THG founder Matt Moulding has broken off from his summer holiday to renew his criticism of London’s public market.
The outspoken entrepreneur has been a big critic of the behaviour of hedge funds, media and bank analysts, who he has accused of creating negative coverage against listed companies, including THG.
In his latest LinkedIn blog, Moulding used the case of Cambridge cybersecurity firm Darktrace, which was accused by a US hedge fund – Quintessential Capital Management – of inflating its growth rates prior to its IPO in April 2021.
An independent review from EY, which was commissioned by Darktrace in response to the short seller’s allegations, subsequently found no evidence of fraud after a five-month investigation.
Alongside a photograph taken during his family summer holiday, Moulding used his LinkedIn blog to call on UK regulators to follow the lead of their US counterparts and protect the integrity of the public markets.
Matt Moulding on a family holiday (copyright Matt Moulding)
He wrote: “The US authorities fiercely protect their markets. A tough stance is essential in maintaining confidence in the world’s largest market. Each year there are stories of hedge funds and bankers being arrested while on their holidays, and shipped to the US to face the music.
“If the LSE is to ever pull out of its death spiral, then the UK needs to follow suit. A lack of action only feeds global sentiment that London is a backwater, a soft touch, where rogue Investment bankers and hedge funds go unchecked in plundering the market for personal gain.
“In February this year, a US hedge fund called Quintessential launched a stinging short attack against UK listed Darktrace.
“Quintessential published a 70-page report, filled with wild allegations of corruption against Darktrace, its management team and investors.”
Moulding claimed in his blog that the hedge fund took a position that Darktrace’s shares would fall.
“And so, Quintessential sold c£25m of shares in Darktrace it didn’t own, a bizarre but legal transaction,” he claimed.
“The cost of making a £25m bet like this is likely just c£2k a day until the bet is closed.
“Because it’s so cheap, the returns are spectacular when shares fall. For pennies, you can make hundreds of millions by wreaking havoc against a company and its share price.
“Through wild claims they create fear, panic and a stampede, making shares plummet.”
For their part, Quintessential Capital Management has described itself as a ‘responsible and concerned investor’.
However Moulding continued: “Six months after Quintessential’s attack, an independent review by EY confirmed the wild allegations had no basis and that Darktrace is a UK tech darling after all.
“Despite millions lost by UK investors everyone is eerily quiet on the whole saga. Where is the media crying foul, calling on the FCA, SFO or even MPs to act? Nada.”
THG’s founder said he was sceptical the LSE would act itself.
“I spoke with the CEO of the LSE 18 months ago, and asked why it doesn’t act against the well-known rogue hedge funds and bankers,” he wrote.
“The answer was astonishing: ‘The FCA can see everything we see, and so it’s for them to take action, not us.’ After all, the LSE is just a website portal, like Rightmove or Autotrader. Right?”
“The stampede of companies exiting the LSE is matched by investors. The only real IPO so far in 2023 is CAB Payments – it’s already lost c30 per cent in four weeks!
“Companies and investors simply aren’t safe anymore. This is a common view across global investors.”
In February Quintessential Capital Management claimed Darktrace had included “simulated or anticipated sales to phantom end-users through a network of resellers” in its figures.
Although the EY investigation reported ‘a number of areas already known to Darktrace where systems, processes or controls could be improved’ it found no evidence of fraud.
Quintessential Capital Management describes itself as “aiming for exceptional returns through the application of value investing, shareholder activism and deep due diligence”.
It also confirmed in a tweet on July 18th: “Disclosure: we still hold a small short position on this name.”