UK cybersecurity firm Darktrace’s shares dive as short sellers circle

The value of Darktrace has plummeted to a record low after the emergence of two new short sellers betting against its business, as the British cybersecurity firm was hit by a new wave of criticism of its sales, marketing and accounting practices.

The company, which earlier this month warned of slowing numbers of new customers signing up for its artificial intelligence-led security products, has attracted the attention of Quintessential Capital Management (QCM) and the London-based Marshall Wace, one of the world's biggest hedge funds with $60bn (£49bn) in client assets.

Darktrace has been dogged by criticism and struggled to emerge from the spectre of its controversial co-founder Mike Lynch, the British billionaire fighting extradition to the US over fraud charges relating to the $11bn sale of his software company Autonomy to Hewlett-Packard in 2011. Lynch denies all charges against him.

The US hedge fund QCM has backed up its short position, publishing on Tuesday a 69-page document criticising the management and operations of Darktrace.

The firm alleges that questionable and aggressive marketing, sales and accounting practices were employed by Darktrace to drive up the value of the company before its multibillion-pound flotation in London almost two years ago.

"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," QCM said. "We would like to give our strongest possible warning to investors and believe that Darktrace's equity [is] overvalued and liable to a major correction, or worse."

Shares in Darktrace fell more than 7% to a record low of 198p on Tuesday after the positions of the short sellers were made public on Monday, well below the 250p at its initial public offering in April 2021, and a far cry from the heady heights of almost £10 it reached in the months after listing in London.