Kenya’s giant e-commerce firm Jumia has been fined a massive Ksh. 500 million by the U.S. based New York Stock Exchange (NYSE). The fine stemmed from allegations of fraud involving Jumia during its Initial Public Offer (IPO) with the United States Securities Exchange Commission (SEC). Jumia filed its IPO with the SEC on March 2019 hence becoming the first African technology startup to be listed in the lucrative NYSE. The African e-retailer company has so far denied the allegations and emphasized that the corporation has always been transparent in the way it conducted its business.
Jumia is by far the most ‘successful’ e-commerce retailer in Africa when compared to the company’s’ competitors including Kilimall, Konga and a plethora of other significantly smaller online retailers. The company operates in more than fourteen countries across the African continent and has been likened to the world’s largest retailer, Amazon. But Jumia has faced a lot of criticism about the way it carries its business including the use of deceptive means to accomplish its objectives.

There are even a group of investors who actually think Jumia is a total fraud that will crumble at any moment. But is it true that whenever there is smoke, there has to be fire? Or is there a smoking gun about Jumia being involved in fraud? Well, let us find out by getting to the bottom of the case that saw the company accept to pay a whopping Ksh. 500 million in order to settle charges of fraud brought about by some disgruntled investors in the United States.
Jumia: Is It A Fraudulent African Unicorn?
It has been alleged that a few months before Jumia listed its shares in the New York Stock Exchange, the company was actually on the verge of going bankrupt as it had just a one year worth of funds at the bank. So to get approved, the firm had to forge their numbers as the two largest owners of the company; MTN and Rocket Internet were frantically looking to sell Jumia in order to prevent further losses. Jumia made some material discrepancies in its 2018 presentation to investors that painted the company favorably in order to raise funds. In simpler terms, Jumia inflated the total number of active subscribers in its customer list as well as the total number of merchants that were actively using the Jumia platform to serve their clients.

As per the Citreon Research, Jumia also exaggerated the number of orders placed on the company’s website. It is believed that Jumia used its employees, locally referred to as the JForce, to impersonated themselves as regular customers and placed thousands of orders online so us to inflate the sales numbers of the company. These orders were never delivered as they were marked “returned” by the company’s accounting department. The company disclosed that “orders accounting to 14.4% of our GMV (Gross Merchandise Value) were either failed deliveries or returned by our customers”.
According to Citreon, the fraud permeating on Jumia’s premises have been document by various Nigerian media houses. The company has been described as: “sitting on gun powder which might explode any moment as the retail outfit is filled with many shady deals”. Other featured description of the company elsewhere in Africa describes Jumia as “cutting a picture of a fast-growing e-commerce company” but “beneath what is painted is a company struggling to survive over internal fraudulent activities”.
There has also been reports of Jumia senior management officials using their family members to divert money that was supposed to be used for projects into their own personal bank accounts and using director owned private firms to place and accept Jumia orders while receiving advance payment, but never fulfilling the orders. This is particularly so in the company’s headquarters in Nigeria.
Case Settlement in New York.
On August 12, 2020, Jumia accepted to pay US$5 million (Ksh. 500 million) to investors that had sued the company for misrepresentation of its accounting books during its IPO offer in March 2019. The plaintiff had gone to court claiming that the company’s exaggerated orders, merchant signups and consumer list amounted to fraud and hence liable for damages to the said investors. While the African e-commerce retailer did not admit any wrong-doing, it accepted to pay the money of which US$ 1 million will come from its insurers. It is expected that Jumia will complete the payment by the end of the 2020 fourth quarter.
It is anticipated that the company will benefit tremendously from increased orders in 2020 brought about by the deadly coronavirus as countries across Africa imposed mandatory lock-downs and encouraged online shopping and food delivery during Q1. This started in March when Africa reported their first case of confirmed covid-19 infection.