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You might think it would be impossible to have lost money shorting Wirecard. Sure, it was liable to be a bumpy ride, but if you kept on it: Man. Arrests and phantom billions and money laundering and pity from Deutsche Bank and a 99% drop over a two year period is about all any short seller could ever hope for.

Well, John Hempton kept on it—for eight long years. And much to what we imagine must be Bill Ackman’s amusement, Hempton has had what one might call an Ackmanian experience: Being right about something and still losing money on it.

Hempton freely admits to investors in the $362 million Amalthea Fund that Wirecard was the biggest loser of any stock in the decade-long history of his firm, Bronte Capital…. Hempton says in his letter to Amalthea investors that the present environment for shorting is particularly dangerous because "all crappy stocks rise at the same time, across sectors"….

"Even in a well-diversified short book, things can go wrong. Wirecard, for example, didn’t go wrong all at once but it cost us considerable money over a decade and was a drag on performance.

"It was a winner last quarter, but that was small consolation."

Hempton had been on to since 2012, when he figured out that the Indonesian acquisition made by the German pornography and gambling payments specialist uh, didn’t really exist. Karmically, however, Hempton was to suffer a fate similar to his enemy Ackman’s, although in his case not only were the authorities distinctly unhelpful but, in typically German fashion, threatening and actively opposed to his project.

“The company and the German regulators eventually decided that short-sellers were conspiring to spread lies about Wirecard and drive the stock down.

"The German securities regulator (BaFin) even criminally charged two journalists from the Financial Times as well as some short-sellers. One short-seller was convicted and jailed for saying things about Wirecard that were in retrospect shown to be accurate."

Hempton says Bronte Capital, which has never been afraid to use social media to push its investment theories, remained silent about Wirecard because of the risk of "bogus criminal charges for telling the truth".

Nor, Hempton warns his investors—who must by this point in the letter be wondering why they’ve endeavored their capital on such a miserable, doomed adventure—is Wirecard a wildcard, something unprecedented and unlikely to be repeated. Far from it.

"Worse, there is likely another Wirecard somewhere in our collection of 200-plus shorts, a position that will cost us (meaning you) decent money but on which we are right".

Why John Hempton’s Wirecard short failed [Australian Financial Review]



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