Orchard Funding Group has disclosed that it has “suffered an instance of fraud, arising from dealings with a fraudulent introducer and fraudulent credit agreements funded by the company as a result”.
House broker Liberum said the fraudulent introducer, who Orchard only started working with in November, put fake agreements into Orchard’s system using someone else’s identity.
Orchard subsequently funded those agreements before the fraud was picked up in January.
The company has put aside £500,000 to cover the impact of these fraudulent credit agreements, which will impact year-end financials with a one-off expense.
Shares were slapped 30% lower as a result.
However, house broker Liberum analysts said they “still see Orchard as the go-to alternative lender for those brokers not wanting to use the larger players in the insurance premium funding market, which are likely to come under pressure given the larger market-wide investigation into motor finance”.
Following a regulatory investigation, the insurance industry has set out plans to reduce motor insurance premiums after hiking them 25% in 2023.
Orchard’s dividend yield, underpinned by a strong balance sheet, “stands at an attractive 12%”, added Liberum.
But Orchard is also under pressure due to concerns over its guaranteed asset protection (GAP) offering.
Following a recent Financial Conduct Authority (FCA) review into GAP, the watchdog instructed at least five insurers to stop issuing these niche products.
“The withdrawal of these insurance products is likely to have a material adverse impact on the company's financial results over the current financial year,” Orchard said in February, although it is unclear whether the company was instructed to stop selling GAP by the FCA.