US charges ex-Autonomy boss Mike Lynch with fraud over $11bn sale to HP

Autonomy founder Mike Lynch faces up to 20 years in prison if convicted of US fraud charges.
Written by Liam Tung, Contributing Writer on

The US Department of Justice (DoJ) has filed fraud charges against Mike Lynch, founder of Autonomy, which HP acquired in 2011 for $11bn.

Prosecutors have accused Lynch and former Autonomy vice president of finance Stephen Chamberlain of providing HP with false financial statements to make the company seem like a better deal to acquire than it actually was.

Lynch faces up to 20 years in prison if he is successfully convicted on the 14 charges of conspiracy and fraud in a case filed by prosecutors in a federal court on Thursday. The DoJ is also asking that Lynch forfeit $815m if he's convicted.

Lynch's lawyers, Chris Morvillo of Clifford Chance and Reid Weingarten of Steptoe & Johnson, described the indictment as "a travesty of justice".

They said the US allegations are stale and meritless and reject them emphatically.

"This case is unsupportable. It targets a British citizen with rehashed allegations about a British company regarding events that occurred in Britain a decade ago," Lynch's lawyers said in a statement.

"It has no place in a US court. The claims amount to a business dispute over the application of UK accounting standards, which is the subject of a civil case with HP in the courts of England, where it belongs."

They said there was no conspiracy at Autonomy and no fraud against HP for the DoJ to take up.

"Mike Lynch will not be a scapegoat for [HP's] failures. He has done nothing wrong and will vigorously defend the charges against him."

HP in 2012 took an $8.8bn write-down on the Autonomy acquisition, $5bn of which it said was due to Autonomy's "serious accounting improprieties, misrepresentation and disclosure failures" before its acquisition. HP later paid investors $100m for the botched acquisition.

The UK Serious Fraud Office in 2015 dropped its investigation into the Autonomy sale because it found "insufficient evidence for a realistic prospect of conviction" and left the Department of Justice to complete its investigation, resulting in the fraud charges against Lynch.

The two Brits are accused of essentially the same acts of fraud that Autonomy's former chief financial officer, Sushovan Hussain, was convicted of in April.

SEE: Launching and building a startup: A founder's guide (free PDF)

That is, artificially inflating revenues by backdating contracts, channel stuffing, and other forms of accounting fraud. Hussain is appealing the conviction and faces 20 years in prison if he fails.

The complaint also makes note of Autonomy's claim to be a "pure software" company, and alleges it disguised loss-making resold hardware as high-margin software revenue.

Lynch's lawyers told the Financial Times that the charges were a "travesty of justice" and that the proper venue for the case is the courts of England where HPE is pursuing a civil case against Lynch "over the application of UK accounting standards".

The company is seeking damages of $5bn from Lynch.

Previous and related coverage

HP to pay $100 million to shareholders following doomed Autonomy deal

The money will go into a settlement fund used to compensate shareholders who purchased HP stock between August 19, 2011 and November 20, 2012.

Serious Fraud Office closes investigation into Autonomy's sale to HP

An investigation by the Serious Fraud Office into the sale of Autonomy has been brought to a close.

HP sues Autonomy founder Lynch and former CFO for $5.1bn

HP is pursuing Autonomy co-founder Mike Lynch and his team for $5.1bn in damages.

Autonomy founder blames HP for 'misleading shareholders' over fraud claims

Amid a bitter dispute over alleged "serious accounting improprieties," Autonomy's founder hurls a whole cake of blame at HP for misleading its shareholders over the fraud claims.

Hewlett-Packard and shareholders reach settlement over Autonomy debacle

Three lawsuits stemming from the disastrous acquisition of Autonomy by HP have now been settled.

Darktrace bolsters machine learning-based security tools to automatically attack threats TechRepublic

A UK cybersecurity startup called Darktrace recently raised $65 million in growth equity financing to continue its global growth and further deployments.

HP takes $8.8B charge on Autonomy 'improprieties' CNET

For its fourth quarter, Hewlett-Packard records a charge of $8.8 billion in its software unit, which had "serious accounting improprieties...and outright misrepresentations" when HP bought it.

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