Why the Humm (ASX:HUM) share price is falling on Friday

The BNPL provider reveals it potentially had past exposure to a company currently embroiled in fraud allegations

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The Humm Group Ltd (ASX: HUM) share price is sliding lower on Friday. This comes as the company revealed it potentially had past exposure to Forum Finance, which is currently embroiled in fraud allegations.

At the time of writing, the Humm share price is trading 3.47% lower to 98 cents a share.

Potential fraud exposure details

On Wednesday, my Fool colleague, Tristan covered details of Westpac Banking Corp (ASX: WBC) uncovering significant potential fraud. The matter concerns a portfolio of equipment leases with Westpac customers arranged by Forum Finance.

The bank reported it had roughly $200 million after-tax of exposure to the matter. The actual loss will be determined by the outcome of investigations and recovery actions.

In the case of Humm, the company announced today its decommissioned Flexigroup managed services business may have been exposed to Forum Finance. Specifically, between 2016 and 2018 when the business provided finance to a number of vendor programs in the Australian market.

"Records indicate that Flexigroup Managed Services generated business linked to Forum Finance between 2016 and 2018," the company stated. Recent investigations prompted a review of historical records which uncovered the finding.

However, Humm has since sold the majority of these assets to a third party, transferring them off of the company's balance sheet in the process. Although, that hasn't seemed to stem the downward pressure on the Humm share price today.

Moreover, the company is yet to confirm whether those specific assets are fraudulent. Hence, investigations remain ongoing as a result. Humm's initial review puts the company's potential on-sold exposure at $12 million post-tax. Importantly, no exposure exists on its current lines of business.

Humm share price snapshot

Unfortunately for shareholders, the revelations come on top of an already poor year for the Humm share price. So far in 2021, the company's shares have devalued by 12.8%. Similarly, the value of the shares has fallen 19.3% in the past year.

Finally, based on the current Humm share price, the company holds a price-to-earnings (P/E) ratio of 16.64.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Humm Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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