Darktrace shares plunge after short seller alleges irregular accounting

London/Milan —  British cybersecurity company Darktrace’s shares plunged as much as 10% on Tuesday after a short-selling fund questioned its financial statements.

Darktrace said in a statement its management team and board had full confidence in its accounting practices and the integrity of its financial statements.

It added the company had “rigorous controls in place across our business to ensure we comply fully with IFRS accounting standards”.

Darktrace shares were down 4.3% at 210.6p before the close on Tuesday. They earlier touched 198p, the lowest since their stock market debut in April 2021.

“After a careful analysis, 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,” New York-based Quintessential Capital Management (QCM) alleged in a 70-page report.

QCM told Reuters it had a short position of 1.3% in Darktrace shares. Its report cited official filings, site visits and interviews with peers in the industry.

Short sellers borrow shares with the expectations of buying them back more cheaply, making a profit on the difference.

QCM’s report named Grant Thornton as Darktrace’s auditor. Grant Thornton was not immediately available for comment.

Marshall Wace, a UK hedge fund, also holds a short position in Darktrace, according to data firm Breakout Point.

A spokesperson for Marshall Wace said its position was “entirely separate from QCM’s and nothing to do with it”.

Darktrace shares have fallen 80% from a record high in September 2021, losing over £5bn in market value in that time.

Reuters