Member Info for EasiWynns

Tourist2020 - Hopefully someone will ask Darktrace to explain their rationale for purchasing the shares, and in particular to gain assurances that it was not a knee jerk reaction to events in order to support the share price, and especially that it was not related any component of director compensation that depends on the share price level (cynical, rather than dysfunctional).

I doubt Warren Buffett would be ecstatic at these purchases were he invested, unless of course the level of profitability increases materially in the near future.

And I do think that many misunderstand the role of those who are shorting shares who are in effect simply, and largely quietly, backing their opinion on the direction of the prices over a time period.

What QCM did is certainly not what the vast majority of shorters are doing, and if they've got it wrong, they're going to be in for a very rough ride from many for their approach.

Tourist2020:

Interesting that you have taken a short position, though it's not something I have ever done, nor will I do so here.

Where it seems we agree is in our thinking that QCM are not fools, and having read some of their research on other companies, they have often been proven (largely) correct. We'll soon see whether that is the case here.

ShortWhacker:

If you could let us all know when and where we could also make such extraordinary returns, we will no doubt all be eternally grateful to you.

ShortWhacker - That was my interpretation of the statement on 1st Feb, with the focus to be on the current situation, rather than the past, something that most investors are probably more concerned about.

With the share price now well above the price on the days before QCM's report it seems the more recent buyers are largely sanguine about the outcome of EY's report.

There is a feeling that some have, including me, that a number of the current management team are protégés, including all the highly negative connotations, of the person that started, financed and controlled the company from it's inception and for much of its existence.

While QCM do seem to have correctly identified serious problems in a number of other companies, if they are essentially wrong here, I'm expecting many here and elsewhere to be making formal complaints against them.

However, I can still envisage a number of scenarios where QCM are largely correct, while EY's report gives a largely clear bill of health, primarily because QCM are backward looking and EY current and forward looking.

Investors are of course going to mainly concerned with the forward looking prospects.

I wouldn't expect EY to respond to QCM, and in fact I think QCM are essentially saying get on with it, everyone's keen to see the report.

But in addition, QCM are saying we - and the regulators - know you've messed up a number of times before, and also we have provided you with detailed information that we expect you to investigate.

Darktrace, on the other hand, have no doubt engaged EY with a more limited scope of investigation.

Hopefully the report won't be too far away now and we can then see who is satisfied by it contents.

Yes, of course. It's something I only noticed earlier today, thinking others would already have seen it.

QCM have claimed to have written to the UK Managing Partner of EY (again), this time to express their dismay at the length of time the report is taking, to remind them of their serious failing in relation to other companies (e.g.Wirecard), and suggesting they produce an interim report.

Further, they are insisting that anything uncovered must reported, that the full report must be published, rather than a selective summary, and swiftly as well, considering how many months it's been and the affect this uncertainty is having on all stakeholders.

I'm just wondering whether EY may have got themselves into a bit of a tricky situation here.

See QCM's Twitter account, where the letter they claim to have sent is available to read in full.

What do people make of QCM's latest action with respect to Darktrace?

It looks like Fidelity International (FIL) and Fidelity Investments (FMR) are somewhat confident, based on the last two recent Holding(s) in Company regulatory disclosures, seemingly with a not insignificant combined holding of about 12.23%.

I thought that this was a very interesting article about how Darktrace came to be in the words of its creator:
https://www.invoke-insights.com/read/the-creation-of-darktrace

Agree with Watchman007 that its a great opportunity for EY to have a unparalleled look around inside Darktrace, perhaps find a few things that can be reported that might also show Grant Thornton in a less than favourable light - and then be awarded the audit in future years, but only if they find what they see is acceptable to them.

They will also be covered by the remit they are given by Darktrace, which may limit the scope, and therefore their liability if they fail to find anything they could have reasonably be expected to find in an investigation with a greater scope.

Also isn't it the case that the share price now is greater than just before QCM dropped their report, so why should the EY's report lift the share price materially higher still?

A UK High Court document, dated 17 May 2022, includes some very valuable advice for this investigation by EY:

"Ms Gustafsson, speaking about her time at Deloitte, also stressed the importance of professional scepticism.

She said in practice that this meant that Deloitte could not simply rely on information provided to it by the finance department in isolation, but would need to undertake its own information gathering process, checking contractual documents, making checks directly with third parties (suppliers, customers and technical experts), validating commercial justifications with technical teams, and seeing product demonstrations."

Now over to EY to do the best they can.

The irony of Darktrace using EY for an investigation of this type is probably not lost on QCM.

It seems that a member firm of EY Global was used for a similar purpose by a company that QCM had previously targeted (and while EY were the sole auditors), with EY eventually taking over the audit of that company. Then KPMG were engaged by the company to conduct a forensic audit to investigate claims by a news organisation that EY had missed the obvious, which indeed they had.

Darktrace should be able to ensure that EY's remit is sufficiently narrow to answer only the questions that no one has asked, and not answer any of the questions that QCM documented.

An article from The Times today made the point that Darktrace, as noted by QCM, "has not denied any of our allegations", and they suggested the only way to protect the company was to remove some of the senior management linked to Mike Lynch, as well as some non-execs. The Times also noted that many of the executives had "cut their teeth at Autonomy: an issue mysteriously airbrushed from their website blogs."

