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Scope Ratings Game of Corporate Law

The “Scope Group” is a bunch of constant changes under company law.

As a result of the Scope Ratings GmbH billion Euro scandal about Greensill Bank in Bermen, which was rated as “investment grade” for the first time in 2019 and is now insolvent, the precise activities of this local rating agency in Berlin have gained public attention. Therefore, the background to the recent Berlin takeover of Euler Hermes Rating GmbH (EHRG) is being researched.

The world-famous brand name “Euler Hermes” was not acquired by Scope. Even back then, when Scope took over FERI EuroRating Services AG, a credit rating agency registered by the European Securities and Markets Authority (ESMA) and headquartered in Bad Homburg, on August 1, 2016, Scope did not care about continuing the good name of the acquired credit rating agency.

According to the annual financial statements published on November 6, 2020, Euler Hermes Rating GmbH (EHRG) in Hamburg reported a “deficit not covered by equity” of € 4,857,377.49 in 2019. The loss carryforward increased in 2019 to € -5,959,576.90 from € -3,112,299.45 in the previous year 2018. Annual deficits in the millions were also generated, € -2,589,768.15 in 2019. Measured against the number of employees, high deficits, as in previous years: In the 2019 financial year, an average of 21 people were employed.

What is attractive about a company that has operated first as Hermes Rating GmbH since May 2001, then Euler Hermes Rating GmbH, if it has only been making losses for more than half a decade and whose most important asset was its good name, which is not being continued? The Berlin “Scope Group”, which has never made a profit for even much longer time, almost two decades, took over the company and writes: Euler Hermes Rating “will supplement Scope’s business with attractive future fields”.

The analysis focus of Euler Hermes Rating GmbH (EHRG) is mainly on small and medium-sized companies (SME) as well as on project financing. “With this focus, Euler Hermes Rating is in a good position in segments with great growth potential,” says a Scope quote in the press release from Euler Hermes Rating GmbH (EHRG) on the takeover by Scope.

In fact, however, the “TRIBRating” methodology developed specifically for SME was discontinued at the end of June 2020 when Moody’s left Euler Hermes Rating GmbH (EHRG). “TRIBRating” promised methods and models for assessing credit risks tailored to SMEs.

The new “TRIBRating” methodology announced in 2016, supported by Moody’s, gave hope at the time that it would better meet the expectations of investors and issuers, after the old methodology gave rise to bitter disappointments – see for example 2010 “Corporate bonds for private investors that are close to RENA”, which already did go bankrupt in 2014. Instead of the methodology valid until 2020, it was switched back to the state of 2016.

On November 16, 2010, Euler Hermes Rating GmbH (EHRG) was the first rating agency to be registered in the European Union as a rating agency in accordance with the 2009 EU regulation on credit rating agencies. The European Securities and Markets Authority (ESMA) responsible for this was only founded on January 1, 2011. For this reason, the registration of the rating agency in Hamburg was carried out by the German Federal Financial Supervisory Authority (BaFin) and then continued by the European Securities and Market Authority (ESMA).

The replacement of companies is a “tradition” at Scope: After the bankruptcy of the rating agency’s predecessor, the German real estate newspaper ran the headline “FondScope AG is dead, long live FondScope GmbH” in 2002. Names and companies were always founded and changed by the same initiator and today managing shareholder at Scope SE & Co. KGaA. On September 2, 2009, Scope Credit Rating GmbH was founded as a 100% subsidiary of Scope Holding GmbH and was supposed to ensure registration by the Federal Financial Supervisory Authority (BaFin), which was still responsible at the time.

However, the conditions at Scope Credit Rating GmbH, originally based in Potsdam and then relocated to Berlin, did not allow registration: Therefore, the then smallest rating agency in Germany was purchased, which had already obtained a registration on May 24, 2011, namely the one formerly known as Prof. Schneck Rating GmbH, then PSR Rating GmbH, which emerged from Reutlingen and moved its headquarters from Reutlingen to Tübingen. After the takeover of PSR Rating GmbH, the company was relocated from Tübingen to Berlin and renamed Scope Credit Rating GmbH and registration by the European Securities and Markets Authority (ESMA) continued, while Scope Credit Rating GmbH, which was previously based in Potsdam, and then also under the same name Scope Credit Rating GmbH, operating in Berlin, was not registered. A rating agency in the European Union is not allowed to issue credit ratings without registration.

