Ann: Letter to Shareholders - Update on Fraud Investigation, page-2

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20 April 2023

Update on Fraud Investigationand Other Matters

Dear Fellow Shareholder

On behalf of the Board, I would like to provide you with an update on the actions taken by the Board toinvestigate the suspected fraud against the Company, and to recover the misappropriated funds.

The discovery of this fraud, and the subsequent need to suspend trading in the Company’s shares, havecaused great distress and concern for many investors. The Board shares this concern, and is doingeverything in its power to recover the missing funds, to prosecute those responsible, and to restore theCompany’s shares to trading on the ASX as soon as possible.

Update on Fraud Investigations

On 13 March 2023, the Board discovered that a suspected significant fraud had been committed againstthe Company. The Company’s former CFO, Mr Kenneth Kuan Choon Hsuing, had already beendismissed for other reasons, including refusal to obey the Board’s lawful instructions. Mr Kuan is nowbeing investigated by the Malaysian police authorities, including officers from both the Commercial Crimeand Anti-Money Laundering divisions of the Royal Malaysia Police. The police have acted speedily toquestion a number of suspects, and their investigations continue.

The Company has also commenced civil recovery action against Mr Kuan, and executed search andseizure orders against him and related parties on 24 March 2023. These powerful orders from the HighCourt of Malaysia are rarely granted. They require strong evidence of apparent wrongdoing, sufficient toconvince a judge that urgent action must be taken to search a defendant’s premises and preserve assetsfor recovery by the wronged party. A total of 23 electronic devices and a number of documents wereseized during the raid, and are being inspected by independent forensic IT specialists. Further, the bankaccounts and assets of the defendants have been frozen to assist with recovery proceedings.

In addition, Crowe Malaysia PLT (Crowe) was first approached by the Board on 14 March, and wasengaged to conduct an independent forensic audit of all suspicious transactions. Crowe have been ableto make use of data recovered from the electronic devices of Mr Kuan and the other targets of the raid,which has helped to identify and trace the illegitimate handling of the Company’s funds by thosedefendants.

The fraud included falsifying communications from a well-established law firm in Malaysia, Thomas PhilipAdvocates and Solicitors (Thomas Philip). Letters on Thomas Philip letterhead were provided to theCompany and the auditors, Grant Thornton Malaysia, to confirm the existence of Company fundssupposedly held on trust by Thomas Philip at 30 June 2022 and 31 December 2022. The Board hasformally queried the procedures undertaken by Grant Thornton to confirm the existence of theseCompany funds. The Board has also formally put Grant Thornton on notice of a potential legal claimagainst them, and a notification to Grant Thornton’s professional indemnity insurers.

The Board has also discovered and prevented a number of attempts to gain unauthorised access to theCompany’s computer systems by other management personnel associated with Mr Kuan. Those othermanagement personnel have also been dismissed, and police reports have been lodged. The Board hasbeen able to retrieve, restore and safeguard key records and systems.

Sydney Singapore Jakarta Kuala Lumpur

IOUPAY LIMITED (ASX: IOU)

(ACN 091 192 871)

Level 1, 283 George StreetSydney NSW 2000Website: www.ioupay.com

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Transactions with Piminik Investments, Birch Capital, and other parties

The fraud also involved a number of questionable unauthorised loans of Company funds made byMr Kuan, and other former management personnel, to parties related to them. The existence of theseloans was actively concealed from the Board and the auditors.

As part of these unauthorised transactions, funds were advanced to an entity called Piminik InvestmentsSdn Bhd (Piminik), an entity associated with Mr Anthony Dunlop. According to the law firm, ThomasPhilip:

“At all material times, Kenneth Kuan represented to our firm that Piminik was a special purposevehicle ultimately owned and/or controlled by IOU Pay Limited and/or iSentric Sdn Bhd(“iSentric”) and/or IOU Pay (Asia) Sdn Bhd (the “IOU Group”) .....However, it now appears to usthat Kenneth Kuan may have wrongfully and/or without authority used funds belonging to iSentricto fund the [Piminik transaction].”

As part of their independent forensic audit, Crowe has been asked specifically to examine all transactionsrelating to Piminik and/or Mr Dunlop.

Piminik has itself made a loan to the Managing Director, Mr Aaron Lee Chin Wee, which continues to beexamined by the Board. The independent forensic audit by Crowe will establish whether any illegality hasoccurred in this transaction. The Board has insisted that all senior executives and management beinvestigated as required, with no exceptions. All Directors and current senior management arecooperating in full.

