Cybersecurity, that’s why Darktrace is attacked by the Quintessential fund
British IT company Darktrace launches share buybacks after its stock plunges following the Quintessential Capital Management attack. The New York fund accused the company in a report of irregular accounting practices
Darktrace makes a comeback on the London Stock Exchange following allegations by hedge fund Quintessential over financial statements.
The British cybersecurity firm's share fell 12% on Monday and 4.4% on Tuesday. The short position of the New York-based “activist” fund management company founded by the Italian Gabriele Grego hit Darktrace stock. Quintessential Capital Management has released a detailed 70-page report alleging potential irregularities in contracts with Darktrace's resellers and customers, mostly dating back to pre-list in 2021.
In reaction to a report released Tuesday by Quintessential Capital Management, which said it was "skeptical" of the British company's accounts, Darktrace assured in a press release that it had "full confidence in its accounting practices and the integrity of its financial reports". verified by an independent body.
Darktrace CEO Poppy Gustafsson added that it is "important to refute any unsubstantiated inferences about the publicly traded business that we are today and in the strongest possible terms to reject any suggestions that it is not a business run with the utmost integrity."
And after two days of beatings, Darktrace recovers on the London Stock Exchange (positive sign of 5.8% to 232 pence at 3pm today). What's more, the launch of a £75 million share buyback program helped improve the fortunes of Darktrace stock. However, the company has been under pressure on the stock market for some time, underlines Radiocor .
All the details.
WHAT IS DARKTRACE
Based in Cambridge, founded in 2013, Draktrace had made a much-mediated stock market debut at the end of April 2021, with an IPO price of 250p which allowed for an initial market capitalization of £1.7bn.
THE DEFENSE OF BRITISH SOCIETY
“Have rigorous controls over all company activities to ensure that key accounting standards are met. We are proud of the company we have created, which today helps 8,100 customers worldwide protect themselves from cyber attacks,” Darktrace said.
The London-listed company said plans to buy up to 35 million shares are a bid to boost its stock, which has tumbled by more than a fifth since the start of the month.
UNDER PRESSURE IN THE STOCK MARKET
Even before the Quintessential fund hack, the cybersecurity group's share price had already dropped more than 14% this month after trimming its full-year revenue forecast.
In early January, Darktrace reported that it had registered a quarter fewer new customers in the final three months of 2022 than a year earlier, warning that challenging macroeconomic conditions were taking a toll on customer growth.
THE SHADOW OF AUTONOMY
Furthermore, the shadow of controversial businessman Mike Lynch, the first to invest in the IT company, continues to loom over Darktrace. The British billionaire is fighting extradition to the United States over fraud charges related to the $11 billion sale of his software company Autonomy to Hewlett-Packard in 2011. Autonomy is alleged to have used false accounting practices to excessively inflate the value of the business ahead of its 2011 sale to Hewlett-Packard.
Darktrace shareholders have long complained about the link to Autonomy.
THOMAS BRAVO'S RETHINKING
Last year, Thoma Bravo, a US-based tech private equity group, flirted with acquiring Darktrace to add the company to its growing portfolio of cybersecurity investments, but changed his mind at the start of September, recalls the Financial Times .
THE QUINTESSENTIAL ATTACK
In its report, Quintessential pointed to the connections between the business practices of Darktrace and Autonomy. “We are of the opinion that Darktrace's balance sheet cannot be relied upon as the company looks like a sophisticated replica of the Autonomy debacle,” Quintessential points out.
In its release, Quintessential explained that it had carried out “an in-depth investigation into Darktrace's business model, sales practices, international partnerships and sales force” and concluded that it was “skeptical of the validity of DT's financial statements. and to fear that sales, margins and growth rates may be overvalued and close to a sharp correction”. Quintessential points out that it discovered "several transactions in the period leading up to DT's IPO that apparently involved simulated or upfront sales to phantom end users through a network of resellers."
Furthermore, according to the US fund, "DT appears to have repeatedly used marketing activities to channel funds to its partners as payment for apparently fictitious purchases", involving shell companies in offshore jurisdictions run by individuals with ties to organized crime and the money laundry.
Finally, hedge fund Shadowfall also has a public short in the company, arguing that Darktrace overestimates its potential client base and spends less on research and development than its peers.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/cybersecurity-ecco-perche-darktrace-e-aggredita-dal-fondo-quintessential/ on Thu, 02 Feb 2023 14:31:46 +0000.