The company operating today in the Scope scandal on Greensill Bank, Scope Ratings GmbH, goes back to its predecessor in Tübingen, because the company renamed from PSR Rating GmbH to “Scope Credit Rating GmbH” was again renamed to “Scope Rating GmbH”, then changed to a stock corporation and back to a limited liability company, which assumed the name “Scope Ratings GmbH”. The company of the same name, Scope Credit Rating GmbH, Berlin (formerly: Potsdam), only reported losses. While PSR Rating GmbH had made profits after start-up losses until the takeover by Scope, after integration at Scope, the business model was adapted to the Scope scheme and then – as with other companies in the group – continued to work with losses.

Scope Ratings AG was created by changing the legal form of Scope Ratings GmbH (Charlottenburg District Court HRB 145472) into Scope Ratings AG based in Berlin (Charlottenburg District Court, HRB 161306) based on a conversion resolution of July 18, 2014. After that, Scope Ratings AG was again converted into a Scope Ratings GmbH. The new change of legal form was entered on January 24, 2018.

Some contractual partners of the “Scope Group” might not bother to request and compare the exact commercial register numbers of the German local courts. Business partners could easily overlook whether their contracts were concluded with a “Scope Rating GmbH”, “Scope Ratings GmbH”, “Scope Ratings AG” or one of the two companies with the identical name “Scope Credit Rating GmbH”.

Scope Group

Investors in good faith who have paid or rendered services to Schoeller Corporation GmbH or Schoeller Invest GmbH in the hope of receiving (option) rights to the “Scope Group” and the promised increases in value may be mistaken. Because in these confidential contracts the exact company is already replaced by another name in the preliminary remark of the contract, for example “Scope AG” instead of “Scope Corporation AG”, while this is common in contracts, it could be confusing. The consequences may not be noticed until an IPO or other condition precedent occurs. The constant change of legal forms and numerous capital measures also makes it difficult to precisely calculate the amount of an acquired share and to enforce it in court.

At the beginning of 2019, a virtual option program was introduced for selected executives. It is difficult for these executives to properly gauge the value of these options given the many other connections, obligations and entitlements, such as those arising from the convertible bonds.

According to German company law, the management of the stock corporation is independent in accordance with Section 76 of the Stock Corporation Act. The board of directors is responsible for managing the company. This legal form-related independence of Scope Ratings AG, which also made it necessary to set up a supervisory board, which stood between the management board and the sole shareholder, could be eliminated by the conversion into a GmbH. In practice, the supervisory board meant that the main managing shareholder of the parent company could not exert any direct influence on the management board and that no legally binding instructions could be issued on individual issues.

Since the initiator of the Berlin business scheme, the main managing shareholder of the parent company, never saw a business school, has neither professional training nor a university degree, nor relevant practical experience from working for a recognized rating agency, which are typical requirements for the approval of the European Securities and Markets Authority (ESMA) for authoritative functions in a recognized credit rating agency, his power and influence is alternatively secured under company law.

The sole shareholder of Scope Ratings GmbH (formerly: Scope Ratings AG) is Scope SE & Co. KGaA (formerly Scope Corporation AG), represented by the management board, to which the main managing shareholder belongs. The board of directors can therefore decide on matters of the GmbH at any time. Which instructions are given to the managing director(s) of Scope Ratings GmbH is entirely at the discretion of the shareholders, i.e. Scope SE & Co. KGaA. Individual instructions to managing directors are also possible, as permitted by the German law on limited liability companies (Section 37 (1) GmbHG).

Maurice Thompson, head of the supervisory board of the bankrupt Bremen credit institution, Greensill Bank, is not only a shareholder but also an advisory board member of the Berlin rating agency, which gave Greensill Bank an A- credit rating – a credit rating on par with that of the best and most well-known German banks. The shareholders of Scope SE & Co. KGaA base their trust in the future return on their investment in particular on the promises of the main managing shareholder.

After the Börsen-Zeitung reported on the conflicts of interest at the instrumentalized Scope Ratings GmbH shortly after the moratorium imposed on Greensill Bank, the system of “Boards” created by the “Scope Group”, Honorary Board (including former Federal President Horst Köhler, former ECB President Jean-Claude Trichet), Board of Trustees, Advisory Board, Supervisory Board, Management Boards and “Ambassadors” are suspected, so that Bloomberg reported about it.

Hyperlinks to Pages on Scope Websites

Scope has started deleting important data on the group companies’ websites. Therefore, if individual links lead nowhere or do not provide the expected information, we ask for your understanding. At the time of this post’s publication, all links were still intact.

The traces of the connections have now been switched off by Scope and the entries in the Internet have been deleted. Only a body remains from the original webpage. A few clicks of the mouse would otherwise have revealed to viewers which other personalities are involved. Confidentiality plays a major role at Scope, as the specific example of an advisory board member no longer named on the Scope website shows.

