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Cybersecurity Darktrace employs EY to review fiscal processes after swearing short seller reports

February 21, 2023: On Sunday, Cybersecurity firm Darktrace said it established auditing firm EY to state its “key economic processes and management” to soothe investor fears following a short seller charged the firm of changing its accounts.

“The Board believes completely in the robustness of Darktrace’s financial processes and limitations. To indicate that confidence, we have commissioned this single third-party review by E&Y,” Geoffrey Hurst, board chair, stated. “We look ahead to the outcome of this review,” further said.

EY will state to the chair of Darktrace’s audit and threat committee, Paul Harrison, Darktrace said. Darktrace stated that it didn’t expect to be able to update markets on the review by the time of its initial-half earnings report on March 8 and didn’t provide a timeline or when it would release the findings.

On Monday, Darktrace shares increased over 2% on the heels of the announcement. Shares increased 4% year-to-date despite a sharp plunge in January.

Darktrace, whose tools permitted firms to combat cyber threats with artificial intelligence, was in the previous month targeted in a report by an asset manager Quintessential Capital Management based in New York, which searched Darktrace’s industry model and selling practices.

QCM stated that it found alleged flaws in Darktrace’s accounting, which include “round-tripping” and “channel stuffing” practices that seek to inflate revenue. The firm was “deeply sceptical about the validity of Darktrace’s fiscal statements” and believed sales and growth rates might have been overstated.

Darktrace pushed back on the claims. Its CEO, Poppy Gustafsson, defended the firm from what she was known as “unfounded inferences” made by QCM and said it had “robust processes in our firms.” She said, “I stand by my team and the business I show.”

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