Stenn, a UK-based fintech once valued at $900 million and backed by major banks and private equity firms, collapsed in a matter of years, raising critical questions about the sustainability of the trade finance model, regulatory oversight, and the risks of high-profile financial ventures.
The company’s rapid downfall stemmed from allegations of money laundering, suspicious transactions, and dealings with high-risk customers. Stenn’s story serves as a stark reminder for anyone in fintech, trade finance, or any sector handling large sums and complex transactions. In this blog, we’ll explore Stenn’s rise, the factors behind its collapse, and its broader impact on the industry.
A fintech innovator in trade finance
Founded in 2015 by Greg Karpovsky, Stenn aimed to disrupt trade finance by using technology to offer faster invoice financing solutions to small businesses. The company purchased invoices from smaller suppliers and secured payments from larger corporations, modernising this age-old practice with advanced technology to assess credit risks and speed up payments.
Stenn quickly attracted significant investments from Citigroup, Barclays, HSBC, and Centerbridge Partners. Valued at $900 million in 2022, the company even considered an IPO. However, red flags emerged behind its ambitious model and robust backing, leading to its eventual collapse.
Suspicious transactions and risky customers
Despite its outward success, Stenn’s business model had significant flaws. A key issue was its reliance on a group of clients known as the “legacy book,” primarily based in Asia, which accounted for a significant portion of its revenue. Many of these companies were hard to trace, and some invoices Stenn claimed were being paid through them later appeared to be fraudulent.
HSBC, one of Stenn’s creditors, uncovered suspicious transactions, revealing that several companies listed in Stenn’s records had no legitimate relationship with the firm. Major firms like Zalando and Yokogawa Electric publicly denied any connection, raising concerns about the authenticity of Stenn’s transactions and potential involvement in money laundering.
In December 2023, a shocking revelation came to light when HSBC filed a court application to place two of Stenn’s UK subsidiaries into administration. The bank’s court documents described in detail how payments that were supposed to be coming from well-known customers were instead linked to entities set up to impersonate them. These findings were part of an investigation into potential money laundering activities, which were being examined by U.S. authorities.
The money laundering investigation
A key factor in Stenn’s collapse is its connection to a money laundering investigation involving Russian nationals. Founder Greg Karpovsky was previously linked to Eurokommerz, a Russian invoice financing firm that collapsed in 2008 due to alleged fraudulent activities and defaulting on its debt.
The investigation into Stenn began in 2020 when U.S. authorities unsealed indictments referencing the company. Reports revealed that Stenn received $1.7 million from a Singapore-based firm tied to Feliks Medvedev, a Russian individual with a criminal history related to money laundering. Although neither Stenn nor Karpovsky has been formally accused of wrongdoing, these connections have raised further suspicions about the company’s operations.
Karpovsky denied wrongdoing and stated he would cooperate with administrators as the company entered administration. However, the U.S. investigation and the links to Russian financial networks have only deepened the unease surrounding Stenn.
The fall of Stenn: Administration and redundancies
In early December 2023, employees at Stenn were blindsided by the sudden news of the company’s collapse. What had been a promising fintech firm was now in the hands of administrators, and its future was uncertain. The company’s UK subsidiaries were placed into administration, and employees were told they would be made redundant, leaving many uncertain about their financial futures, especially as they approached the holiday season.
As the company went into administration, senior staff members and key decision-makers were left scrambling to understand what went wrong. The investigation into potentially fraudulent transactions and the lack of oversight in Stenn’s operations highlighted a broader issue in the fintech and trade finance sectors: the risks of operating with insufficient regulatory supervision and the dangers of relying on high-risk clients without conducting thorough due diligence.
What this means for the fintech industry
The fall of Stenn has had far-reaching implications for the fintech and trade finance industries. The collapse of Greensill Capital in 2021, another company that promised to revolutionise trade finance but ultimately failed due to questionable business practices, had already raised alarms about the lack of regulation and oversight in these sectors. Now, with Stenn’s sudden collapse, questions are being asked about the viability of the trade finance model without proper regulation and the need for greater scrutiny of companies operating in this space.
The rise and fall of Stenn should serve as a wake-up call for investors, regulators, and companies alike. It highlights the importance of conducting thorough due diligence, maintaining compliance with regulations, and being cautious about high-risk clients. As the fintech industry continues to grow, it will be essential to establish stronger oversight and regulatory frameworks to prevent similar collapses in the future.
A wake-up call for the fintech sector
The fall of Stenn is an important reminder of the risks that come with the fast-paced world of fintech and trade finance. What seemed like an innovative, forward-thinking company with significant financial backing ultimately crumbled under the weight of questionable business practices and lack of oversight. While Stenn’s story is sad for its employees and investors, it also provides important lessons for the wider industry. It highlights the need for companies in this space to not only focus on innovation but also maintain a strong ethical framework and governance to achieve long-term sustainability. What’s more, it emphasises the critical role that transparency and accountability play in safeguarding the trust of investors, partners, and clients alike.
Get in touch today
If you are concerned about the implications of Stenn’s collapse or need advice on financial regulation, due diligence, or corporate insolvency, don’t hesitate to reach out. Call us on 0800 246 1845 or email us at mail@leading.uk.com for expert advice and support.
