Investigation Poses Survival Risk for Net 1 UEPS

Net 1 UEPS Technologies Inc. (NASDAQ: UEPS) is finding out just how fun and complicated it can be when a foreign company is being investigated by the Department of Justice. The South African payment solutions and transaction processing services provider is seeing its shares cut in half after confirming that the U.S. Department of Justice is investigating it over possible violations of the Foreign Corrupt Practices Act. This is not just a 52-week low, this is an all-time low for its shares.

The company received a letter from the Department of Justice on November 30 which disclosed that the FBI and DOJ are investigating it for corrupt payments made to South African government officials. This investigation specifically is said to pertain to the company’s efforts to secure a contract with the South African Social Security Agency. After winning the contract in January, Net 1 UEPS became the sole company providing social welfare payment services in South Africa. The U.S. Securities & Exchange Commission is also in on the investigation. Today’s news also shows that the investigation will cover potential federal securities law violations over statements made in SEC filings which pertain to this contract.

So, how bad is it? An all-time low should spell it out clearly. Shares are down almost 55% at $3.52 and the prior 52-week range was $6.71 to $11.21. The last time shares were even close to $4.00 was back in late-2001 and into 2002. Yahoo! Finance shows its market cap as only $158 million now and the 3.6 million shares traded as of 11:00 AM EST represents a volume-spike of more than 36-times a normal day’s trading volume.

So, what is the prognosis? It is challenging when foreign agencies can hang over foreign companies. Ultimately, the market is trying to tell you that this poses a survival risk. Any time a company’s value is chopped in half the market is warning you that things could get even worse. Unless these investigations are resolved in short order, something which would be very rare, Net 1 UEPS has a serious overhang and risk attached to it. Things are only complicated even more with this company being based in South Africa.

JON C. OGG