From being the first successful African startup to list on the New York Stock Exchange, now to the first fraud to ever make its way to the floor of the American Stock Exchange from Africa.

It appears Jumia is in for a big trouble. Citron Research, the American research firm that publishes reports on firms that Citron Research founder, Andrew Edward Left thinks are overvalued or are engaged in fraud is saying, in a twelve-page document, that it has never seen such an obvious fraud as Jumia’s first Initial Public Offering, held from the 11th of April, 2019, in its 18 years of publishing.

Also See: As Jumia Goes Public, Key Points Every Entrepreneur Should Know

‘‘ Jumia is the worst abuse of the IPO system since the Chinese RTO fraud boom almost a decade ago. Worse than being “the most expensive” US listed eCommerce company, Jumia reported financials show us a stagnant business that has burned through $1 billion and has moved the suckers game to the US Markets,’’ the report stated.

As the media in the US is naively anointing Jumia the “Amazon of Africa”, the media in its home country of Nigeria has a plethora of articles discussing the widespread fraud in this Nigerian company. Not even that elusive Nigerian prince can cover this one up.

What Went Wrong?

The deal is that Jumia lied. Not one. But so many times, said Citron. The research firm claimed it has finally laid its hands on Jumia’s most confidential documents before the IPO, and from all indications, Jumia’s equities seem to be the most worthless ever to be sold on the New York Stock Exchange.

‘‘When a company markets to investors ahead of its IPO and then a few months later omits material facts and makes material changes to its key financial metrics to make the business seem viable, this is SECURITIES FRAUD,’’ the report read. 

Now These Are What The Firm Claimed To Have Found:

1. ‘‘In order to raise more money from investors, Jumia inflated its active consumers and active merchants figures’’

The inflation came by way of 20–30% increase in the number of Jumia’s active consumers and active merchants, Citron noted. 

”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 it screams fraudulent activities,” the report noted.

”Instead, Jumia disclosed that “orders accounting for 14.4% of our Gross Merchandise Volume 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.”

2. ‘‘Just before IPO, a Jumia MD was questioned by Nigerian Police over Allegations of Fraudulent Diversion of Funds’’

It doesn’t look like Citron is out for a joke. The firm claimed Jumia’s fraud starts from the top to the bottom.Jumia Co-CEO, Jeremy Hodara, the firm claimed, has engaged in extremely questionable related party transactions that the SEC should immediately question. It went on to provide a sequence to these questionable transactions.

• In February 2016, four of Jumia’s subsidiaries were sold to Jumia’s CEO, Hodara for 1 euro each. 

• Despite only generating revenue of 238 thousand euro and net losses of over 3 million euro in 2017, Jumia reacquired these businesses in 2018 from Hodara for an undisclosed price. 

• During the same year, Jumia acquired Jumia Facilities, a payroll and support services operation based in Dubai, from Hodara for an undisclosed price.

”…many top directors of Jumia were engaging 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”.

Jumia’s Stocks Came Tumbling Down On The New York Stock Exchange

Now, it appears Citron Research now has laughed the last and the best laugh. Jumia’s investors are pulling out!

 In the seven hours of trading on Thursday, Jumia’s shares lost 18% of its value. 

The Bottom Line

From all indications, it appeared Citron Research was out to disparage one country — Nigeria —  and possibly block further companies there from getting approval to list on the New York Stock Exchange in the future. The firm even went as far as mentioning that Jumia learned the hard way that Nigeria, Jumia’s largest and most important market, is not an easy place to do eCommerce for plenty of reasons including logistics, poverty, and a culture of corruption. It went ahead to cite the recent divestment of Naspers(a South African company), which it described as ‘‘the smartest and largest tech investor in Africa’’ from Konga, another online eCommerce company in Nigeria. 

‘‘This was not due to a lack of funds or a short-term investment horizon,[after all,] Naspers has $12 billion of cash on the balance sheet and its original investment in Tencent ([in which it] still owns >30%) dates back to 2001… Rather, this decision was a reflection of Naspers’ bearish view on the Nigerian eCommerce market vs. a bullish view on South African eCommerce. Since its Konga exit, Naspers announced plans to invest over $300 million in South African tech businesses,’’ Citron noted.

No matter how you see it, the report appeared to have gone after Nigeria rather than focus more intensely on Jumia. After all, although Nigeria is Jumia’s biggest market, its S1 filing (which Citron claims to have studied) indicates that Jumia Group is not a Nigerian company as it is led by French founders, incorporated in Germany and headquartered in Dubai.

Citron Research is sending a message to American and international investors that Jumia is not only a fraudulent company which ‘‘not even that elusive Nigerian prince’’ can deny, but also that they are throwing their money into the wrong country where it is ‘‘not easy…to do eCommerce…because of …a culture of corruption.’’ (NB: ‘Nigerian Prince’ is a reference to the notorious Nigerian internet fraudsters, popularly known as Yahoo! boys)

Whether Jumia comes out of this unscathed, only time would tell.

Charles Rapulu Udoh

Charles Rapulu Udoh, a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.