Why is the Humm share price slumping 7% on Friday?

Humm's shares are tumbling on Friday. Here's why…

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The Humm Group Ltd (ASX: HUM) share price is under pressure on Friday.

In afternoon trade, the financial services company's shares are down 7% to 47 cents.

Why is the Humm share price sinking?

Investors have been selling down the Humm share price on Friday amid concerns over its exposure to the alleged fraud of Forum Finance.

Last year Humm revealed that the company's decommissioned Managed Services business provided equipment finance to Forum Finance between 2016 and 2018.

However, following the shutdown of the business, the majority of these assets were sold to a third party and transferred off the company's balance sheet in 2018.

An initial review estimated the maximum historical exposure to Forum Finance including receivables on-sold to be $12 million post tax.

This morning the company released an update on its potential exposure to Forum Finance. Positively, management confirmed that it "remains of the view that its estimate of the extent of the exposure is reasonable."

So why are its shares falling?

Although Humm appears confident that its impact from the potential fraud, including receivables that were sold on, is $12 million post tax, one of the buyers of these receivables disagrees.

Today's announcement confirms reports that Sumitomo Mitsui Banking Corporation has lodged a statement of claim in relation to a potential exposure to Forum Finance.

News Corp media is reporting that Sumitomo Mitsui Banking Corporation is chasing Humm for ~$34 million. It alleges that the company was negligent in selling it items linked to the Forum Group and misled the bank.

Following today's disappointing decline, the Humm share price is now down by approximately 50% in 2022.

Motley Fool contributor James Mickleboro 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 Scott Phillips.

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