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Tech firm WANdisco appoints investigators as suspected fraud uncovered | accountingweb
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Panic at WANdisco as suspected fraud uncovered

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High-flying tech company WANdisco has found itself embroiled in a fraud scandal after sales figures were found to be significantly inflated.

14th Mar 2023
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Cloud migration business WANdisco has hired forensic accounts to investigate a suspected £12.6m fraud stemming from false sales.

The Sheffield-based company, which has a dual headquarters in California, has appointed FRP Advisory to lead an independent investigation into accounting issues.

Having requested suspension of its shares on London’s AIM stock exchange, WANdisco informed investors on Thursday morning that “significant going concern issues” were uncovered regarding irregularities in its accounts.

The cloud technology company said it believed that a senior sales employee had produced suspect purchase orders that vastly inflated its revenues last year, but declined to add further information about the individual.

Ballooning revenues

In January, WANdisco said revenues had ballooned 230% to $24m (£19.7) in 2022, as the firm’s share price rose fourfold in the past 12 months to nearly £1bn.

However, in its Thursday update the firm said it had “no confidence in its announced FY22 bookings expectations” and that the true figure could be as low as $9m (£7.4m).

The discovery would “lead to a material uncertainty regarding [the company’s] overall financial position”, the firm stated.

Wandisco’s auditors BDO have not offered comment. KPMG was WANdisco’s auditor until 2018 when BDO took over. 

Industry experts pointed to how a change in the accounting standard, IFRS 15, had a major impact on WANdisco’s reporting. IFRS entered force in January 2018 and required WANdisco to book annual subscription sales upfront, rather than deferring them. Without IFRS 15, sales would have fallen 38% rather than the 13% reported at the time.

In April 2019, WANdisco also failed to disclose bookings, which measures the money clients had committed to spending, triggering an attack from short sellers.

The business’ annual accounts have yet to be filed.

Complex moves

Two non-executive directors, Peter Lees and Karl Monaghan, will assist FRP’s investigation, the firm said.

Lees joined the WANdicso board last year and serves as managing director of investment bank Stifel. A corporate finance expert, Monaghan founded Ashling Capital and has sat as a non-exec since 2016.

FRP Advisory works with companies in “complex and difficult situations” and undertakes in-depth investigations, including reviews of financial records, electronic records and conducts interviews with company staff.

WANdisco was founded by British entrepreneur David Richards, of Sheffield, in 2005 and it employs more than 180 people in Sheffield and California, claiming Google and Amazon as customers.

The firm’s business involves helping companies move large amounts of enterprise data onto the cloud, which can contain significant elements of risk.

A dual UK-US stock market listing by the fast-growing firm, announced days earlier, is now in doubt.

Analyst firm Edison has pulled its coverage of the software firm, stating: “Due to the nature of the ongoing investigations, we have not been able to speak to the company since the announcement.”

Multiple red flags

Alex DeGroote, a research director at Arden Partners, said the enormous growth in WANdisco’s trade receivables within 12 months, which was disclosed in a September update, was a “possible red flag”.

He said receivables were usually linked to revenue “since the relationship between the two should be easy to explain”, but revenue had only doubled over the same period.

“Given the absence of, well, audited revenues – let alone such a strange thing as profit, shareholders are not likely to get much back from the £900m that WANdisco was valued at yesterday,” said investment expert Dan Heron, a former UBS asset manager.

“Having read more than a few RNS statements in my time this does not come across as the sort of issue from which a company swiftly recovers, particularly given the liquidity shortcomings of AIM,” he said.

Any company that allows revenues “to be misstated on such a scale suggests a complete absence of effective internal controls and risk processes”, he said. “Who will trust the company's figures now?”

Despite its rapid growth, the firm has never been clear about the contracts it has won, he said, noting that one senior figure, David Richards was chief executive, chairman and “president”, which could also be a governance red flag.

“The whole sorry episode represents yet another blow for the reputation of the UK equity market in general, for the quoted UK tech sector and for the junior AIM market in particular,” he added.

Unnamed customers

The firm’s constant stream of “contract wins” with unnamed customers was also questioned by Craig Jeruzal, deputy portfolio manager at investment firm SVM.

“How many investors in WANdisco truly understood what sort of business they were investing in?” he said, noting the complex description of the firm’s activities on its corporate website.

Last year, Hewlett-Packard won a six-year civil fraud case against Mike Lynch, the man once dubbed Britain’s answer to Bill Gates, after a high court judge ruled that he deceived the US firm into buying his software business Autonomy for £8.2bn.

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Chris M
By mr. mischief
14th Mar 2023 15:55

In fact on the bulletin boards lots of people have had strong suspicions about this company for a lot of years. So probably only the naive or foolish, as per usual, will end up taking a hit on this one.

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By Andy Hull
15th Mar 2023 09:40

This point has been raised in the FT comments pages already, but how on earth is a company turning over £19.7m (never mind £7.4m) worth $1bn - odd?

Thanks (1)
By Duggimon
15th Mar 2023 10:00

I haven't read the article, I'm just here on behalf of my children to point out that the headline should have an exclamation mark after Panic.

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By unclejoe
15th Mar 2023 11:00

Four points:
1) WAND's accounts for last year included a material uncertainty warning and a statement that continuing as a going concern would be dependent on a fundraise, both buried in the small print in the notes. Investors really need to do their due diligence!!
2) The company are blaming its issues on a rogue salesman. Look back into the history; the RNSs, the repeated press hypes, and the subsequent fund raises, and tell me if you believe that. This was just a dog set-up from the start, designed to fleece investors until the proverbial hits the fan, then the directors walk away having accumulated great wealth with very little risk of serious reprimand.
3) I believe that Dave Richards was awarded an MBE in the 2022 Queens Birthday Honours. A CEO being awarded an MBE is to me the biggest red flag of all.
4) Is Mark actually right in saying that IFRS 15 2018 changes "required" revenues to be recognised up front? I thought they were allowed in certain circumstances. If so the question is one of judgement and especially the judgement of auditors. But I am 10 years into retirement and may be wrong on this.
There are far too many companies like this listed. The FCA and other regulatory bodies should start doing their job and get the stockmarket cleaned up.

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Replying to unclejoe:
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By SJH-ADVDIPMA
15th Mar 2023 11:31

Did raise my eyebrows that subscriptions had to be recognised up front, and also whether the commented on increase in short-term debtors was related to IFRS15.

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