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

The board of ASX small cap IOUpay handed over control to PricewaterhouseCoopers as voluntary administrators on Wednesday after a major fraud that took 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.

Fintech offers smartphone mobile banking and digital payments in Malaysia and Indonesia along with BNPL services and OTT (over-the-top) media services via local telcos.

IOUpay has been trying to find about $5 million to recapitalize in recent weeks, and had arranged debt financing with financial firm Finran in Sydney when the lender pulled the deal.

Daniel Walley and Philip Carter of PwC are now administrators.

The alleged fraud involved the company’s former chief financial officer, Kenneth Kuan Choon Hsuing, who was fired on March 13 for other matters, including refusing to obey the board’s lawful instructions. The missing funds were discovered the next day in what the company called a “significant” fraud” involving forged documents from a leading Malaysian law firm, which claimed to have capital in trust.

IOUpay suspended trading in its shares the following day and is now flagging legal action against auditor Grant Thornton for failing to verify the funds that existed during audits in June and December last year.

The first detection of the fraud in the Malaysian office involved about $7 million in cash allocated to an acquisition. Only $3m was spent and the outstanding $4m was supposedly 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 unauthorized loans to companies in Malaysia and Indonesia linked 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 initiated civil recovery actions against Kuan, and the bank accounts and assets of the defendants had been frozen to assist with recovery proceedings.

After the Malaysian High Court authorized 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 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. These individuals have been dismissed and reported to the Malaysian police.

The fintech has already spent the past two years fending off lawsuits from its former corporate adviser Clee Capital, which assisted with a $50 million capital raising 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 agreement. The company finally granted Clee the options last November.

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

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

Clee tried to prevent IOUpay from raising capital and entering into loan agreements.

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

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

In its statement to the ASX yesterday, IOUpay’s board said that “the administrators will be best placed to consider 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 board welcomes this review and will cooperate fully,” 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 interruption.

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