Quick Take: eFishery’s Horror Flows

[Note: My Quick Takes are my personal commentaries and do not represent IWIRC Indonesia. I have moved in February 2025 to Acrostics Asia.]

By Eveline Danubrata

Initial investigations into Indonesian unicorn eFishery’s alleged fraud are like a horror accounting story. While the inflated sales and red sea of losses have been widely reported, the real horror is in the money flows.

DealStreetAsia broke the news on eFishery’s financial irregularities, which were unveiled during a preliminary investigation by FTI Consulting. Revenue from January to September 2024 was marked up 4.8 times to USD 750 million-equivalent, while a USD 35 million loss was presented as a USD 16 million pre-tax profit. (Please click here for my previous take on eFishery’s fishy accounting).

Apart from the revenue and P&L, I think there are other details in the 52-page report that are worth highlighting. This is my summary based on the findings:

• The financial manipulation started when eFishery struggled to hit its fundraising target during its Series A round in 2018. The startup’s founder, Gibran Huzaifah, inflated its revenue by around 20-25% and juiced up its profitability, helping it to get across the line.
• Gibran created two sets of accounts—one for external parties and another for internal operations—and maintained them himself between 2018 and 2020. Subsequently, he hired more people to handle these books.
• Gibran also entered into operational partnerships with some companies in order to create money flows for the inflated revenue and cost of sales. But as the gap between the actual and inflated revenue widened, the partnerships alone were not enough to churn out the required flows.
• In January 2022, Gibran had five nominee companies incorporated to enable a roundtripping of funds between eFishery’s Indonesian entities to support the flows for the fraudulent transactions.
• When Gibran had to present eFishery’s actual cash position to the Board, he instructed his team to inflate the capex spent on feeders to justify the cash decline. The investigators found that based on the internal books, total capex on feeders was USD 2.8 million while the net book value of feeders in fixed assets and inventory stood at USD 2.1 million.
• From the start of business until 30 November 2024, total retained losses from eFishery’s Indonesian operations amounted to USD 152 million-equivalent.

Is there any value left in eFishery?

The unicorn has raised more funding than all of its competitors combined and may therefore have enough runway to sustain its operations for a few years, but not all investors are convinced that reviving it is worth the time and effort, DealStreetAsia reported today.

A restructuring friend believes that liquidating eFishery is the best option because it’s tough for the startup to reboot from here. “It will be hard to salvage anything from the business given that in reality its operations were so small and the fraud so big,” this friend said. “The brand is dead.”

However, pulling the trigger and laying off workers ahead of the Muslim festive season could be a public relations disaster for the shareholders. An eFishery employee also wrote in a viral LinkedIn post that the media coverage of the scandal has unfairly tarnished the entire staff, even though many of them are innocent. This employee added that eFishery’s technology is real and the company has built a relationship with fish farmers overtime.

The blame game is likely to intensify, with some investors pointing the fingers at the auditors for not sniffing out the stink. Checking stocks and receivables should be a standard operating procedure, but it’s hard for auditors to do their job if the management kept multiple books, according to a friend with audit experience. “It all goes down to the data: garbage in, garbage out,” this friend said.

It's a tough time for everyone involved, but hopefully there are genuine lessons to be drawn from this saga so it won’t happen again.