US fraud prosecutors target Lynch investment arm
Nicole Eagan, chief executive of the digital defence company, talks to Natasha Bernal
US PROSECUTORS who charged tech entrepreneur Mike Lynch with 14 counts of fraud last week have sought information from the London investment firm he set up with the proceeds from the sale of software company Autonomy.
Lawyers working for the US government subpoenaed documents from Invoke Capital Partners, set up by Mr Lynch the year after he sold his business to Hewlett-Packard in 2011.
Invoke Capital was an early stage investor in UK technology unicorn Darktrace, and owns a 30 to 40pc stake in the business. Other investments include legal technology venture Luminance and cloud company Neurence.
A spokesman for Invoke claimed that despite this action it was “business as usual” for the fund.
He said: “Invoke is entirely selffunded, and does not rely on funding from Mike Lynch at all.”
Darktrace, which was formed by former Autonomy staff in 2013 and was the brainchild of Mr Lynch, said it does not expect to be affected. A spokesman said: “Nothing changes. This is a personal matter for one individual associated with one of its investors.”
Prosecutors were seeking documents relating to former Autonomy CFO Sushovan Hussain, who was found guilty of accounting fraud on 16 counts in April of this year. His legal team has said he will appeal.
The Department of Justice extended these same charges of fraud to Mr Lynch and former finance executive Stephen Chamberlain on Friday, claiming they conspired to artificially inflate revenues and misled auditors.
Chris Morvillo, of Clifford Chance, and Reid Weingarten, of Steptoe & Johnson, Dr Lynch’s attorneys, challenged the US government’s authority to bring the case, pointing to an ongoing civil case in the English courts where HP is suing Mr Lynch for $5.1bn.
“This indictment is a travesty of justice,” they said.
Even by today’s standards, it was an audacious heist. Last year, hackers in Finland used a large decorative fish tank located inside a US casino to crack into its computer system and target high-rollers. The stakes were high. Their aim was to use the fish tank, which was connected to the internet via the casino’s internal network, to find its database of big-spending gamblers and pinch their details as they continued to count their chips. If it sounds bizarre, the plan was in fact ingeniously simple.
For a time it succeeded and criminals made off with about 10GB of data. It probably would never have been detected, had the breach not been spotted as soon as artificial intelligence was installed.
This is one of Nicole Eagan’s favourite stories – and the chief executive of cyber security firm Darktrace has seen it all. “We have seen attacks on internet-connected coffee machines, brand new buildings that are being built with tech-enabled heating and air conditioning systems,” she says.
“We have seen attacks through garage door systems. There is endless creativity to get in the network.”
Darktrace, one of the UK’s greatest technology success stories, specialises in blocking unusual cyber attacks, as well as the run of the mill email phishing expeditions.
It is one of Britain’s most high-profile technology “unicorns”, worth an estimated $1.7bn (£1.29bn) after a recent funding round
The fast-growing company, which offers cyber security services enhanced by artificial intelligence, has profited from soaring demand following major attacks such as Wannacry.
Darktrace technology identifies and blocks attacks with minimal human involvement. Referrals from existing clients had pushed the company forward, she says.
Darktrace now has 800 employees, 39 offices around the world and 7,000 clients including big names like eBay, BT, T-Mobile, Prudential and Ocado.
Yet the company had relatively humble origins in Cambridge, when in 2013 a motley crew of university mathematicians teamed up with former intelligence executives and a handful of ex-staff from former software company Autonomy. Their first client was Drax, operator of Britain’s biggest power station, sited in Yorkshire.
Eagan herself has plenty of energy too. The 54-year-old New Jersey-born computer whizz went to Montclair State University when she was just 16 to do a joint degree in computer science and marketing. She once admitted that she wakes up at 3.30am but shuns caffeine because it makes her brain and heart race and contributes to jet lag.
Her job means that she is on the road almost every day of the year so when possible, she uses her air miles to bring her husband and children with her to enjoy cities like London and New York.
