, the beauty of the model is, once you've reached scale, after a certain point, every additional penny that you can pull in is basically pure profit. So, it makes complete sense that this company was trying to expand as rapidly as possible and to do that quickly, they had to rely on third parties.

Lewis: And so they did. And I think, not unusual, until you start to realize the scope of these operations. And so, in Wirecard's case, three really big third-party partnerships in specific countries, and those were the Philippines, in Dubai, and in Singapore. And by some estimates, we're kind of finding this out now, but this has been part of the story over the last couple of years. In 2018, these types of deals accounted for about half of the company's revenue. And so, the idea is, Wirecard is helping make these transactions happen, although they might not be providing all the verification, authentication and everything like that, that needs to happen for the transaction to go through. And for that, they're getting a cut, they're getting a commission from this partner who's saying, thanks for hooking it up, we're going to give you a little bit of money for making this go through.

Now, there have been some questions about the legitimacy of these relationships, and it's not just a year or two ago. You go back to about 2015, and there [laughs] starts to be some scrutiny here, but things don't really start picking up for a bit, Brian.

Feroldi: Yeah. To your point, this company hit short-sellers' radars -- I mean, depending on the short-sellers -- as much as a decade ago, but I would say the scrutiny really started to intensify in 2015. So, short-sellers, kind of, caught wind of this company's business practices and started to raise some questions, saying that they were inflating their numbers through these third-party transactions and through some acquisitions that the company made. And that led, in 2018, we saw some internal employees at Wirecard raise flags about the company's potential involvement with fraudulent money activity. And then last year, the Financial Times, and hats off to them for really breaking this story open, they started to publish some reports that really started to cast doubts in these operations. So, it wasn't as if it was that there was no story and then all of a sudden, woops! $2 billion were gone. There were warning signs and, kind of, flags all along the way.

Lewis: Yeah. People were doing the reporting and the work, and it kind of came down to which part of the narrative do you want to believe? Do you want to believe what the company is giving you or do you want to believe what the Financial Times and some other short-sellers and skeptical members of the financial media were throwing out there?

The company very quickly dismissed anything negative coming out from the Financial Times and other publishers as being fueled by short-sellers, and the idea that they were, kind of, reaching into each other's pockets and making money or maybe we're being puppets of the short-sellers and being taken advantage of. And I think what's, kind of, remarkable here is, we see the Financial Times publish reports that cast doubt on some of the company's operations. Then authorities in Singapore wind up raiding the offices that they have there to collect evidence. And the regulatory authority in Germany, BaFin, as it's commonly known, decides to ban shorting of the stock for, I believe, a two-month period. I don't think I've ever heard anything like that happening.

Feroldi: Yeah, that's wild. It is wild to me that short-sellers were raising flags, you know, mud being thrown at this company, and then the regulatory board raced out to essentially defend the company instead of doing its job to investigate these stories. So, that is just completely wild, and obviously, allowed these shenanigans to go on for longer than they should have.

Lewis: I think it really speaks to the dynamic that this company had in the European and German market, where they wanted to champion what looked like a tech darling and they really wanted to give it as many opportunities as possible to succeed.

Feroldi: Yeah, I think that that's completely fair. To what we said before, this was a shining star of the German economy and, you know, a company that was held up on a very high pedestal for its ability to stand out. And again, they were telling a very good story, they were showing great numbers. So, I guess it's not completely surprising that the German regulators did not want to look at this as hard as they should. But hopefully, one big takeaway, as we'll get to at the end, is that that might change [laughs] in the future as a result of this, is hopefully the other German regulators learned a big lesson from this.

Lewis: Yeah, I think rules tend to catch up with behavior rather than the other way around. You know, you don't know that things are necessarily [laughs] going to happen, especially if it's fraudulent activity, until it does. And so, sometimes there's a lag there with regulators. But as all of this is happening, scrutiny continues to heighten for this business. The Financial Times, I think, despite getting a lot of legal challenges and some of their reporters allegedly being threatened, and kind of using some intimidation tactics to try to get them to cull the stories, they continued to look into this business, and they looked at a lot of the local offices in some of these third-party countries. And what they find there is absolutely bizarre.

I read this one story and I think it was one of their Philippine partner offices, where it was a fisherman's house, it was this guy who lived there with, like, 12 family members, had never heard of the name Wirecard, had never heard of the name of the company that was allegedly there, and had this one document, it was like this massive piece of mail related to those two names, that he showed a reporter when they came and showed up there. So, as they are continuing to dig, they are finding less [laughs] and less legitimate operations. And a lot of signs that there's probably something wrong here.

