• Business - Companies
  • Updated: August 14, 2020

Jumia To Pay $5 million, $1 million For Deceiving Investors During IPO

Jumia To Pay $5 million, $1 million For Deceiving Investors

E-commerce platform, Jumia, will pay its way out of the class action lawsuits instituted against the company by investors who accused Jumia of deceiving them by allegedly issuing misstatements and omitting vital information in its Initial Public Offering (IPO) prospectus.

AllNews recall in May 2019, a US Based online investment Newsletter, Citron Research, said Jumia's shares were worthless and only looks good on paper because Jumia had “fudged its numbers” in order to attract foreign investors during its IPO listing in New York Stock Exchange.

Part of the revelation included that, “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.” - Jumia removed the information from its 2019 IPO prospectus.

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The revelation led to Jumia's stocks plummeting and triggered a class action lawsuit from investors. The report by Citron Research cast a dark cloud on Jumia for long, as the court battle stretched into this year. The company has now announced that it has agreed to settle.

Jumia To Settle Financially But Doesn't Admit Guilty

In a statement seen by AllNews, Jumia said it will settle the lawsuit which will be guided by court approval. Jumia will pay $5 million and $1 million to settle the case, but according to the company, the financial settlement doesn't mean Jumia is admitting wrongdoing.

"As previously disclosed, several putative class action lawsuits were filed in the U.S. District Court for the Southern District of New York and the New York County Supreme Court against us and other defendants, including current and former members of our supervisory and management boards.

"The cases assert claims under federal securities laws based on alleged misstatements and omissions in connection with and following our initial public offering.  On  August  11,  2020,  we reached an agreement to fully resolve all of the actions, subject to standard conditions including court approval.

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"Under this agreement, in which the defendants do not admit any liability or wrongdoing, Jumia will make a settlement payment of $5 million, $1 million of which will be funded by insurance coverage," Jumia said in the statement obtained by AllNews.

Post-IPO Scandal That Has Affected Jumia

Four months after Citron Research accused Jumia of allegedly hiding vital information from investors, it was also discovered that some of the company's employees engaged in internal fraud by inflating Jumia's volumes of order on its website - which portrayed the company was recording high orders.

It was learnt that the deceitful or inappropriate order represents $17.5 million in Gross Merchandise Volume (GMV) value for the period of 2018 fourth quarter to 2019 second quarter. Note that the GMV is used by e-commerce companies like Jumia, Konga and Amazon to know the value of merchandise sold on their online marketplace.

This affected Jumia's GMV figures for Q2 2018 financial report, and the company had to readjust the figures.

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