If you’ve watched the 2022 film, The Menu, you’d know how the meals get progressively more disturbing until the head chef blows up the whole place (including the guests). That appears to be the trajectory South-East Asia-based digital payments company IOUPay (ASX: IOU) is on.
After witnessing a BNPL decline and a slew of losses over the past year, the Company has now reported that it has significant grounds to believe that a senior executive has defrauded IOUPay of about $4 million. Malaysian police authorities are now investigating the matter with IOUPay’s help.
The sophisticated fraud involved concealing the true status of approximately $7 million in cash that was purportedly held by a reputable stakeholding firm in Malaysia, as a stakeholder for the completion of the IDSB transaction—an agreement to provide FinTech services to Malaysian civil servants. IOUPay, initially, had a 42% stake in the venture, which it reduced to 34% in August 2022, having to pay $23.3 million in two tranches.
After renegotiating the IDSB contract, only $3 million was required for completion. The remaining $4 million was to be reported as available cash in the Company’s financial reports. That didn’t happen. Additionally, the executive made a bunch of unauthorised loans to business entities in Malaysia and Indonesia. The Company is attempting to recall these loans.
Based on the current status of the investigation, the Company’s accounts will have to be restated, and measures to recover these funds are underway. At the same time, IOUPay is questioning auditors, Grant Thornton Malaysia and MNSA, to determine how the misappropriation of funds remained undetected.
Since accumulating losses and restructuring its board, the Company has been focusing on cost-cutting initiatives. Recently, it appointed Executive Chairman Isaac Chong Kwong Yang to help with IOUPay’s pivot and bring the Company back to profitability as it deals with resignations and an overall BNPL decline.
But frauds like these are not making things any better—especially given that they are happening within the Company.
For now, IOUPay has temporarily paused the offer of loans in its BNPL business. It might restart in late March, with a focus on a strictly limited number of existing profitable merchant customers. Cash will be returned to the business as the BNPL portfolio is reduced in size.
It is also undertaking layoffs, with many senior managers leaving the business. It plans on reducing headcount further in the coming weeks, and its Marketing, Technology, Finance, and Collections departments will be maintained at the optimum level to ensure business sustainability. IOUPay will also reduce its office sizes and cut back on ad and travel spending.
Of course, IOUPay knows that these activities might not be enough to see it through the turbulent times. So, it is trying to strike a deal with a “friendly party” which will support the Company with a $5 million loan. It might even consider equity capital raising.
It looks like the Company will have to stay off the ASX for a longer time than anticipated as it attempts to address the misappropriation of funds and restates its financials.
Alinda is a Business Reporter for The Sentiment
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