ASX-listed fintech IOUpay handed to administrators after its former CFO allegedly stole millions

- April 27, 2023 3 MIN READ
Image: AdobeStock
The board of ASX small cap IOUpay handed control to PricewaterhouseCoopers as voluntary administrators on Wednesday after a major fraud that siphoned off millions of dollars left the fintech unable to pay its bills.

Shares in the Malaysia-focused fintech (ASX:IOU) have been suspended at $0.04 cents since the fraud was first uncovered in mid March.

The fintech provides smartphone mobile banking and digital payments in Malaysia and Indonesia alongside BNPL services and OTT (over-the-top) media services via local telcos.

IOUpay has been trying to find around $5 million to recapitalise over the past several weeks, and had agreed to debt funding with Sydney finance company Finran when the lender pulled the deal.

Daniel Walley and Philip Carter from PwC are now administrators.

The alleged fraud involved the company’s former CFO, Kenneth Kuan Choon Hsuing, who was sacked over other matters on March 13, including refusal to obey the board’s lawful instructions.. The missing funds were uncovered the following day in what the company called a “significant fraud” and involved falsified documents from a leading Malaysian law firm, which claimed to be holding capital in trust.

IOUpay called a halt to trade in its shares the following day and is now flagging legal action against auditors Grant Thornton for failing to check the funds existed during audits in June and December last year.

The initial discovery of the fraud in its Malaysian office involved around $7 million in cash allocated towards an acquisition. Only $3 million was used and the outstanding $4m was supposedly being held by the law firm. The company now believes up to $19 million may have been siphoned off over the past 12 months in a series of unauthorised loans to companies in Malaysia and Indonesia connected to Kuan and his wife as well as other former IOUpay employees.

Kuan is currently being investigated by Malaysian authorities. In an update to the market last week IOUpay said it had launched civil recovery action against Kuan, and the bank accounts and assets of the defendants had been frozen to assist with recovery proceedings.

After the Malaysian High Court approved a raid on the former CFO and related parties, 23 electronic devices and a number of documents were seized, and are now being analysed forensic IT specialists.

IOUpay also detected and blocked a number of attempts to gain unauthorised access to the company’s computer systems by other management personnel associated with Kuan. Those people have been dismissed, and reported to Malaysian police.

The fintech has already spent the last two years fending off litigation by its former corporate advisor Clee Capital, which assisted with a $50 million capital raise in early 2021. Clee enlisted Kuan as part of its legal actions.

One dispute involved 15 million IOUpay options at an exercise price of $1 as part of the capital raising deal. The company eventually granted Clee the options in November last year.

The company, which floated at $1 a share in 2000, hasn’t seen its share price rise about $0.14 cents in the last 12 months.

Clee Capital returned to the courts last month looking to dismiss the board a fortnight after the fraud was revealed, using a witness statement from Kuan as part of its case.

Clee sought to restrain IOUpay from raising capital and entering into any loan agreements.

The matter was thrown out earlier this month by the Federal Court, with costs awarded against Clee.

The judgment outlines the financial state of IOUpay in detail, which shed more than 100 jobs to leave it with just 42 staff in the wake of discovering the fraud.

In its statement to the ASX yesterday, IOUpay’s board said “the administrators will be best placed to evaluate all genuine proposals to deliver the best outcome for creditors and shareholders.

“The Administrators will also review and report on recent events, and in particular investigate any allegations of fraud involving the Company or its subsidiaries. The Directors welcome this review, and will cooperate in full,” the company said.

The company’s operating subsidiaries in Malaysia, iSentric Sdn Bhd and IOUpay (Asia) Sdn Bhd, continue to operate as normal and there will be minimal business disruption.

A general meeting had been called for May 3 to consider the removal of directors, but the appointment of the administrators means shareholders can no longer remove or appoint board members without their approval. Whether the meeting proceeds is now up to the administrators.


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