US brings fraud charges in Autonomy case

Out-Law News | 30 Nov 2018 | 4:45 pm | 2 min. read

US prosecutors have charged Mike Lynch, the former chief executive of UK software business Autonomy, with fraud.

Computing giant HP paid a reported £7 billion to acquire Autonomy in 2011. HP has previously claimed that it paid more money than it should have in that deal as a result of "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy". That claim has always been denied by Lynch, who, his lawyers have said, will "vigorously defend the charges against him".

The indictment, filed before a district court in California, lists 14 fraud charges against Lynch and Stephen Chamberlain, Autonomy's former vice president of finance. The men face up to 20 years in jail if found guilty. Lynch could also be forced to repay $815 million which the prosecutors have claimed is the sum Lynch "obtained as a result of the offences alleged".

The indictment said: "In or about 2011, Lynch and others met with representatives of HP about a potential acquisition of Autonomy by HP. At or about that time, Lynch and others used Autonomy's false and misleading financial statements from 2009, 2010, and early 2011, and other false and misleading documents created by Chamberlain and others to make Autonomy more attractive to a potential purchaser like HP."

However, in a statement provided to The Register, Lynch's lawyers called the indictment "a travesty of justice".

"Mike Lynch is a world-leading entrepreneur who started from nothing and spent his life building a multi-billion dollar technology business that solved critical problems for companies and governments all around the world," the statement said. "These stale allegations are meritless and we reject them emphatically."

"There was no conspiracy at Autonomy and no fraud against HP for the DoJ to take up. HP has a long history of failed acquisitions. Autonomy was merely the latest successful company it destroyed. HP has sought to blame Autonomy for its own crippling errors, and has falsely accused Mike Lynch to cover its own tracks. Mike Lynch will not be a scapegoat for their failures. He has done nothing wrong and will vigorously defend the charges against him," it said.

HP has sued Lynch and Autonomy's former chief financial officer Sushovan Hussain for a reported $5 billion in damages. The case is scheduled to be heard before the High Court in London in 2019. Lynch has countersued HP.

Earlier this year, the UK's Financial Reporting Council (FRC) brought a complaint alleging that Hussain had "breached the fundamental principle of integrity by acting dishonestly and/or recklessly when preparing and approving Autonomy’s annual report and accounts for the years ended 31 December 2009 and 31 December 2010". 

However, the FRC announced earlier this week that its case against Hussain "has been stayed pending the outcome of [Hussain's] intended appeal against his conviction on 16 counts of fraud in the United States District Court for the Northern District of California".

The UK's Serious Fraud Office (SFO) closed its investigation into alleged accounting impropriety at Autonomy in early 2015. At the time it said there were "insufficient evidence for a realistic prospect of conviction" in relation to some of the allegations it had been investigating, and cited the fact that US authorities were taking responsibility for investigating the other allegations raised in the case on jurisdictional grounds.