After months of denials, JUMIA Group has finally admitted to some internal fraud related to its sales and orders. This relates to what JUMIA says were orders that were placed on the e-commerce platform in Nigeria only to be later cancelled. As a result,  JUMIA says it has laid off some of its employees and JForce sales staff that were involved in the fraud.

What is curious is that given that the fraud amounted to approximately $18 million, JUMIA so far says it was not aware of it until it conducted an investigation leading up to the Q2 earnings call on 21 August 2019. As a result, at some point during trading on 21 August 2019, JUMIA stock fell as much as 17,4%.

"Now, before I wrap up, I would like to give you a bit of context and color to the sales practice review, including in our release, when we became aware of allegations concerning improper sales practices, we started a review. This was disclosed in our prospectus and we are now proactively giving you an update. This is part of our continued effort to be very transparent with the market. As you can read, so far, we're talking about isolated instances that had only a modest GMV impact and virtually no impact on our financial statements. We are constantly reviewing and improving our systems and controls to help us avoid such instances in the future," said Sacha Poignonnec, Co-Founder and Co-Chief Executive Officer at JUMIA, during the Q2 earnings conference call.

Sales and order fraud at JUMIA

Despite JUMIA trying their best to highlight some of the more positive numbers from their second quarter such as revenue growing by 58.2%, attention by those trading the e-commerce company's stock seemed to be more focussed on the sales and order fraud that JUMIA has now finally admitted.

As Poignonnec mentioned and as reported in JUMIA's Q2 financial report, the first case relates to members of its JForce sales team that allegedly were involved in fraudulent sales activities including bribing JUMIA employees for favourable marketing. The related fraudulent transactions are reported to amount to approximately 1% of JUMIA's Gross Merchandise Volume (GMV) during 2018 and the first quarter of 2019. As a result JUMIA says it has terminated the contract of all its employees and sales associates who were involved with the fraudulent sales.

The second case revolves around how some orders were placed on JUMIA and, before they were delivered, they'd be cancelled. Apparently this type of fraudulent activity amounted to 2% of the self-styled "African unicorn's" GMV in 2018 and 4% of GMV in the first quarter. Just as is the case with the fraudulent sales activity, JUMIA reported that it suspended the employees who were involved in the fraudulent order transactions. Furthermore, they say they are continuing investigations.

What is curious when you read JUMIA's Q2 financials and the statements around fraudulent activity is that not only is a very small section light on details afforded to the serious fraud, it is also that when you read between the lines JUMIA executives are essentially saying that they were not aware of fraudulent activity that amounted to approximately $18 million  under their watch, if that is the case then at minimum they should be held accountable for being incompetent or did they know all along?

Given that the types of fraud they claim to have only recently uncovered is the same as was alluded in a scathing report by Citron Research earlier in May 2019, one has to wonder whether the recent statements by JUMIA are merely a public relations damage control strategy to contain the fall out from the fraud being exposed.

"These transactions had no impact on our financial statements. We have suspended the employees involved pending the outcome of our review and are implementing measures designed to prevent similar instances in the future. We continue our review of this matter."

Class action lawsuits

As previously reported by iAfrikan, since May 2019, JUMIA has had several class action lawsuits filed against it specifically relating to suspicions that the company misrepresented its crucial data and financials when filing for its IPO. Previously, when speaking to iAfrikan, JUMIA's Abdesslam Benzoutini had said that they were "monitoring the situation," when talking about the class action lawsuits. Recently, in the Q2 financial report, JUMIA only mentions these briefly and does not even affirm that they are innocent given how serious the allegations are.

"Since May 2019, several class action lawsuits have been filed against us and certain of our officers in the U.S. District Court for the Southern District of New York and the Kings County Supreme Court in New York. The claims in these cases relate to alleged misstatements and omissions in our initial public offering prospectus and statements made by our company in connection with our initial public offering. These actions remain in their preliminary stages."

However, this is not unusual as the company has to tread carefully given that whatever they say now, should the cases go to court, will be held against them.

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