Stockmarket activity leading up to the disclosure of a multi-million fraud at ASX-listed company EML Payments could come under scrutiny from market regulators.
EML on Wednesday revealed that a recently acquired European payments subsidiary known as Sentenial was hit by a debit card fraud earlier this month which has left the company exposed to losses of up to €5.5 million (A$7.9 million).
Details of the events surrounding the fraud are sketchy and EML did not disclose the European location in which the incident occurred.
Sentenial has entities operating across Europe including France, Germany and Belgium.
The announcement continues a run of disappointing news for EML, which is already facing regulatory costs and fines exceeding A$8 million at another European subsidiary - PFS Cards Services - for non-compliance with anti-money laundering laws.
Investor support for the stock has collapsed in the last 12 months, with the share price tanking from a peak of $4.24 last September to a seven-year low yesterday of 89 cents.
The Sentenial fraud incident forced the EML board to convene an emergency meeting on Wednesday morning before a disclosure was made to the ASX.
“EML Payments Limited advises that its Sentenial business has identified recent fraudulent activity relating to an identified set of fraudulent merchants within its direct debit processing business,” the company told the market.
“EML is taking steps to investigate and understand the circumstances surrounding the fraud, and has commenced steps to recover any losses.
“EML is confident that the maximum amount of any losses will not exceed €5.5m (AUD7.9m) but may be lower depending on the success of recovery actions.
“The fraudulent activity primarily occurred in August 2022 and came to EML’s attention on Tuesday 23 August. A meeting of the Board was convened early this morning for the purposes of informing the market.”
Trading in EML scrip was paused at the request of the company on Wednesday morning and resumed at 10.43am after the announcement was posted by the ASX.
While the board did not specify the exact time it became aware of the fraud, many retail investors complained on social media platforms on Wednesday that the negative news might have influenced trading of the company’s stock the previous day.
EML’s share price tumbled almost 12 per cent on Tuesday amid intense trading of the stock.
More than 9 million shares were traded on Tuesday – almost double the average daily turnover for the last 12 months.
The fall surprised many investors because there was no tangible explanation for the price movement given that it followed a positive disclosure on Monday about the company’s plan to launch an on-market buy-back of up to $20 million worth of shares.
Buy-back announcements usually buoy share prices.
The big fall in the share price on Tuesday perplexed stockmarket watchers including Motley Fool writer Sebastian Bowen who surmised, in the absence of any news or announcements, that investors simply got “cold feet”.
However, minutes after the disclosure of the fraud incident on Wednesday morning, many retail shareholders raised concerns on social media platforms that Tuesday’s price slide had been driven by a leak of the