Feroldi: Yeah, not a great sign. And, to me, the amazing thing is, kind of, after this was happening, we saw a famous investing firm come to this company's rescue. SoftBank, yes, the same SoftBank that was involved with the WeWork debacle, ended up putting $1 billion into Wirecard, after some of this investigation started happening, from a convertible bond offering. So, unfortunately, as unbelievable of an investment and long-term track record that SoftBank had, more egg on that company's face.

Lewis: And another major institution that seems like a stamp of legitimacy, right. We have BaFin backing this business, now we have SoftBank. And at that time, SoftBank wasn't the maligned WeWork investor, [laughs] you know, they were probably held in slightly higher esteem. So, another major financial player that is a part of the story, and seemingly lending credence to what this company is pitching.

And throughout all of this, Financial Times keeps reporting, folks that are skeptical continue to report and they continue to find oddities. And one of the more bizarre ones that, kind of, leads us to the present, is a large chunk of the company's account cash is being held in escrow accounts that are being managed by trustees. And the company's defense of this, this is highly unusual, is that it is being held like this so that partners can easily handle refunds and chargebacks. And the company basically [laughs] continues to threaten legal action against the publisher and is insanely defensive about it. And so, to help meet public scrutiny with this, Wirecard winds up appointing KPMG to conduct a special audit. Now, they have their own auditor, but they bring in another auditor to, hopefully, clear things up and make it seem like all is well with the business.

That escrow accounts thing is so wild to me, Brian, because if you actually do the math and you look at this amount of money that's missing here, it's about half of the cash that they list on their balance sheet. So, could you imagine a company going out there and saying, yeah, we need half of our money set aside and we're going to have trustees and have it held in an escrow account in case there are refunds, like, what does that say about the transactions [laughs] that you're facilitating?

Feroldi: Right. I mean, obviously, refunds and chargebacks are going to be a part of the business. But $2 billion worth set aside to just handle those, boy! Is that a lot of money. So, yes, a major red flag.

Lewis: [laughs] Yeah. If you were facilitating or operating in like the hundreds of billions range, I could understand a budget for that, but when that amounts to half of the cash that your business winds up holding onto, I think it becomes a pretty red flag. And what we saw with KPMG is, this audit should have, the special audit, should have concluded in March, it did not. A month later the firm says, it cannot verify the majority of Wirecard's profits from 2016 to 2018 due to obstacles. And then, this is where the story starts to unravel, Brian.

Feroldi: Yeah, that's when this story started to pick up steam and we saw the fallout that has happened basically in the time since. So, the company was supposed to report earnings, but due to the fact that its auditors could not [laughs] validate this $2 billion, that's when everything, kind of, collapsed. So, when you have an earnings release coming up and there's an extra auditor that's basically saying, "Hey, we can't find $2 billion," understandable why the news broke, and the news broke hard; and the stock fell, and the stock fell hard.

Lewis: Yeah. And this is another big name, their main auditor is Ernst & Young, [laughs] this is a multinational organization, one of the big accounting firms, one of the ones that immediately come to mind when people are talking about the auditing space. And effectively said, we don't know where this money is. And that launched a variety of investigations. [laughs] And I remember seeing one news item where it was, I think the head of the Philippine Central Bank [laughs] basically saying, we have no idea what you're talking about. [laughs] We have no idea where this money is.

And what I think is so troubling about this story is there was very little [laughs] verification done throughout the process. And we can touch on this a little bit more as a takeaway, but what I've seen in recent reports is that much of the auditing process that Ernst & Young wound up going through, was taking statements, screenshots, etc. from Wirecard and from the trustees in these various countries and using that as evidence of the cash that was supposedly on-hand. They did not go out independently to verify any of that.

And it's only now when, OK, you know, a day before earnings [laughs] needs to be reported. And I think at this point, Ernst & Young was supposed to be providing an audit on their 2019 results, their full-year results, and that got delayed several times. And I believe this is the fourth time they were supposed to be doing it. That it was kind of like their hand was forced, Brian. You know, you can only delay information like this coming out so long. Cash, eventually shows itself or it doesn't.

Feroldi: Yeah, that's the funny thing. What was the Founder and CEO's, what was his endgame? Like, this was obviously going to catch up to the company at some point. This is a shell game that they're playing and playing and playing, and then finally, it catches up to them. So, obviously he must have known [laughs] there was going to be a day of reckoning at some point. So, it's good that it came up sooner rather than perpetuate this even longer, but. And I don't mean to laugh about the details here, obviously, this is an incredibly sad story for so many accounts, investors have been hurt super-bad by this, there is mud on the faces of many fine institutions.

