Fraud Induced Panic at the WANDisco

This a frustrating case because it’s still ongoing and a lot of data isn’t available, but we’ll try. WANdisco is a UK company that specializes in moving large amounts of data to the cloud. The name is an acronym for wide-area network distributed computing. They grew organically and had a successful IPO in 2012 on the London Stock Exchange. In 2023 the company was exploring a dual US/UK listing.

In March of 2023, the company was forced to restate earnings. An initial investigation had revealed that purchase orders spanning revenue of $14.9 million last year and sales bookings of $115.4 million had been false, the company said. It meant annual revenues outlined in January should have been $9.7 million, rather than not less than $24 million, and bookings should have been $11.4 million, not $127 million.

Ouch. 2/3 of 2022 revenue was false. WANdisco had been audited by PWC through 2018 and subsequently by BDO. An initial investigation by FRP Advisory indicated that they “continue to support the initial view that the irregularities are as a result of the actions of one senior sales employee”.

If this is true, one person managed to almost triple revenue fraudulently. There appear to have been at least some red flags. Revenue tripled year over year but with significant growth in the percentage of receivables. The relationship between sales and receivables should have been consistent, but receivables growth significantly outpaced revenue growth. The presence of sales without collections is a definite red flag. Additionally, the company kept reporting contract wins without naming the customers. Certainly, there are customers who prefer not to be named in press releases, but not all of them.

WANidisco founder and CEO Dave Richards and CFO Erik Miller stepped down in April. Additionally, the company was forced to lay off 30% of its staff and indicate risks to its ability to continue as a going concern. However, the outcome is bigger than just this fraud. Like Wirecard in Germany, WANdisco was seen as a key example for luring and developing startups in the UK.

WANdisco was able to raise another $30 million so it appears that the going concern risk is mitigated for now. It doesn’t take a genius to argue a lack of internal controls here. I would argue that falsified revenue also points to a problem with the tone at the top.

It’s months later and there is still no indication of who was responsible which seems odd. This is a publicly-traded company with a material misstatement that seems to clearly indicate a responsible individual. I’m not into conspiracy theories, but this one is weird.