African E-commerce Company, Jumia shares sank 14.6% (At the time of publishing) after Citron Research’s Andrew Left released a report describing the company as a “fraud” with worthless stock.
“In 18 years of publishing, Citron has never seen such an obvious fraud as Jumia.” The report says. The report titled ‘Citron Exposes the Smoking Gun‘ cites various discrepancies between Jumia’s confidential investor presentation from October 2018 that was being used to market to investors late last year and the presentation they did to the Securities Exchange Commission before the IPO.
In order to raise more money from investors, Jumia inflated its active consumers and active merchant’s figures by 20-30% (FRAUD).
The most disturbing disclosure that Jumia removed from its F-1 filing was that 41% of orders were returned, not delivered, or cancelled. This was previously disclosed in the Company’s October 2018 confidential investor presentation. This number is so alarming that screams fraudulent activities.
Instead, Jumia disclosed that “orders accounting for 14.4% of our GMV were either failed deliveries or returned by our consumers” in 2018. Assuming 41% of orders were returned, not delivered, or cancelled in 2018, this implies that almost 30% of orders were cancelled in 2018. Since Jumia primarily sells consumer electronics, which should not have this high of a cancellation rate, it wreaks of fraud.
The report also highlights high levels of systemic fraud at the corporate level.
“Jumia pays commissions to a sales force of Nigerians that place orders for other people using their ID numbers, Jforce Consultants. Sales through Jforce Consultants account for 30-40% of net merchandise value for Jumia. Last month, Jumia amended its F-1 and added language that Jumia “recently received information alleging that some of our independent sales consultants, members of our JForce program in Nigeria, may have engaged in fraudulent activities.” This language was missing from the original F-1 from just a month earlier.”
“This means that either 1) Jumia just found out about this historical fraud, 2) this is a new fraud that will affect future financials, or 3) Jumia has been hiding the fraud for quite some time but going public forced their lawyers to add this language.”
Citron also references media where Jumia MD was questioned before the IPO by the Nigerian police over allegations of fraudulent diversion of funds in regards to its relation with Hodara.
“Local media commented that their investigation revealed that many top directors of Jumia were engaged in serious acts of fraud including diverting money that was supposed to be used for projects into their own bank accounts and using director owned private companies to accept Jumia orders while receiving advance payments but never fulfilling the orders. In some cases, these fraudsters were relatives of senior management and “the directors would sweep the case under the carpet in order to avoid public scrutiny”.
This is a developing story. More updates to follow.
Cover Image Credits: Quartz