And as we've seen in the fallout from this, Wirecard stock is down 95% since the story broke. Thankfully the CEO resigned and then was promptly arrested and then prosecutors have charged him with inflating Wirecard's sales volume and fake income. And the former COO, Jan Marsalek, is MIA, we don't know where he is. Some people think that he's in the Philippines, so I'm sure he will be found and caught at some point and also brought to justice. So, an incredibly interesting story that has a very sad ending.

Lewis: Yeah. And the story that I've heard, the explanation for when this started and why this started was, if you go way back to the beginning. This company has been around for about 20 years, and they really got their start by facilitating payments that were related to online gambling and adult entertainment online. And say what you will about those industries, I guess people need payment processing to happen either way. And that's how they got their start and became a progressively more mainstream business; they stopped operating just in that niche. However, I think that was the lion share of their business for a very long time. And the story that I've heard is that they had some interruptions to, in particular, the gambling part of that business and they were not going to be able to post the growth that they had been due to some legislative things, I think, in the United States and a couple of other places.

And in order to maintain growth rates that they had been posting, that's when the fabrication began. You know, it was, we don't have this line of business anymore, but we kind of have operations that make it seem like we can do this anyways. We can start the show again; like you said, Brian. And it's tragic; I don't know of any fraud story that ends happily. You know, it kind of always has that Goodfellas vibe to it at the end where there's the montage and it all comes down, every single person winds up being, at least, named. You know, in the U.S. we don't have a lot of prison time thrown around for this kind of stuff, but shares are down 95% since company news broke. The company is reportedly insolvent. They, over the past week, have been working with their lenders to try to work something out, but given that half their cash evaporated I think it's going to be very hard for them to do that.

Feroldi: Yeah. And who knows what the endgame is here, it wouldn't surprise -- I'm sure there is some legitimate business here that does have some value and maybe it gets taken over by an actual legitimate payment processor or at least a big portion of that business does, so. But it's hard to say what happens to common shareholders who, when things like this happen, normally get completely wiped out. So, yes, and great point about, I don't know [laughs] many frauds that end well, that have a happy ending.

Lewis: Yeah. And I'm sure there are some people wondering, like, OK, well, what are the possibilities here, you know, is it definitely fraud? And what I've read is, basically, it's either, these business operations never happened, this was all, kind of, paper transactions that the company was able to create either through round tripping; basically taking cash from one part of their core business and then flowing it through subsidiaries in other countries to help make that seem a lot bigger, basically, hiding the source of those cashes and using it to inflate transaction volume and things like that. So, either these operations never happened; they kind of happened but were inflated. Or there was some true operation there. And, you know, in the Philippines, Dubai and Singapore, this company managed to get swindled for $2 billion. I am deeply skeptical of the fact that Wirecard got swindled for $2 billion.

Feroldi: Yeah. I agree with you there. But if there was a positive takeaway here, it's that there will be changes as a result of this. I'm hoping, or at least I'm very hopeful, that regulations will come after this that will make this stronger. And to be fair, that's exactly what we saw in the U.S. in the accounting scandals between 2000 and 2002. You had Enron, you had WorldCom, you had Tyco, you had Qwest Communications, all fabricating results. And largely in response to that, we saw the passage of Sarbanes-Oxley, which in the U.S. closed a whole bunch of accounting loopholes, it increased disclosures, it strengthened whistleblower protections, it created the Public Company Accounting Oversight Board. So, that would be, I think, the best-case scenario for European investors and German investors, is that some kind of legislation action takes place as a result of this to make sure that this doesn't happen again.

Lewis: Yeah. And I think there are probably some takeaways for individual investors looking at this story too. I mean, you know we have a primarily U.S. audience here, Brian. I imagine, we didn't have a lot of people who are listening to the show that have the stock on their radar, let alone their portfolio, but that doesn't mean that there aren't takeaways for them as well. I think the first and foremost, you know, this story came out, but we're not that far removed from the Luckin' Coffee story and unfortunately fraud does happen.

Feroldi: Yes, fraud does happen. There is simply too big of an incentive for it to have to take place. I mean, in Wirecard's case, the CEO had huge incentive once his actual core business started to take a hit, to fabricate the numbers. Public companies face enormous pressure all the time to report revenue growth, to report profit growth, and if there are ways for them to cheat the system, you can't be so surprised that some people choose to do that, because there's a huge financial incentive and motivation for them to do that. So, the sad thing is frauds are out there. It wouldn't surprise me at all if there was some well-known American public company right now that was committing some type of fraud. So, you have to just know that ahead of time as an investor.

