US fraud pros­e­cu­tors tar­get Lynch in­vest­ment arm

Ni­cole Ea­gan, chief ex­ec­u­tive of the dig­i­tal de­fence com­pany, talks to Natasha Ber­nal

The Daily Telegraph - Business - - Front Page - By 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

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