Tech boss David Richards opens up about losing £20m from ‘devastating’ WANdisco scandal as he launches new AI business venture

Given all that has unfolded, the 10-second gap – punctuated by a smile and some ironic laughter – between Richards being asked the question and the start of his response is relatively short in many regards.

He eventually answers: “Obviously being part of what happened at WANdisco personally was devastating, both mentally and financially.

“I lost a lot of money in share value. It is a matter of public record I had about two million shares valued at around £12 – you can do the maths.

“It was a very unfortunate situation. But entrepreneurs are really good at bouncing back and looking forward, we’re the most optimistic people you are ever going to meet.”

The well-known businessman has invited the paper to his new city centre offices in Sheffield to reveal details about his next venture but the WANdisco topic has to be discussed first.

WANdisco, the data migration specialist he co-founded back in 2005 based out of Sheffield and California, began 2023 in apparently rude health with projected sales bookings up 967 per cent and expected revenues reportedly due to increase by 229 per cent.

But the figures proved too good to be true and in March a series of dramatic developments unfolded to bring the real picture to light.

Days after the company had announced it was considering listing shares in America in addition to the UK, it revealed that “significant, sophisticated and potentially fraudulent irregularities” had been uncovered by Richards and his chief financial officer Erik Miller in regard to purchase orders and related revenues and bookings. Share trading was suspended and an investigation ordered.

Richards and Miller left the company at the start of April while the independent investigation found the issues to have been caused by an unnamed single senior sales employee with more than $100m of “false” sales bookings uncovered. The fallout from the scandal resulted in a 30 per cent cut to the 180-strong workforce while an FCA investigation into the matter is still ongoing.

The company’s shares were valued at 1310p each when they were suspended in March but when trading began again in late July, 96 per cent of their value was wiped out as they dropped to just 49p each.

Richards saw his paper wealth drop by over £20m as the value of his 1.84m shares plummeted.

While the shares have very slightly recovered to a current 72p value, the damage to Richards has not just been financial.

After initially thanking Richards for the “significant time and effort” he had put into establishing and developing the company when his departure was announced, the new board of WANdisco subsequently made a public call for him and Miller to return their 2022 bonuses, while also calling into question a shirt sponsorship deal with Richards’ beloved Sheffield Wednesday. The firm had funded the deal, which has seen Wednesday wear shirts adorned with the logo of EyUp, an associated tech training organisation run by Mr Richards and his wife Jane.

WANdisco has been renamed Cirata in an attempt to move on from the scandal while its latest annual report said there had been “frailties” in its governance structure and set out a series of intended steps to improve matters.

Despite all the challenges, new CEO Stephen Kelly said in the same report that the firm’s “market-leading technology” means its commercial opportunities are still “huge”.

Richards says the terms of his departure from WANdisco means he is unable to go into specifics around issues like the requested bonus repayment and the Sheffield Wednesday shirt sponsorship deal, as well as the alleged fraudulent activity.

But when asked what he would say to shareholders and ex-employees, Richards says he has already commiserated with many people, including friends and family, who have lost money due to the circumstances.

“It was a bad situation for almost everybody,” he says. “The independent report concluded it was a sophisticated fraud perpetrated by one individual. Then the annual report of accounts looked at the processes and controls of the company and there wasn’t much in there about processes and controls.

“Somebody said to me if somebody really wants to commit a fraud, regardless of what systems and controls you have in place, they will find a way. It’s a very, very sad situation.”

Following the interview, a reading of the annual report showed it included a passage stating “there is evidence that senior management were able to override the controls that were in place during and subsequent to the year ended December 2022”. It added: “There is a risk that the absence of controls which allowed the alleged fraud to occur, could persist in similar or other areas. As a result there is a risk that the controls may not have prevented or detected and corrected material misstatements on a timely basis more broadly.”

The Yorkshire Post raised this with Mr Richards by email, who said in response: “There is no evidence that suggests that management was at fault for the fraud. The auditor’s conclusion was that despite controls being tested each year and being considered adequate, they were not sufficient to detect the fraud. As the current chairman notes in the 2022 annual report, ‘we already promote a culture of risk management but the method in which the irregularities arose was not an identified risk’.”

In the challenging circumstances, many other businesspeople would be keeping a low profile. But Richards is instead back in a new role as the managing partner of a company called Yorkshire AI Labs.

Working out of an office in Sheffield’s Paradise Square, Richards says the venture capital scheme with several other business partners is starting with an initial £10m fund which it intends to invest in local companies to help them make the most of the burgeoning possibilities of artificial intelligence.

Two deals with firms have already been agreed and will be announced soon while Richards says advanced conversations are under way with several others.

There is no doubting his ambition. “We want to create more publicly-listed businesses in Yorkshire than anybody has ever created,” he says.

Richards believes there is a major market opportunity in the UK, particularly in this region.

“One of the big problems with venture capital in the UK can be characterised in one statistic. In the US where venture capital is very successful, about 60 per cent of the venture capital is managed and run by people who have actually started a business before. In the UK it is eight per cent.

“I don’t want to bash accountants but it means 92 per cent of venture is run by accountants and financial guys in the UK.

“Their job is not really to take risks, it is to count money and essentially look back not forward.

“There is a further problem which is venture capital in the North of England is virtually non-existent. South Yorkshire is packed full of really interesting undervalued businesses, some amazing companies.

“Then everybody is talking about artificial intelligence right now but most people don’t know what it is. But the fortunate thing is that having spent so long in Silicon Valley and in this space, I have a very good understanding of it and have now a very strong team of people who also have a very good understanding of both machine learning and AI.

“This moment in time reminds me of being in Silicon Valley for the first time in 1995. Amazon should not have existed because Barnes & Noble should have put an ecommerce site in front of their bricks and mortar business. They didn’t know how. Lots of companies need to use AI and machine learning in their businesses today. It is a really good automation tool. But they don’t because they don’t know how.“You have really great companies that would benefit greatly from AI that don’t do it.

“So what about the creation of a new venture fund that provides capital, equity and more importantly, product information and knowledge to assist companies to pivot their businesses and value by use of AI?

“We invest in the company with both cash and product information and knowledge.”

He says he has simple reasons for pursuing the concept.

“There is an interesting way to make money and do something that actually makes a difference. I’m sick and tired of politicians pontificating and saying, ‘We have got some great things in South Yorkshire or Sheffield or wherever it is but we don’t shout about it’. There are too many people that don’t actually go off and do something. There is a massive opportunity here. You have got all these amazing opportunities, a market place that is opening up and nobody has done anything about it.”

Richards says the initial aim is to fund 10 companies and believes a “100 per cent success rate” is possible.

“We would look to get a significant return back to our fund. One per cent of our fund would go to charity. It is nice we can take companies, pivot them, change their value and the entire community benefits from them. What is not to like about that?”

On the question of whether people can trust him in light of the WANdisco situation, Richards says he has been heartened by the reception he has already received from the regional business community.

“I have done an awful lot in the community, like the Laptops for Kids stuff and our family foundation. It is not for me to say but my experience has not been bad and actually much better than I had initially feared especially when I saw all the nonsense coming out in the press.

“What happened at WANdisco happened at WANdisco. But the judge of that is the people I deal with here, in London and globally.

“I went to the Cutlers’ Company and I will never forget how supportive everyone there was.”

He denies there is any extra motivation from trying to prove himself again after the WANdisco situation.

“I don’t think I need to do that. It is more that this region has so much opportunity.”