UK payments processor Earthport is warning of a potential financial loss of £5 million at its wholly-owned foreign exchange subsidiary Baydonhill.
Earthport says the loss materialised after Baydonhill made payments on behalf of a corporate client which subsequently filed for administration. Iinvestigation indicated that the customer may have "intentionally engaged in fraudulent activity", says the company.
Earthport has informed regulatory and law enforcement authorities about the incident, but warns that there are no assurances that it will be able to recover the lost funds.
In a statement, the company says: "While the potential financial impact of this incident is material, Earthport possesses sufficient capital (£24 million of cash as of 31 December 2015, per Earthport’s Interim Trading Update) to continue pursuing its growth strategy while maintaining a substantial capital buffer."
Earthport shares are down 6.5% to 23.24 pence, recovering slightly from a new 52-week low of 21.88p in response to the news.