Jumia, a popular African E-commerce Company has received a heavy blow as their shares sank with 14.6%. This is after a research company, Citron Research released a report disregarding the company as a result of what they are regarding as the ‘most obvious fraud.’ Through Andrew Left, one of their staff, the research company described Jumia as a ‘fraud.’ The report continued to term the company’s stock as ‘worthless.’

The report titled ‘Citron Exposes the Smoking Gun‘ says that for the past 18 years Citron has been in publishing, they have ‘never seen such an obvious fraud as Jumia.’

The report 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%.

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 presents a possibility of one of these: Jumia just found out about this historical fraud; this is a new fraud that will affect future financials, or that 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 the Managing Director for Jumia 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. This includes 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.’”

Receiving such a report is a big shocker especially for Africa where Jumia holds a huge market share in e-commerce. This might affect online business where potential customers may fear losing their money to some fraudsters. The danger is that even the genuine ones are now likely to receive suspicion from their customers.