KPMG ‘notable to refute’ allegations against Adler Group

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Adler Group’s shares rose on Friday even after the scandal-plagued real estate company revealed that an investigation from its auditor had not refuted key allegations of financial impropriety made against it.

Frankfurt-listed Adler has been battling to regain market confidence after short seller Viceroy Research last year accused it of inflating the value of its assets, engaging in undisclosed related party transactions and other misconduct. The report prompted Adler to commission his auditor KPMG to conduct a “special investigation” in October.

On Thursday evening, Adler released a summary of the “preliminary” findings from the “first draft” of the investigation, revealing that KPMG was “not able to refute” allegations relating to “alleged related party transactions”.

Adler’s shares slipped in early morning trading, before rising around 4.3 per cent by mid-morning, with investors pointing to the fact the summary also disclosed that the valuations on its portfolio of rental properties were “rock solid”.

While the findings “indicated valuation differences” in its smaller but riskier portfolio of development projects, Adler said that the discrepancies “do not endanger financial instrument covenants”.

Adler’s bond prices strengthened on the news, but are still trading at deep discounts to their face value.

Viceroy’s report claimed to identify a series of transactions between a nexus of closely related parties that it alleged they had carried out to “systematically enrich themselves” to the detriment of other investors.

The short selling outfit homed in on the role of Cevdet Caner, a 48-year-old property magnate who previously presided over one of Germany’s biggest real estate bankruptcies. Viceroy alleged that the Austrian businessman was at the center of a “secretive, kleptocratic cabal”, pulling the strings at Adler and related companies.

Caner denied the allegations against him in an interview with the Financial Times in October, dismissing them as “bullshit”.

“You cannot as an individual, or even with a team of people, drive and make hidden transactions and funny things in listed capital markets,” he said.

Earlier this year it emerged that the company was under investigation by German financial watchdog BaFin over potential accounting irregularities. Adler had postponed its 2021 annual results until the KPMG investigation is completed, disclosing on Thursday that it now intends to publish its accounts “in the last week of April”.

Adler revealed KPMG’s findings in a letter from his recently appointed chair Stefan Kirsten, who said that he intends to “adjust structure and processes within Adler” where necessary once the probe is completed.

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“We have asked KPMG to extend the special investigation with data inputs from us until March 25th,” Kirsten wrote. “We recommended to KPMG to focus on the ongoing email analysis, loose ends with regard to alleged related party transactions and narrowing the valuation gap in our development portfolio.”

Kirsten, the former finance director of German real estate giant Vonovia, last month said that the group was not a “hopeless case” — revealing that he had personally bought around €500,000 of Adler stock — but added that “the elephant in the room is named Wirecard”.

Once a darling of Germany’s stock market worth almost €20bn, Wirecard unraveled in one of Europe’s largest accounting frauds in 2020, after a special audit from KPMG found evidence of financial misconduct.

Kirsten’s former employer Vonovia became the single largest shareholder in Adler last month, after seizing stock from a major investor that failed to service a margin call on a €250mn loan.

Vonovia seized the 20.5 per cent stake from Luxembourg-based Aggregate Holdings, a privately held investment company owned by Austrian businessman Günther Walcher, an associate of Caner.

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