Financial platform and BNPL (buy-now-pay-later) service IOUPay [ASX:IOU] was in the headlines this morning when the company provided further information pertaining to its recent incident of fraud.
The issue was first flagged last week when markets saw IOU pause trade last Tuesday.
IOU remains paused on the ASX, having fallen 78% since March last year, at 41 cents a share:
Source: tradingview.com
IOUPay’s financial predicament
Last Tuesday, the company first announced a pause in trade, followed by the succinct explainer two days later: ‘pending the release of an announcement regarding an update in relation to the fraud investigation and discussions with its financiers.’
Today the fintech minnow released a market update addressing significant suspected fraud. IOU is now under investigation by the Malaysian police.
Malaysian police are investigating the misappropriation of company funds by a former senior executive, which involves concealing the true status of around $7 million in cash — allegedly held by a reputable stake-holding firm in Malaysia.
Investigations have also unveiled a number of unauthorised loans that were made to business entities operating in Malaysia and Indonesia.
IOU says immediate actions are being taken to recover these funds, with processes to recall loans also beginning. The group’s board is looking for ways to strengthen internal procedures and controls to prevent similar occurrences from repeating themselves.
The group’s board is also analysing how the misappropriation of these funds remained undetected and is working closely with auditors Grant Thornton Malaysia and MNSA to find ways to restate accounts as needed.
Cost reductions and business shake-up
The Board has moved immediately to reduce costs and accelerate its already-planned program of increased efficiencies.
IOU has temporarily paused the offer of loans for its BNPL business and expects this division of the business to restart in late March, with a focus on limited numbers of profitable merchant customers.
Cash is also anticipated to return to the business as the BNPL portfolio undertakes a reduction in its size.
The financial corporation has also begun a mass dismissal of employees at its Malaysian office, with a number of senior managers associated with the offending senior executive having been directed to leave. Further staff lay-offs are scheduled for the coming weeks.
IOU stated:
‘As a result of these immediate actions, the Board is currently of the view that there is enough cash available to support operations, but this will continue to be carefully monitored and assessed on an ongoing basis, and will require the careful management of creditors.
‘In order to remove any doubts over solvency and to ensure sufficient cash flow for operations, pending the recovery of the misappropriated funds, the Board has held initial positive discussions with a friendly party interested in supporting the Company during this period.’
This ‘friendly party’ has proposed a loan of around $5 million, which IOU says is on ‘favourable terms’ and is a modest amount compared to the value of the company’s assets.
Australia faces big changes — are you prepared?
Australia has serviced 30 years of abundant, robust trade…but that’s now broken, and it’s unlikely to be pieced together the way it once was.
The global supply chain has been twisted — that’s why there’s less on our supermarket shelves, inflation is running rampant, and banks are closing branches.
The change is all around us, and the clues and signs are everywhere.
Jim Rickards, one of the world’s top financial and geopolitical analysts, has joined the dots nobody else has — certainly not the mainstream media.
He says ‘no one is talking about how this could end the Australian economy’ as we know it, as soon as within the next 12 months.
If you want to know more about the biggest geoeconomic shift of our lifetime, click here for more.
Regards,
Mahlia Stewart
For Money Morning
