British technology tycoon Mike Lynch has been cleared by a US jury of all fraud charges in what is attorneys described as a “resounding rejection” of a case brought by the US government against the Autonomy founder.
Hewlett Packard (HP) took an $8.8 billion write-down after it bought Lynch’s firm. His attorneys Christopher Morvillo and Brian Heberlig said that the verdict in a San Francisco court “closes the book on a relentless 13-year effort to pin HP’s well-documented ineptitude on Dr Lynch.”
Lynch sold his software company Autonomy to HP in 2011. The acquisition was disastrous for HP. After writing off three quarters of Autonomy’s value, it sold what was left of the company to Micro Focus in 2016.
Lynch founded Autonomy in 1996 based on technology invented at Cambridge University, where he received a Ph.D. and held a research fellowship in adaptive pattern recognition. He served as CEO for 15 years.
Lynch, who had lost an extradition battle to the US, had been charged with 16 counts of wire fraud, securities fraud and conspiracy, but the securities fraud charge was dropped by US District Judge Charles Breyer last week.
Sushovan Hussain, former Autonomy CFO, was sentenced to five years in prison after he was convicted in 2018 of accounting fraud by a San Francisco jury and much of Lynch’s defense had involved claiming ignorance of some of the wrongdoing he was personally charged with.
Lynch lost a civil trial in the UK in 2022 over allegations that he and Hussain used accounting tricks to inflate the company’s revenue.
The Stack wrote a breakdown of the judge’s 1,657 page-long ruling at the time (see below); a ruling that ran to almost 800,000 words.
The 2022 ruling demonstrated that HP was aware of some of the fraudulent activity at Autonomy well before the company decided to write down its acquisition by $8.8 billion – and some elements before the acquisition.
One of the key elements of HP’s case against Lynch and Hussain in UK courts was Autonomy’s use of essentially value-less sales of hardware to customers, often at a loss. Autonomy started selling hardware in mid-2009, when confronted with a “major disaster”, as described by Hussain, of the collapse of two OEM deals with Adobe and Microsoft.
Faced with a shortfall in sales, Autonomy did a deal with Morgan Stanley, acting as a reseller for Hitachi, to sell the bank $20 million of hardware for just $13.5 million on 30 June 2009. After this, Autonomy continued to use similar arrangements to bolster its sales figures when needed.
The judge in the UK case, in his ruling, highlighted a presentation by EY to the HP Audit Committee on 16 November 2011, after the acquisition had closed, where 11% of the $1 billion “Autonomy portfolio” was attributed to hardware: “That information does not appear to have given rise to any question or surprise, nor created an issue for anyone at HP,” he noted.
During the UK trial HP’s CFO, Cathie Lesjak, claimed in court that she didn’t pay attention to this section of the presentation, but Mr Justice Hildyard said: “In light of its prominence, I cannot accept it went unnoticed: again, however, it caused neither surprise nor concern.”
In the US case, Lynch was accused of conspiring with Stephen Keith Chamberlain, Autonomy’s former finance VP, who was also on trial and was acquitted by the jury. As Bloomberg notes: "After the verdict, jurors told lawyers for Lynch that they weren’t convinced of the credibility of testimony by Autonomy’s former US finance chief, Brent Hogenson, who held himself out as a whistleblower who escalated accounting concerns to Lynch and was fired."