Pictures and information on the website of Scope Group deleted without notice

As of December 31, 2016, Scope Ratings GmbH (formerly: Scope Ratings AG) had liabilities to affiliated companies in the amount of EUR 15,706,426.64 to the parent company Scope SE & Co KGaA (formerly Scope Corporation AG). By resolution of May 11, 2016, Scope SE & Co KGaA granted the company a subordinated shareholder loan of up to EUR 14,000,000.00, which replaced the existing liability.

The liquidity of the companies is ensured through shareholder loans and capital measures. Profits are promised outside of the companies by the fact that shares in the common parent company are sold at ever higher prices to an illustrious circle of celebrities and institutional investors. In particular – apart from prime addresses such as the RAG Foundation with Federal Finance Minister Olaf Scholz or NRW Prime Minister Armin Laschet in the Board of Trustees – the exact group of shareholders, beneficiaries and option holders is not disclosed.

For years, more and more capital has been raised in road shows in camera. A recently set-up foundation is intended to counteract the dissolution of these business structures, because 20% of the share capital of Scope Management SE was transferred to a “Scope Foundation” by the founder and main shareholder as well as by an “anchor shareholder” who is active in the capital market. Scope Management SE exercises the entrepreneurial control function within the Scope Group.

The chairman of the supervisory board of Scope SE & Co KGaA (formerly Scope Corporation AG) is Georg Graf Waldersee, who is also chairman of the board of the Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, the auditing company involved in the Wirecard scandal. Georg Graf Waldersee, who promotes the willingness to donate in Germany, is also responsible for losses at the auditing company. In both of his roles as chairman of the supervisory board, he accounts for many years only losses in the tens of millions.

Equity at Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft in € 1,000, Source: Creditsafe

Allone for his work as chairman of Scope SE & Co KGaA’s supervisory board in 2019 Georg Graf Waldersee receives 80,000 Euros p.a.

The average number of employees in the year 2019 was 81 (previous year 72). To motivate employees, the purchase of a bicycle is subsidized, for example.

Georg Graf Waldersee has been a member of the supervisory board of Scope Corporation AG since 2016, and he later replaced its chairwoman, Martha Boeckenfeld. Martha Boeckenfeld also became a member of the supervisory board of the major Italian bank Unicredit in 2016. Scope Ratings gave Unicredit an A- credit rating, clearly in the area of ​​“investment quality”. In the time after Martha Boeckenfeld was appointed as chairman of the supervisory board of Scope Corporation AG (today Scope SE & Co KGaA) and as a member of the supervisory board of Unicredit, the outlook of Scope Ratings for the rating of Unicredit was set to review for a possible upgrade. The Unicredit liabilities, which were rated A- by Scope Ratings GmbH, did not achieve such a good credit rating with the leading credit rating agencies; the Swiss Independent Credit View AG (I-CV) even issued a warning with a credit rating for Unicredit SpA at a speculative level. The Swiss specialists had also warned against Greensill Bank, which was rated A- by Scope Ratings GmbH, too.

Equity Ratio at Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft in percent (%), Source: Creditsafe

Via Scope Ratings GmbH (formerly Scope Ratings AG and PSR Rating GmbH), the responsible European Securities and Markets Authority (ESMA) not only has annual financial statements, but also compliance reports, notifications and other documents. However, some companies in the group (see “Scope Group not within the scope of ESMA”) elude the European supervisory authority, as the European Securities and Markets Authority (ESMA) has no mandate to supervise these other companies.

However, should the European Securities and Markets Authority (ESMA) find it necessary to withdraw the registration of Scope Ratings GmbH due to facts, Scope Hamburg GmbH (formerly Euler Hermes Rating) would remain for the parent company Scope SE & Co KGaA (formerly Scope Corporation AG) GmbH) if the European Securities and Markets Authority (ESMA) saw the conditions for registration with Scope Hamburg GmbH still met.

The list of credit rating agencies authorized by the European Securities and Markets Authority (ESMA) was last updated on January 4, 2021. Here, Euler Hermes Rating GmbH continues to operate with this company as a “registered” rating agency, even if the credit rating agency’s website is already operating as “Scope Hamburg GmbH”. The entry of “Scope Ratings GmbH (previously Scope Ratings AG and PSR Rating GmbH)” as a registered rating agency can also be found here.

So there are currently two registrations under one roof. This strengthens the resilience of Scope SE & Co KGaA to continue at least one of the two registrations. Euler Hermes Rating GmbH (now: Scope Hamburg GmbH) could not have had any problematic relationships with its parent and sister companies (including Scope Analysis GmbH, Scope Risk Solutions GmbH, Scope Investor Services GmbH) until 2021.


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