Troubled software firm WANdisco has uncovered $115m (£91m) in false sales following an internal investigation into suspected fraud, as the company’s top two executives have quit.
Chief executive David Richards, who co-founded the business in 2005, and chief financial officer Erik Miller announced on Monday they would stand down as an update of the probe revealed what industry experts said bore “all the hallmarks of a classic corporate fraud”.
In a statement to the market, WANdisco said revenue in 2022 was $9.7m, rather than the $24m posted in January 2023, while bookings should have been $11.4m instead of $127m.
The company said the toppling of its senior team was “not connected to the findings to date of the independent investigation” into accounting discrepancies that began last month.
However, it added that new leadership was “in the best interests of all stakeholders” as the company seeks to lift the suspension of its shares and achieve “long-term growth and success”.
WANdisco 2022
The firm had requested trading in its shares to be halted last month after it uncovered signs of a major internal fraud that could threaten the business as a going concern and derail its planned bid to list on a US stock exchange.
WANdisco said it had no confidence in its 2022 financial reporting, and said an investigation had been launched to discover the “true financial position” after sales booked by an employee appeared to have been inflated in what it called “significant, sophisticated and potentially fraudulent irregularities”.
Scale of the dishonesty
FRP Advisory, the forensic investigators hired to dig into the suspected fraud, said the findings so far “continue to support” the view that a single senior sales employee is responsible for the “irregularities”, WANdisco said.
No further information has been released from FRP or WANdisco about the employee, and accountancy experts have expressed some doubts given the scale of the dishonesty.
“Their excuse that one employee was responsible doesn’t seem vaguely plausible,” said Mark Butcher, founder of IT specialists Posetiv Cloud. “The CEO and CFO have resigned… What do their auditors have to say? What’s the point of auditors if this kind of thing can happen?”
Butcher questioned how the firm could be “so woefully mismanaged that their leadership ‘accidentally’ claimed bookings of $127m”, with the true picture significantly lower.
“That’s quite some cooking of the books,” said Howard Rawstron, economic crime expert. “This does feel like a story of poor controls and misreporting with the firm only weeks ago looking at a listing in the US.”
WANdisco inferno
The $115m in missing bookings, false purchase orders and misstated revenue “bear all the hallmarks of a classic corporate fraud”, said Mark Hastings, Partner at Quillon Law.
“It appears that WANdisco represents yet another example of large-scale fraud in the technology sector,” Hastings said. “While FRP’s investigation may be at an early stage, it is certain that the consequences for the company are going to be much more extensive than the departure of two executives.”
It is yet to be determined if misstated sales figures or a more sophisticated case of malfeasance has occurred, but Hastings said it is “entirely possible that we will see more evidence of fraudulent activity uncovered”.
“Due to the scale of the discrepancy between WANdisco’s financial reporting and its true results, it is very likely that we will see litigation arise from these findings,” he added.
This may include actions against the company, its auditors and any individuals found to have been involved in the fraud, he said. He added that there will “likely be close scrutiny on profits, secret or otherwise, which may have resulted from the fraudulent bookings and purchase orders”.
Shattered confidence
Ken Lever, added to WANdisco’s board in March to chair the investigation committee supporting FRP Advisory, will take on an executive chairman role while the business seeks a new chief executive.
Ijoma Maluza, former chief financial officer at automation software business Blue Prism, where Lever was chair of an audit committee, will replace Miller.
“[Richards and Miller] remain significant shareholders in the business and continue to believe in the long-term, successful future for this company and its unique technology,” Lever said.
“There’s a strong message that they are not to blame [in the announcement] but this has happened in their tenure,” said George O’Connor, technology analyst at Goodbody. “Investor confidence will have been shattered and they’ve left as part of that.”
Passionate supporter
“I am sad to be leaving WANdisco after 18 extremely enjoyable years. I remain a passionate supporter and significant shareholder of the company,” said Sheffield-born Richards, who grew the business in his hometown and set up a second headquarters in Silicon Valley.
A colourful character, Richards has been a visible ambassador for the UK’s fintech scene, and recently collected an award from the City AM newspaper for “innovative company of the year”.
WANdisco’s solution enables large-scale migration of data to the cloud and it employs more than 180 people in Sheffield in the UK and in California, with customers including Google and Amazon.
The gong came on the back of a boom period for the firm, which announced a series of deals with unidentified clients in 2022, causing its share price to spike 215% from January 2022 until March, when shares were suspended.
The lack of detail around the “big wins” had sparked suspicion from investment groups that all may not be as it seemed on the surface.
In September 2016, a huge slump in the company’s share price pushed Richards briefly out of the business, but he was reinstated a month later, triggering the exits of WANdisco’s chair, board and several other directors.