Darktrace hires E&Y for independent review of finances after short-seller attack

Cyber security firm Darktrace has commissioned an independent review of its financial processes and controls after being accused of accounting irregularities by a US hedge fund.

Darktrace said it has hired Ernst & Young to carry out the probe as a sign of its confidence that its financial statements “fairly represent” its financial position and results.

The firm came under recent attack by New York-based short-seller Quintessential Capital Management (QCM), which published a highly critical report alleging possible irregular sales, marketing and accounting practices to drive up the value of Darktrace’s shares before its initial public offering in 2021.

Shares in Darktrace plunged by a fifth following the report, before recovering some of the ground lost after Darktrace launched a £75 million share buyback to boost investor confidence.

Chief executive Poppy Gustafsson moved to defend the firm on February 1, insisting it is run with the “greatest integrity”.

Gordon Hurst, chairman of Darktrace, said on announcing the appointment of Ernst & Young: “The board believes fully in the robustness of Darktrace’s financial processes and controls.

“As a sign of that confidence, we have commissioned this independent third-party review by E&Y. We look forward to the outcome of this review.”

Darktrace had already seen its share price drop heavily before the QCM report – tumbling below its flotation price for the first time in January – after slashing its revenue outlook.

It said in the January update that revenues were now expected to grow by between 29.5% and 31%, down from 30% to 33% previously as the deepening economic gloom impacts new customer growth.

It floated at 250p a share in April 2021, but the stock has plunged in value over the past year, most recently hit after US private equity suitor Thoma Bravo pulled out of bid talks last September.