The board of ASX small cap IOUpay handed over control to PricewaterhouseCoopers on Wednesday as voluntary trustees after a major fraud involving the siphoning of 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 discovered in mid-March.
The fintech offers smartphone mobile banking and digital payments in Malaysia and Indonesia in addition to BNPL services and OTT (over-the-top) media services through local telcos.
IOUpay has been trying to find about $5 million to recapitalize in recent weeks, and had agreed to debt financing with Sydney finance company Finran when the lender pulled the deal.
PwC’s Daniel Walley and Philip Carter are now managers.
The alleged fraud involved the company’s former CFO, Kenneth Kuan Choon Hsuing, who was fired on March 13 for other matters, including refusing to follow lawful instructions from the board. fraud” and involved forged documents from a leading Malaysian law firm, which claimed to hold capital in trust.
IOUpay stopped trading its shares the next day and is now marking legal action against auditor Grant Thornton for failing to verify that the money existed during audits in June and December last year.
The initial discovery of the fraud in the Malaysian office involved approximately $7 million in cash for an acquisition. Only $3 million was used and the outstanding $4 million would be held by the law firm. The company now believes that up to $19 million has been funneled over the past 12 months in a series of unauthorized loans to businesses in Malaysia and Indonesia associated with Kuan and his wife, as well as other former IOUpay employees.
Kuan is currently under investigation by Malaysian authorities. In an update to the market last week, IOUpay said it had launched a civil recovery action against Kuan and had frozen the defendants’ bank accounts and assets to aid in the recovery process.
After the Malaysian Supreme 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 analyzed by forensic IT specialists.
IOUpay has also detected and blocked a number of attempts to gain unauthorized access to the company’s computer systems by other management personnel associated with Kuan. Those people have been fired and reported to the Malaysian police.
The fintech has already spent the past two years fending off lawsuits from its former corporate advisor Clee Capital, who helped launch a $50 million capital raise in early 2021. Clee enlisted Kuan as part of his legal actions.
One dispute involved 15 million IOUpay options at a strike price of $1 as part of the capital raise agreement. The company finally granted Clee the options in November last year.
The company, which floated at $1 a share in 2000, has not seen its share price rise by about $0.14 in the past 12 months.
Clee Capital returned to court last month to dismiss the board a fortnight after the fraud came to light, using testimony from Kuan as part of his case.
Clee tried to stop IOUpay from raising capital and entering into loan agreements.
The case was dismissed by the Federal Court earlier this month, with Clee ordered to pay costs.
The judgment outlines the financial condition of IOUpay in detail, cutting more than 100 jobs and leaving only 42 staff after the discovery of the fraud.
In its statement to the ASX yesterday, IOUpay’s board said: “The managers will be best placed to evaluate all genuine proposals to achieve 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 provide their full cooperation,” the company said.
The company’s operating subsidiaries in Malaysia, iSentric Sdn Bhd and IOUpay (Asia) Sdn Bhd, will continue to operate as usual and there will be minimal business interruption.
A general meeting was convened for May 3 to consider resigning directors, but the appointment of the trustees means that shareholders can no longer fire or appoint board members without their approval. Whether the meeting goes ahead is now up to the administrators.