Darktrace IPO filing contradicted earlier claim on Mike Lynch role

Darktrace has issued contradictory information about the role of British tech billionaire Mike Lynch, who has been charged with fraud in the US, complicating the cyber security company’s efforts to distance itself from the Autonomy founder ahead of its potential £3bn float.

In 2018, Darktrace told the Financial Times that Lynch had left its advisory council the previous year as explanation for why he was removed from its website. But the company’s stock market registration document published this week says he remained on the body until March 2021.

Darktrace, whose cyber security product is designed to detect unusual network activity, is hoping to list on the London stock market in the coming weeks, hot on the heels of the disastrous float of another high-flying British venture-backed start-up, Deliveroo.

The opposing statements Darktrace has made about Lynch’s role threaten to undermine its efforts to distance itself from his legal woes. Lynch is currently battling extradition to the US and Darktrace has told potential investors there is a risk it could be embroiled in his case.

Darktrace had no comment, but a person close to the company denied there had been any inconsistency in its statements.

Lynch’s investment firm, Invoke Capital, said: “In 2017 Dr Lynch stepped back from the advisory council and has not attended any meetings since. We understand that as part of Darktrace’s IPO process the advisory council documentation has been updated to reflect this.”

Lynch was indicted in the US in November 2018 for allegedly artificially inflating revenues at Autonomy, the software company he founded and ran before selling it to HP in 2011 for $11bn. He has always strenuously denied any wrongdoing.

After the Autonomy sale, Lynch set up Invoke, the investment vehicle through which in 2013 he helped launch Darktrace and funded the start-up for the first two years before it attracted other investors that have included Summit Partners and KKR. Today he and his wife, Angela Barcares, are major individual shareholders, owning 18.5 per cent of the company between them.

The links went beyond Invoke’s initial investment in Darktrace. Invoke and Darktrace shared office space for years; several of Darktrace’s top executives worked at Invoke and Autonomy; two Invoke employees “supported the finance function” of Darktrace; and since 2013 the cyber security company has paid millions to Invoke for managerial services provided by Lynch and others.

The ties with Invoke and Autonomy proved embarrassing as the US investigation into Autonomy heated up with the April 2018 conviction of Sushovan Hussain, the former Autonomy chief financial officer and a Darktrace board member until November 2016.

In October 2018, the Financial Times reported that Lynch had been removed from the list of the advisory council members on Darktrace’s website. Lynch at the time was also a director, though he subsequently resigned when he was indicted.

Darktrace that month told the FT that Lynch had stepped down from the advisory council, then called the advisory board, in 2017. “Mike Lynch does not sit on the advisory board,” the company said, adding: “Given his position on the board of directors, it was deemed redundant for Mike to be on both the advisory board and the board of directors. With growing responsibility at Invoke Capital, he decided to just be on the board of directors for Darktrace in 2017.”

In the registration document this week, Darktrace said the advisory council had been set up in September 2013 and that: “Michael Lynch was a member of the Advisory Council from its establishment until March 2021.” It makes no reference to Lynch stepping down or back from the advisory council before this year or declining to attend meetings.

Darktrace disclosed in its registration document that in 2018 it was subpoenaed by US authorities for information about Invoke, warning there was a risk Lynch’s investment through Invoke could give rise to money laundering claims if the funds included cash from the Autonomy sale.

The start-up added that it viewed such a risk as low, saying it had not been contacted by the US Department of Justice since the 2018 subpoenas and that it did not believe Darktrace was the target of any DoJ investigation.

The company also said that as of this month it had materially completed “a transition plan for its full separation from Invoke” that included the “separation of shared office premises, the transfer of certain personal and other operational matters”. The managerial services contract with Invoke will also end when the company lists, with Darktrace paying a £1.2m termination fee.

kadhim.shubber@ft.com