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(Alliance News) - Darktrace PLC on Wednesday denied allegations made in a report by Quintessential Capital Management on Tuesday.
Darktrace, a Cambridge, England-based cybersecurity business, earlier on Wednesday had announced a share buyback, a day after a short-seller attacked Darktrace's management and operations.
However, Darktrace's follow-up press release on Wednesday did not answer any of the 20 questions asked by Quintessential in a response to an earlier shorter Darktrace release, in which Darktrace said it had full confidence in its accounting practices.
Questions concern whether Darktrace booked a sale to Italian car maker Maserati Spa in July 2020, the company's nature of relationship with Dominican Republic-based IT company Multicomputos SRL, whether Darktrace sold anything to "suspected shell company" Alfatrade & Services Ltd, which officially is a supplier of clean energy products, or which clients bought Darktrace's product through Strategic Bridge, among others.
Further, Quintessential enquires about the nature of Darktrace's relationship with cyber security company Strategic Bridge Monaco Sarl, asking: "Why did Strategic Bridge present its partnership with Darktrace sponsoring a motorcycle team whose chief executive officer had just been arrested for fake invoicing and money laundering for the Italian mafia?"
Darktrace CEO Poppy Gustafsson said: "We embrace the scrutiny of the public markets. However, it is also important to refute any unfounded inferences about the listed business we are today and push back in the strongest terms on any suggestions that this is a business that is not being run with the greatest integrity."
The company noted its channel approach, meaning that contracts with partners and the partner's contracts with their customers "must be 'back-to-back".
"The channel is a significant area of risk for every software vendor. Both Darktrace and its independent auditors have reviewed this area very extensively and continue to monitor all partners and channel contracts through the robust processes that were put in place in the run up to the initial public offering," Darktrace said.
"Also, as part of its IPO preparations, Darktrace carefully reviewed its contract portfolio as well as the control procedures surrounding the channel. Where processes could be strengthened, Darktrace has done so, including in partner onboarding processes, contract booking and post-contract auditing."
It added: "There were a small number of contracts that were not validated under the reviews done in the run up to the IPO and these have not been included in any of our public company financial statements."
On Tuesday, Quintessential had said Darktrace's operating practice included "reciprocal transactions: a form of round-tripping with a company selling an unused product or service to a reseller, agreeing to buy back an item of similar same price."
Quintessential added: "Our opinion is based primarily on numerous transactions we detected during the period leading to DT's IPO seemingly involving simulated or anticipated sales to phantom end-users through a network of willing resellers. Darktrace seems to have repeatedly used marketing activities to channel funds back into its partners as payment for apparently fictitious purchases. These alleged channel stuffing and round-tripping activities seem to have even involved shell companies in offshore jurisdictions manned by individuals with ties to organized crime, money-laundering, and fraud."
Meanwhile, noting surplus cash, Darktrace, on Wednesday, said it will buy back up to 35 million shares, starting on Wednesday. It aims to complete the buyback by October 31 and will spend up to GBP75 million.
Darktrace's initial public offering was back in April of 2021, debuting at 250p. Darktrace shares were up 4.8% to 220.20 pence each in London on Wednesday afternoon, which would value the buyback at around GBP77.1 million.
Darktrace Chair Gordon Hurst said: "The board believes that this share buyback programme is the best use of Darktrace's surplus cash in current market conditions. Notwithstanding the challenging macro-economic climate, we remain confident of Darktrace's business model. Its industry-leading technology developed by its talented research & development team is producing exciting new products and it continues to grow its loyal global customer base."
The company explained that its current cash position of USD368 million has grown by more than USD100 million since its initial public offering in May 2021, which has helped it "to sufficiently invest in its product pipeline, go-to-market strategy, business foundations and targeted mergers & acquisitions. Darktrace will continue to prioritise investment in its business and the maintenance of appropriate cash reserves."
By Tom Budszus, Alliance News reporter
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