Cybersecurity firm Darktrace hires EY to review financial processes after damning short seller report

KEY POINTS

• Cybersecurity firm Darktrace on Monday said it has appointed auditing firm EY to review its "key financial processes and controls."
• It comes after short seller Quintessential Capital Management said in a report it was "deeply skeptical about the validity of Darktrace's financial statements" and believed sales and growth rates may have been overstated.
• Darktrace's board chair Gordon Hurst said the decision to launch a review was a sign of its confidence in the robustness of Darktrace's financial processes.

Darktrace, one of the U.K.'s largest cybersecurity companies, was founded in 2013 by a group of former intelligence experts and mathematicians.

Omar Marques | SOPA Images | LightRocket via Getty Images

LONDON — Cybersecurity firm Darktrace on Monday said it has appointed auditing firm EY to review its "key financial processes and controls," in a bid to soothe investor fears after a short seller accused the company of manipulating its accounts.

"The Board believes fully in the robustness of Darktrace's financial processes and controls. As a sign of that confidence, we have commissioned this independent third-party review by E&Y," Gordon Hurst, chair of the board, said in a statement. "We look forward to the outcome of this review."

EY will report to the chair of Darktrace's audit and risk committee, Paul Harrison, Darktrace said. Darktrace said it doesn't expect to be in a position to update markets on the review by the time of its first-half earnings report on Mar. 8 and didn't provide a timeline or when it would release the findings.

Darktrace shares rose more than 2% Monday on the heels of the announcement. Shares are up 4% year-to-date despite a sharp plunge in late January.

Darktrace, whose tools allow firms to combat cyberthreats with artificial intelligence, was last month targeted in a report by New York-based asset manager Quintessential Capital Management, which investigated Darktrace's business model and selling practices.

QCM said it found alleged flaws in Darktrace's accounting, including "round-tripping" and "channel stuffing" practices that seek to inflate revenue. The firm said it was "deeply skeptical about the validity of Darktrace's financial statements" and believed sales and growth rates may have been overstated.

Darktrace pushed back on the claims, with its CEO Poppy Gustafsson defending the company from what she called "unfounded inferences" made by QCM and saying it had "robust processes in our business." She added: "I stand by my team and the business I represent."

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