GRENKE AG, the German leasing company accused of accounting fraud by a US-based short-seller, has opened the company’s books to at least three global auditing companies and promoted an executive inside Grenke with an auditing background to a senior role on the company’s supervisory board.

Grenke AG has strongly rejected all accusations of wrongdoing as unfounded. In a statement last week, Antje Leminsky, chair of the board of directors of Grenke AG, said: “We will do everything in our power to refute the unjustified accusations.”

Auditors from KPMG,  Warth & Klein Grant Thornton, Mazars and formerly of Pwc have either been drafted in by Grenke itself or are there at the behest of BaFin, the German financial regulator to disprove, or to confirm, the charges raised in a 64-page report published by Viceroy Research in mid-September.

Viceroy is an “investigative financial research group” registered in Delaware, US, run by Fraser Perring, a British national and short-seller of publicly listed company stocks.

The most recent appointment was on 1 October, when Jens Rönnberg was elected interim deputy chairman of Grenke’s supervisory board.

Rönnberg is a tax adviser and auditor and has been a member of the Grenke supervisory board since November 2019.

He takes over the office of deputy chairman from Wolfgang Grenke, whose position was temporarily suspended on 21 September.

Prior to this, Grenke announced that it had invited KPMG, its auditor for the last two years, to carry out a ‘special audit’ alongside a review by Warth & Klein Grant Thornton which the company said it had tasked to look into the company’s franchise arrangements.

In addition, Germany’s financial regulator (BaFin) announced on 28 September that auditing and consultancy firm Mazars had started its investigation of Grenke AG on the instructions of BaFin.

Grenke’s problems began on 14 September with the release of the report by Viceroy Research, accusing Grenke AG of falsification of accounts and saying its franchising operations were “designed to either hide fake cash or siphon off millions of euros to undisclosed related parties, or both”.

The preface to the report states: “You should assume that the authors have a direct or indirect interest/position in all stocks (and/or options, swaps, and other derivative securities related to the stock) and bonds covered herein, and therefore stand to realize monetary gains in the event that the price of either declines.”

Since the release of the report, shares in Grenke AG, a listed company on the Deutsche Borse, have lost value, from a recent high of €55 a share (on 14 September) to a low of €26.7 two days later. On 8 October they were hovering around the €40-a-share mark.

To manage the fallout from the report, Grenke AG has also said that Wolfgang Grenke, the founder of the German leasing business that bears his name, will temporarily give up his seat on the company’s supervisory board.

In a statement, Leminsky said: “We have assured full transparency and, of course, full cooperation with the regulators right from the beginning.”

Franchise model

The Viceroy report has raised concerns about the role of the company’s founder (and deputy chairman) and Grenke’s franchise business model.

Grenke said its expansion into new markets abroad has so far been carried out via franchise companies, in which the controlling interest was held by “various financial investors”, such as Ctp, a firm indirectly owned by Grenke founder Wolfgang Grenke.

After four to six years, the Grenke group would acquire the franchise.

In a statement, Grenke AG said it is “reviewing an integration of the franchise model into the Group” and which forms the work of the independent auditing company.

Leminsky said: “The accusations brought forward by the short seller, who benefits from the drop in the share price he triggered, are a slap in the face to our more than 1,700 employees, 40,000 resellers and our long-term shareholders.”

The Viceroy report said that over the years Grenke AG had bought various franchises without disclosing that insiders, including founder Wolfgang Grenke, already controlled those franchises and stood to profit from the transaction.

In response, Grenke AG said that, until January, Wolfgang Grenke did not own or have a say over any of the shares of the vehicle that controlled the franchises, and he received no payments.

Accounting practices

Viceroy Research also accused Grenke AG of accounting fraud. Viceroy alleged that a large part of Grenke’s €1.08bn (£1bn) cash balance was fictitious and that the company was another Wirecard, a reference to the German payments company that became part of an expose by the Financial Times recently.

In a statement, Grenke said: “This allegation – one of Viceroy’s central accusations – is entirely fictitious.

“A total of €849m, which is almost 80% of the cash and cash equivalents, was held in Deutsche Bundesbank accounts on 30 June 2020 – as published in the half-year financial report.

“As already reported, the balance at the Bundesbank amounted to €761m on 15 September 2020. The difference of around 20% is held primarily in accounts at major German banks.”

SME leasing model

Viceroy Research also accused Grenke of predatory practices against small businesses: “Grenke’s leasing business is entirely dependent on its relationship with resellers, who onboard end-customers onto a Grenke lease. This program has run wild with rampant international frauds and Ponzi schemes facilitated through Grenke finance leases.”

The report cited examples of photocopier, television and computer leasing in the UK.
Grenke AG said: “The Viceroy report also discredits Grenke’s business model, citing among others the, in its view, implausible increase in the number of copiers and printers in the leasing portfolio and an average price for printers and copiers that is allegedly too high.

“The report also denounces the alleged lack of control mechanisms in the selection of resellers. As evidence, the report cites the review of a lease request within 20 minutes.
“These accusations are also unfounded: The Company leases what customers need. Generally speaking, these are new technologies.

“The relative share of printers and copiers in the leasing portfolio has fallen from 31% to around 18% in the period from 2012 to 2019. The absolute increase in the number of machines essentially reflects the growth of the Company.

“The absolute amounts quoted by Viceroy Research for printers, for example, do not relate to the price of individual devices, but instead to the average volume of individual contracts, which regularly cover several devices.
In one UK example, reporting on the Viceroy Research allegations, the Times said:

“Viewble Media UK, a now-bust reseller, is accused of leasing screens to companies for £299 a month for three years, with a total sum payable of almost £11,000.

“Businesses say they were told that as well as benefiting from advertising, the deal was cost-neutral as a second associated company, Shoppers Network UK, would rent the screen for advertising purposes and would pay the shop owner £299 a month.

“Business owners say the payments stopped soon after the screen was installed, leaving them liable for the full cost of the contract, which ultimately was owned by Grenke.”
The claims have been strongly denied previously by the advertising firms and the lenders.

Grenke AG declined an invitation for an interview from Leasing Life.

Grenke UK was launched in 2002 in Guildford, Surrey.

The Grenke Group operates in 32 countries, has more than 40,000 retail partners worldwide and employs more than 1,700 staff.

German money-laundering investigators target Grenke AG

Grenke AG strengthens new leasing business in Q3 with focus on profitability

Grenke AG promotes career auditor to fill deputy chairman’s shoes on supervisory board

German financial regulator starts ‘special audit’ at Grenke AG