Thanks sheltie. Agree that these kind of rewards need careful oversight by the Remuneration Committee, to not over rewards for events that are outside of their control, which arguably the share price is in the longer term, and prevent them walking elsewhere for significantly more.
Another aspect is that if there are rewards for the share price going up, what are the "negative" rewards for it going down - generally none, of course.

Won't a low share price also be potentially catastrophic for the CEO's and CFO's remuneration?
In the last accounts the CEO received £10.738m in "long term incentives", which seemed to be related to the share price.
Can anyone understand what the share price at different levels means in terms of directors' remuneration - are they highly incentivised (for personal gain) to get the share price above a certain level?

CR888 - ".. which website are you looking at ?"

Google search 'fca short positions daily' and this should list an item where the Excel format (.xls) spreadsheet can be downloaded. Warning: the link will immediately try and download it.

Not sure if this is the data source for sites like this, or whether there is access to the data by other methods, but I would have thought the data should be the same regardless. Also not sure of the timings of the updates either, but I'd guess that its's soon after the market close time.

The FCA's Short Position Daily Update spreadsheet for 17/02/2023 does NOT include QCM, just Marshall Wace LLP with 1.07%.

In the US the case it was JD v AH personally (won), whereas in the UK it was JD v The Sun (lost), both civil cases - that's my understanding, anyway. Seems like in the UK it was before a judge, whereas in the US before a jury, which may have affected the outcomes.

Regarding ML, the loses from the fraud were made by a US entity and so it makes sense that it's there, I would have thought.

And on ML's legal costs during the UK fraud trial:
'The ongoing $5bn (£4bn) civil fraud trial of Autonomy founder Dr Mike Lynch is costing £4m per month in legal costs, the High Court was told this week. ... "An extra month of trial means … probably over £4m of extra costs. It’s not a small matter,” Mr Miles said. The barrister said that each side is spending around £2m a month on legal costs.' [Telegraph, Jul 2019]

jzcaht - I think that ShortWhacker et al are are confusing the civil fraud trial in the UK with the criminal fraud trial in the US.

"After years of wrangling, HP has won its civil fraud case against Autonomy founder and chief executive Mike Lynch.
The ruling, the biggest civil fraud trial in UK history, came just hours before the UK home secretary Priti Patel approved Lynch’s extradition to the United States, where he faces further fraud charges.
The UK’s High Court found that HP had “substantially succeeded” in proving that Autonomy executives had fraudulently boosted the firm’s reported revenue, earnings, and value."
https://www.wired.co.uk/article/mike-lynch-autonomy-extradition

This is the problem for him when appealing against the extradition for the criminal fraud charges, combined with the Autonomy's CFO already having been sentenced to 5 years in jail.

Darktrace's current CEO was Financial(?) Corporate Controller from 2009 until Dec 2011 (HP's purchased it in Oct 2011), and one assumes, will be involved in giving evidence. Along with Nicole Eagan, who was chief marketing officer at Autonomy when it was sold to HP, and had 'been named as "part of a clique" behind Britain's biggest ever fraud in a ruling at the High Court', and 'also investigated by the US Department of Justice for her role.'

"... Easiwynns, you are writing fiction. - quotr - .. ... Illiterate drivel ..."

It may be illiterate drivel, but if there is one good thing about it, it's that it isn't mine:

"US prosecutor demands emails from Darktrace following Mike Lynch fraud case":
https://www.cityam.com/us-prosecutor-demands-emails-from-darktrace-following-mike-lynch-fraud-case/

"... He has a very high regard for the tech in DT but a low regard for the management. ..."

The more I look into the backgrounds of the CEO and those formerly of Autonomy Corporation plc, the more concerned I become about their past conduct, integrity and associations.

Citywire, Nov 2021:
"As a founding investor of the FTSE 100 cyber security darling, US prosecutors have applied for subpoenas against current Darktrace chief executive Poppy Gustafsson and six other employees of Lynch’s previous software company Autonomy.

Subpoenas is used for the purpose of obtaining discovery, and according to federal court filings, the US government is looking to “show the financial and professional dependency of these persons on Lynch”."

Some possible outcomes I see are CEO et al still at DT after the extradition happens and when the US court case commences, which may damage DT, or they have earned sufficient (too much?) and can afford to just walk whenever they choose, dropping DT in the proverbial at any moment.

Reported in one news article in Jan 2023 that it would likely be in the "next few months", in which he was also quoted as saying:

"What is happening to me today could happen to anyone tomorrow. Other British business people may find they are sued by US companies who can also turn the loaded gun of a criminal indictment on them in what is fundamentally a commercial dispute, putting them at the mercy of this extradition treaty.

'This is surely an affront to the sovereignty of British courts and the British justice system. Is it not time, to borrow a phrase, that we 'took back control'? ".

Else where:
'Tech billionaire Mike Lynch has said he is in favour of the UK remaining in the European Union ... "For me personally, I think it would be lunacy to leave" ...' (BusinessInsider, 2016)