One of the largest unauthorised loans was made to an entity called Birch Capital Sdn Bhd (Birch). Birchis jointly owned by Mr Kuan’s wife and Piminik Investment Holdings Pte Ltd (where Mr Kuan’s sister is adirector). The sole director of Birch is Mr Kuan’s wife. Mr Kuan currently uses an email address underBirch, and so does the Company’s former Chief Technology Officer (also now dismissed). Further, MrDunlop also currently uses an email address under Birch.

In summary, the ongoing investigations and recovery actions taken by the Board have identified a numberof close links between Mr Kuan and Mr Dunlop, and a number of suspicious transactions. All possiblelegal actions are being taken by the Board to recover the misappropriated funds.

Previous Interactions with Clee

In this context, the Board notes with great concern that Mr Kuan is working with Clee Capital Pty Ltd(Clee) in its attempt to remove the Board at the upcoming Extraordinary General Meeting on 3 May 2023(EGM). The recent failed legal action by Clee in the Federal Court of Australia relied on the evidence ofMr Kuan, who swore an affidavit in support of Clee’s claim.

The Board considers that shareholders should be aware of previous interactions between the Companyand Clee, in order to fully understand the context of the current attempt to remove the Board.

In February 2021, the Company engaged Clee to undertake a capital raising for the sum of $50 million.Clee was paid a fee of 7%, amounting to $3.5 million, for this service. In addition, Clee was entitled to beissued with 15 million options, with an expiry date of twelve months, at an exercise price of $1. TheCompany announced to the ASX on 18 February 2021, the day that the capital raising was completed,that these options would be issued.

The ASX release noted that shareholder approval would be sought for the issue of the options at the nextavailable general meeting. At that time, the Company was unable to issue the options withoutshareholder approval, as its placement capacity was already full. However, the resolution to seekshareholder approval was inadvertently left out of the Notice of Meeting for the 2021 annual generalmeeting.

Sydney Singapore Jakarta Kuala Lumpur

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The share price during the period from 18 February 2021 until 30 November 2022 (twelve months afterthe 2021 AGM) never exceeded 80 cents, with a highest closing price of 63 cents. Accordingly, theoptions were never “in the money” or exercisable for a profit.

In April 2022, Clee contacted the Company and stated that it had suffered a loss of $600,000 as a resultof the non-issue of the options, and demanded payment by the Company of $600,000. This is despite thefact that the options, had they been issued, would not have generated a profit for Clee.

In September 2022, discussions took place between Company officers and Clee in relation to this matter.On 29 September 2022, Clee sent two emails to officers of the Company. These emails made veryserious allegations against the Company and certain of its officers. These allegations had nothing to dowith the fraud that has now been discovered and stopped by the Board, for which Mr Kuan is currentlybeing investigated.

Clee demanded the payment of $1.25 million, and stated that it would commence litigation without furthernotice if this sum was not paid. Clee also stated that if litigation was commenced by it, the Company’sshares would have to be suspended, and the Company would not be able to raise further capital.

The claims were firmly rejected by the Company and the officers involved, as there was clearly no basisfor the $1.25 million payment that was demanded, or indeed any payment. On 2 November 2022, theCompany issued the 15 million options to Clee that had previously been announced to the ASX on 18February 2021. At that time, the Company did not need specific shareholder approval as its placementcapacity had been refreshed. Accordingly, these options are currently in force, with an expiry date of2 November 2023 and an exercise price of $1.

No further communication was received from Clee until 2 March 2023, when the Company receivednotice that Clee is “representing the group of shareholders” (the Requisitioners) seeking to remove theBoard and install its own nominated directors.

The Board notes that if the resolutions proposed by the Requisitioners are approved, the newly appointeddirectors will be in a position to authorise new transactions or arrangements with Clee, subject to theirdirectors’ duties. The new directors proposed by the Requisitioners appear to have no experience orcredentials as directors of listed public companies.

Summary

In summary, the Board notes the following important points.

1. The Company’s former CFO, Mr Kenneth Kuan, is suspected on strong grounds of involvement in asignificant fraud against the Company.

2. The Board is taking all possible action to investigate the fraud, and to recover the missing assets.

3. Mr Kuan is now working with Clee in its attempt to remove the Board.

4. Last year Clee made a baseless demand for a cash payment of $1.25 million, which was rejected bythe Board.

The Board strongly recommends that all shareholders vote AGAINST all resolution put forward by Clee atthe upcoming EGM. This will ensure that the actions taken to recover the missing assets will continue.

Yours faithfully

Mr Isaac Chong Kwong YangExecutive Chairman