She is the face of the company, in charge of strategy and growth, while Poppy Gustafsson, co-chief executive, focuses on finance and operations.
“We complement our skills well,” she says.
After leaving university, Eagan worked for five years on Wall Street, where she built computer systems for some of the largest banks, before being poached by software giant Oracle and moving to California, where she has been based ever since.
Eagan went on to work as a marketer for Autonomy, the controversial UK software giant. It was there that she first met Mike Lynch, its now embattled founder, who as of last week is facing 14 counts of fraud from the US Department of Justice over the sale of the business to Hewlett-Packard.
Described as Britain’s equivalent to Bill Gates when he sold Autonomy to HP for $11bn (£9bn) in 2011, last week the US government accused him of inflating revenues and misleading the company’s auditors and analysts. It says the self-made millionaire made around $815m (£666m) from the deal.
Lawyers for Mr Lynch called the indictment a “travesty of justice” and accused HP of using the fraud allegations to make up for its own “crippling errors”.
Darktrace counted heavily on Lynch’s early patronage. He reportedly came up with the idea for Darktrace in the first place, while his venture capital fund, Invoke Capital, took a stake during its first fundraising in 2015.
“I’m a first-time CEO, and when you look at someone like Mike, he can be a very helpful mentor from time to time,” she says, speaking days before he was indicted.
Until last week’s developments, he sat on the board of Darktrace and his business is still listed as its biggest shareholder. Darktrace itself could be affected by its ties to Lynch’s investment fund, as the Department of Justice subpoenaed documents in a parallel investigation into Sushovan Hussain, the convicted former Autonomy finance director.
Darktrace’s London office is even shared with Lynch’s outfit, where he often walks the corridors with his dog. Despite their friendship, it is likely that Eagan will seek to further distance herself and the business from the scandals associated with the Autonomy sale to avoid any chance of restraining the meteoric rise of Darktrace.
Even before this latest legal action hit Lynch, she downplayed the influence of the business that sparked Darktrace. Her role in his VC fund? Passive investor and nothing more, she says. And what about the close links between the two companies? “There have been a number of investors now that have come in along the way and the company continues to evolve,” she says.
“We hire a lot of college graduates – they are brand new to business and brand new to Darktrace. If you look at the make-up of the company it’s very different.” The company has added investors such as European venture capital fund Vitruvian Partners, Insight Venture Partners and Summit Partners, KKR, Samsung and Softbank in subsequent cash-raising efforts.
The investment goes into hiring and growing the business, Eagan says. Darktrace also has an
‘We had a very early recognition that cyber security was becoming a global arms race’
army of graduates from Cambridge, where the company based its R&D HQ, 10 minutes from the railway station.
The company is naturally secretive: among its ranks are former hackers and spies. Visitors’ mobile phones and bags are confiscated upon entering the building. In London, glass-walled meeting rooms are named after famous fictional spies such as James Bond.
The team is constantly perfecting an AI product inspired by the human body by launching new algorithms, Eagan explains. Like the immune system, the machine learns how to respond to the attack and protect the system without supervision and could remove or at least reduce the need for in-house cyber security experts. From her San Francisco office, Eagan plots the company’s next moves. This year alone, Darktrace opened offices in Singapore, Mexico and Sao Paulo, and expanded its New York and Cambridge presence.
Eagan’s vision for the future is not battling against attacks from hackers in darkened rooms hiding behind self-made malware, but against artificial intelligence capable of far greater damage. For years, the company has geared up to exactly that.
“We had a very early recognition that cyber security was becoming a global arms race, no longer fought from nation state to nation state, but from nation state to corporate networks. Not just credit card credentials, but also IP,” she says.
“The next evolution of the attack is when they [hackers] use AI as part of the attack. It is going to be a lot stealthier and faster-moving.”
Darktrace plans to fight fire with fire – pitting machine against machine.
Winning in Las Vegas: Nicole Eagan, below, recalls how Darkforce thwarted a cyber attack via a fish tank in an unnamed North American casino