Investors like us, we rely on auditors, right, we rely on these third parties to verify the financial statements so that we can make investing decisions. But just because there's a big-name auditor out there looking at the books, that doesn't guarantee that fraud is not going to happen. So, that's just a reality that we all have to face.

Lewis: Yeah, you mentioned incentives. And I think the auditor relationship, in theory, is a lot different than the auditor relationship in practice, because the reality is, the company is paying this other company [laughs] to help them make sure that their books look good for investors. And the more noise that an auditor makes, the less likely that that relationship continues. And so, there is this balance, I'm sure, if you're an auditor wanting to make sure that numbers look good, but also wanting to maintain your book of business. And Joey Solitro and I were actually Slacking about this before the show started, and he said, this is awfully similar to the ratings agencies with the entire financial crisis. You know, they were getting paid [laughs] to rate things, and that deal flow is dependent on them being able to green-stamp things and move them forward. And so, unfortunately, a big name, like, Ernst & Young or KPMG isn't necessarily going to mean that everything is above board.

Feroldi: That's right. And those companies are paid hundreds of thousands or millions of dollars to audit a company's books. So, they're supposed to, in a real way, audit their customers, audit the people that are paying them [laughs] money, so that makes it possible for things like this to happen; they're not true impartial third parties, so. But, again, we as investors, we have to rely on audited documents, that's what we have to go on. But this, to me, if there's any big takeaway here it's that, diversification [laughs] is a must. If you have a way over concentrated position in any one company and something like this happens, boy! Can that ruin your financial life.

Lewis: Yeah. And I think that there are a lot of very tempting growth stories out there. You know, Luckin Coffee was a very captivating story for a reason. It was appealing, it showed great growth. And in some ways, you know, the thesis totally made sense. The people that really got burned by that were folks who had a significant portion of their portfolio in Luckin Coffee. If you have those speculative growth stories, they need to be a small portion of the portfolio, because the reality is, you don't need to own a lot of it for it to become something meaningful if the growth story is that good, and you want to make sure that you're, kind of, protecting your downside as well.

Feroldi: Yeah. And we heard from many of our listeners and our members saying, I'm never investing in a Chinese company again, which is in the wake of the Luckin Coffee scandal; and that's completely fair. But the key point here is that, China does not have a monopoly on fraud, the U.S., there has been [laughs] plenty of fraud in the U.S. I mean, do I need to say Bernie Madoff? How about the Galleon Group, or how about Theranos, right? I mean, these are the most well-known ones, but it's not just necessarily China that has them. I would say that you have a heightened risk when you go into markets such as China, but it can happen anywhere to anybody.

Lewis: Yeah. And not to focus solely on China there, I think there is a risk in investing in other geographies. You know, you are going to be very familiar with rules and regulations for wherever you live and the standards for accounting and all those types of things. Anytime you step outside of your core competence and the world that you know better, you are taking on slightly more risk. And I think that that's something to keep in mind.

One other thing that I really wanted to point out here is, we glossed over this in the, you know, origin story of the company, but this business actually hit the public exchanges back in 2005, and it did not do so through an IPO. It actually took over what was effectively a defunct business that had an existing stock listing. And so, by doing that, it's called a reverse merger, they were basically [laughs] able to avoid all of the scrutiny that comes with the IPO process or the direct listing process of having your business on full display for analysts to really dig into. And that happens when you're publicly listed and you are doing your quarterly reports, but I think the scrutiny is even tougher when you're going through the IPO process, Brian.

Feroldi: Yep. And that is why it should definitely be a yellowish flag, at the very least, when you see other companies that come public or hit the public exchanges through reverse mergers. This was a big problem in 2008 to 2010 where a whole bunch of small cap Chinese stocks hit the U.S. market or the U.S. exchanges through reverse mergers. And it's not like these things don't happen, in fact, just in 2020, Dylan, we've seen two pretty big-name ones, two pretty big-name companies come public via reverse mergers. DraftKings, DraftKings was a reverse merger. And the other one is Nikola Motors, the electric/hybrid fuel cell start-up that's focused on semitrucks. Both of those companies came public via reverse mergers, which should, at the very least, be a slight yellow flag for investors.

