Case Study
Arqit (ARQQ): A Company's Journey Through Turbulence
11thestate.com | Arqit (NASDAQ: ARQQ): A Company's Journey Through Turbulence
By Stan Vick

Arqit (ARQQ): A Company's Journey Through Turbulence

  • Arqit has garnered a lot of attention in the tech world over the past two years due to its unique and innovative approach to cybersecurity.
  • $ARQQ rocketed to a multibillion-dollar valuation when it listed publicly on the promise of making encryption technology of next-generation
  • In April 2022, the WSJ released an article claiming that Arqit had misled investors by giving them an overly optimistic view of its future revenue and the readiness and workability of its signature encryption system.
  • Investors filed a class action complaint against Arqit and its executives, alleging that the Company made false and misleading statements in its registration statement and prospectus.

Arqit (NASDAQ: ARQQ) is a technology company that specializes in quantum encryption. The company has garnered a lot of attention in the tech world over the past two years due to its unique and innovative approach to cybersecurity. However, the company has also experienced its fair share of turbulence in the stock market, which has caused investors to question its long-term viability.

The Rise of Arqit

Arqit's journey began in 2017 when it was founded by David Williams and Mike Edwards. The company's goal was to develop a new quantum encryption system that would be able to protect data from even the most advanced cyber threats. Arqit quickly caught the attention of investors and secured several rounds of funding, including $12 million in seed funding in 2018 and $26 million in Series A funding in 2019.

In March 2021, Arqit announced that it was going public through a merger with a special purpose acquisition company (SPAC) called Centricus Acquisition Corp. The merger was completed in July 2021, and Arqit became a publicly traded company on the NASDAQ under the ticker symbol ARQQ.

Arqit's stock price soared in the months following its public debut, reaching a high of $46.74 per share in February 2022. The company's market capitalization also increased rapidly, reaching a peak of $1.83 billion in March 2022.

The Collaboration with Google

In September 2021, Arqit announced a collaboration with Google (NASDAQ: GOOGL) to develop quantum encryption technology. The collaboration was seen as a massive win for Arqit, as it validated their technology and positioned them as a key player in the quantum encryption space. The collaboration also opened up new markets for the company, as they could leverage Google's massive customer base to promote their technology.

The Short Seller Attack

In November 2021, Arqit was hit by a short-seller attack from hedge fund Muddy Waters Research. The short-seller alleged that Arqit's technology was not as revolutionary as claimed and that the company's financials were not transparent. The short-seller attack caused a massive sell-off in Arqit's stock, with the stock falling by more than 20% in a single day. The short-seller attack also raised concerns among investors, as it cast doubts over the company's technology and financials.

In response to the short-seller attack, Arqit issued a statement refuting the allegations and affirming the validity of their technology. The company also released a detailed rebuttal of the short-seller's claims, addressing each of the allegations point by point. The company's response was seen as robust and convincing, and it helped to ease investor concerns.

The Wall Street Journal Article

However, on April 18, 2022, The Wall Street Journal released an article that sent shockwaves through the tech world and the stock market. The article claimed that Arqit had misled investors by giving them an overly optimistic view of its future revenue and the readiness and workability of its signature encryption system.

The article cited former employees and other people familiar with the company, as well as documents viewed by The Wall Street Journal, as sources. It claimed that Arqit's proposed encryption technology would require widespread adoption of new protocols and standards for telecommunications that had not yet been adopted. It also alleged that British cybersecurity officials had questioned the viability of Arqit's proposed encryption technology in a meeting in 2020 and that the British government was not an Arqit customer but was providing grants to Arqit.

As a result of The Wall Street Journal article, Arqit's stock price plummeted by 17.1%, or $313 million in capitalization. The company denied the allegations in the article, stating that it had always been transparent about the risks associated with its business.

Investors' Complaint on Misrepresentations

Recently, Investors filed a class action complaint against Arqit and its executives, alleging that the Company had made false and misleading statements in its registration statement and prospectus. The complaint alleged that Arqit had misrepresented the viability and market potential of its encryption technology, and had failed to disclose material facts that would have alerted investors to the risks and uncertainties associated with the company's business.

The complaint specifically cited several points of contention, including the fact that Arqit's proposed encryption technology would require widespread adoption of new protocols and standards for telecommunications that had not yet been adopted. Additionally, British cybersecurity officials reportedly questioned the viability of Arqit's proposed encryption technology in a meeting in 2020. The complaint also alleged that Arqit had little more than an early-stage prototype of its encryption system at the time of the merger and that no commercial customer was using its encryption system with live data.

%%type:order-card,id:194%%

Lordstown Motors (RIDE): Burning Ride To The Bankruptcy

Lordstown Motors (RIDE): Burning Ride To The Bankruptcy

Wheels Up Experience (UP): From Soaring High to Turbulence!

Wheels Up Experience (UP): From Soaring High to Turbulence!

Allbirds (BIRD): A Look at the Company's Recent Challenges and Transformation Plan

Allbirds (BIRD): A Look at the Company's Recent Challenges and Transformation Plan