Darktrace accused of accounts fraud

DARKTRACE, the cyber security specialist, has lost a quarter of a billion pounds from its valuation after a US short-seller claimed the company engages in fraudulent accounting.

Quintessential Capital Management (QCM), a New York asset management firm, alleged that Darktrace engages in “channel stuffing” and other fraudulent practices designed to artificially inflate its sales figures.

So-called “channel stuffing” is when a company strikes fake sales contracts with commercial partners immediately before a deadline such as the end of the financial year. After the deadline passes, goods “sold” under the fake contract are quietly returned.

In a 70-page report published yesterday, Gabriel Grego, QCM’S founder, claimed that Darktrace was “shifting tomorrow’s revenues into today’s books”.

He said: “We are deeply sceptical about the validity of Darktrace’s financial statements and fear that sales, margins and growth rates may be overstated and close to a sharp correction.”

A Darktrace spokesman denied the QCM allegations and said the company was confident in its accounting.

QCM has previously published similar allegations against companies in which it has taken a short position, meaning it bets on the share price falling. One such company, Us-based Cassava Sciences, sued QCM in the US last year alleging it was the target of a “disinformation” campaign.

Sources said Mr Grego’s short position amounted to 0.86pc of Darktrace, which has lost around £250m from its market valuation since it was announced on Monday.

Mr Grego, who confirmed that he had not contacted Darktrace before publishing his report, told The Daily Telegraph that he had visited some of the company’s resellers – businesses that sell its products on a commission basis – and found that some did not appear to be resident at addresses given in official records.

He said: “They change the Facebook page, they change the Twitter handle from one company to another, from one identity to another. But it seems to always be the same people.”

A Darktrace spokesman said: “We have never been contacted by the authors of this report for information. As a Uk-listed business, our management team and board take our fiduciary responsibilities very seriously and have full confidence in our accounting practices.”