And we're, of course, not saying that all reverse mergers are frauds or you shouldn't invest in them. There's been some very successful ones throughout history. Burger King, Waste Management, Texas Instruments, Jamba Juice, all of those were reverse mergers that were completely legit and worked out very well for investors. But at the very least, it should get your Spidey senses up when you see it happen.

Lewis: Yeah. I don't think any one of these things individually is a problem, but when you start stacking them on each other, they start to paint a specific picture. And you take all of the reporting [laughs] over the last couple of years that the Financial Times has done, that was a pretty decent whistle for what was going on and, kind of, giving people a heads-up. My, kind of, final thing here that's company specific is, the importance of asking "Why?" And we talk about this all the time with investing, but if something seems really peculiar to you, ask why, see if it makes sense, if the company's explanation for it makes sense. And going back to what we were talking about with that money being held in escrow so that refunds and chargebacks could be handled by partners. If you look at it, and you look at it within the context of all the cash that they had, that just doesn't pass the smell test.

Feroldi: Yeah. And another takeaway for me is, don't automatically dismiss short-seller reports outright, that's a very common thing for people to do when they own a stock and it comes out and they get hit by a short-seller report, it's very common to immediately just go into defensive mode and defend your company. Now, there are plenty of short-sellers out there that have, let's just say, not the best or purest motivations, they take a big short position in the stock, they write some slanderous report that could have all kinds of wild accusations in there, and then the stock drops immediately. That kind of thing should be [laughs] looked at by regulators too.

But oftentimes short-sellers do tremendous research and work. And when a report comes out, at least take a look at it, at least dig through it and see what kind of findings there are, so you can tell for yourself if there's fire there or if it's just all smoke.

Lewis: We talk about it all the time, but the importance of being a Motley, and not necessarily agreeing, but at least getting alternate perspectives and really making sure that you have a full sense of what's going on with the business. I will never short a stock, I don't have the stomach for it, you know, that unlimited downside freaks me out a little bit too much. But it is good for there to be incentives in place for people to put a check on irrational bullishness with a company.

Feroldi: Yeah, completely fair. And put me in the camp that says, I am pro the idea of short-selling, even though I know that they don't [laughs] always have the purest of methods behind them.

Lewis: It's good to have people on both sides of things, it leads to far better understanding all around. The last thing I want to touch on with the story before we wrap up, Brian, is, this feels like another nail for SoftBank. This company has just had such a rough run over the last couple of years with what seemed like, at the time, brilliant growth investments. And this is just another one that didn't seem to pan out.

Feroldi: Yeah, it's not great for them, on the flipside even the extra $1 billion they put into that, still pretty much a rounding error for them. Even all the money they put into WeWork and stuff, no investor bets a thousand, SoftBank is no different. And their enormous stake in, I believe it's Alibaba, has paid off so handsomely that a whole bunch of these bankrupt zeroes still haven't hit the fund as much as you would assume. But, yeah, I agree with you, they're not perfect, this is just more proof of that.

Lewis: Yeah. This was a little bit of a jargon-heavy and in-the-weeds discussion, and it's a little tough to do over audio, I'll admit, because the Financial Times has done an amazing job reporting this. They have some really good visual graphics; they have some really good videos related to this. If you're interested in the story and just generally interested in the timeline and the fraud and some of the ins-and-outs of it, I highly, highly, highly recommend checking out their work. This is the kind of thing that only happens because they did years of reporting to make it happen.

Feroldi: Uh-huh. Hats off to them for sure.

Lewis: Hats off to them; and hats off to you, Brian. I will give you a Fool participation trophy. [laughs] Put that one on your mantel as well.

Feroldi: On my shelf, right behind me, Dylan. [laughs]

Lewis: [laughs] I appreciate you joining me for today's show.

Feroldi: Thanks for being here.

Lewis: Alright, listeners, that's going to do it for this episode of Industry Focus. If you have any questions or you want to reach out and say, "Hey!" shoot us an email over at IndustryFocus@Fool.com or tweet us @MFIndustryFocus. If you want more stuff, subscribe on iTunes or wherever you get your podcasts.

As always, people on the program may own companies discussed on the show, and Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Austin Morgan for all his work behind the glass today. For Brian Feroldi, I'm Dylan Lewis, thanks for listening and Fool on!

Brian Feroldi owns shares of PayPal Holdings, Square, and Tesla. Dylan Lewis owns shares of PayPal Holdings and Square. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., PayPal Holdings, Square, and Tesla. The Motley Fool owns shares of Texas Instruments. The Motley Fool recommends Softbank Group and Waste Management and recommends the following options: short September 2020 $70 puts on Square and long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.


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