Once valued at US$1.4 billion, the company is now under investigation for large-scale financial fraud, including the alleged fabrication of its reported revenue. The scandal has triggered both financial and legal consequences, raising urgent questions about due diligence and governance in high-growth sectors.

Reports indicate that a police complaint has been filed against eFishery’s former directors for alleged financial misrepresentation, further deepening the crisis. Authorities are now investigating potential fraud and governance failures, underscoring how lapses in oversight can lead to criminal liability.

At the same time, major investors, including SoftBank and Temasek, are facing massive losses. Analysts estimate that investors could recover as little as 9.5 cents per dollar invested, a near wipeout of value. This case serves as a stark reminder that absent robust scrutiny can lead to avoidable catastrophic financial losses.

For businesses operating in high-growth industries, supply chains, or markets prone to opaque practices, this case exposes critical gaps in due diligence, governance, and fraud risk management. In this article, we explore lessons that let you stay ahead.

Takeaways from the eFishery case
Often, organisations rely on traditional due diligence frameworks, which focus on financial audits and regulatory filings. The eFishery case demonstrates why it is insufficient. What are some tell-tale signs?

The Illusion of Scale
Fishery was profitable at a time when layoffs, resignations of chief executives, and plummeting valuations in the tech sector dominated headlines. Amid a global downturn in venture capital funding seen across the global tech sector, eFishery appeared to defy this trend, showcasing strong growth and rapid expansion. Investors did not validate the revenue that was being booked. Unbeknownst to them, it actually was being artificially generated through circular transactions involving shell companies.

Takeaway: Conduct cash flow tracing instead of solely depending on reported revenue. Adopting a ‘follow the money’ approach ensures that revenue originates from actual customer transactions.

Blind Faith in Third-Party Audits
‍Even legitimate-looking financial reports can be built on manipulated records. eFishery reportedly kept two sets of financial records, namely one inflated for external parties and another for internal use, which standard audits failed to detect.

Takeaway: It is crucial to re-audit key financials using independent forensic accountants, especially if a company operates in markets where regulatory oversight is weak. The deep transactional analysis and fraud detection mindset that forensic professionals bring significantly increase the detection of irregularities, even in cases where senior officers actively fabricate financial records.

Superficial Validation
‍It is likely that investors spoke with key stakeholders but did not thoroughly examine how eFishery’s business model was truly scaling. For example, a forensic audit of eFishery’s claims of having 400,000 feeding facilities revealed that only 24,000 were actually operational.

Takeaway: A key fraud tactic is relying on a small group of buyers to inflate revenue. Investors should check whether major customers are genuine third parties or secretly linked to the company through round-tripping. If revenue is heavily concentrated, deeper verification is needed to rule out manipulation.

Is reliance on traditional red flags sufficient?
Traditional fraud detection relies on identifying red flags like unexplained revenue growth, resistance to audits, or excessive related-party transactions. However, as fraud schemes become more sophisticated, this is insufficient.

Here is a checklist of what investors and businesses can do differently:

Active Due Diligence
Fraudsters exploit the fact that due diligence is often periodic, carefully timing their deception to pass scrutiny. Shifting from periodic reviews to continuous monitoring makes it harder for fraud to go undetected. In other words, go beyond traditional audits. Test operations in real-time by posing as customers or suppliers to assess whether the business functions as claimed.

Breakdown of Financial & Operational Claims
‍Relying solely on company-reported figures presents risks. Instead, conduct independent site visits and supplier verifications to validate operational scale. Rather than trusting polished investor decks, demand for raw financial data and/or conduct independent audits to verify the authenticity of reported numbers.

Cross-Check Data from Multiple Sources
Fraudsters manipulate data presentation to appear legitimate. To detect inconsistencies, compare multiple data points, e.g. customer records, transaction history, and supplier payments to spot anomalies. If revenue grows too fast without clear market validation, investigate further, as genuine growth typically aligns with industry benchmarks and forces of demand.

Conclusion: Time to move beyond surface-level due diligence The eFishery scandal serves as a stark reminder that traditional due diligence is not enough to detect sophisticated fraud. In an era where financial deception is becoming more complex, investors and businesses must go beyond red flags and surface-level audits to truly safeguard their interests.

By adopting an active, data-driven, and investigative approach, organizations can stress-test financial claims, validate operational scale, and continuously monitor for anomalies. The ABC approach:

Active Due Diligence,
Breakdown of Financial & Operational Claims, and
Cross-Checking Data;

offers a structured approach to identifying risks before they turn into costly failures.

Ultimately, fraud prevention is not just about spotting irregularities but anticipating and mitigating them before they escalate.

The lesson from eFishery is clear: investors and businesses that rely on traditional methods will always be one step behind fraudsters. Those who inquire, verify, and cross-check will stay ahead.
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