The US Department of Justice has filed criminal charges against Mike Lynch over the $11bn (£8.6bn) sale of the British software company Autonomy to Hewlett-Packard seven years ago.
The charges, which are expected to go to trial, carry a maximum penalty of 20 years in prison and include 14 counts of conspiracy and fraud. The Department of Justice is seeking to confiscate $815m from Lynch, which it says was obtained through the alleged fraud.
Lynch, a British entrepreneur, co-founded Autonomy and served as its chief executive. In 2011, the company was bought by HP for $11bn in a move meant to form the central part of the US group’s move into software.
However, the deal turned sour a year later when HP wrote off $8.8bn in relation to the acquisition, three-quarters of the British company’s value, accusing Lynch and his colleagues of financial mismanagement.
Lynch has always denied any wrongdoing. He and Stephen Chamberlain, a former Autonomy finance officer also named in the indictment, declined to comment.
Lawyers for Lynch said he had done nothing wrong, and that he would “vigorously defend the charges against him”.
In a statement, Lynch’s US-based lawyers, Chris Morvillo of Clifford Chance and Reid Weingarten of Steptoe & Johnson, described the case as “a travesty of justice” and said it “has no place in a US court”.
The lawyers argue that the allegations made by the Department of Justice relate to the difference between British and American accounting standards, and therefore are not relevant to a US criminal court.
HP has tried to sue Lynch for $5bn in British civil courts. Lynch countersued HP in 2015 for $150m, saying at the time that “HP was simply incompetent in its operation of Autonomy, and the acquisition was doomed from the very beginning”. Those cases have been delayed by the criminal investigation in the US.
Lynch’s lawyers said: “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.”
The UK’s Serious Fraud Office closed an investigation into HP’s acquisition of Autonomy in January 2015, saying it had insufficient evidence for a realistic prosecution. However, it ceded some aspects of the investigation to the US.
The US indictment alleges that Lynch, Chamberlain and other executives including Sushovan Hussain, the former chief financial officer, “engaged in a fraudulent scheme to deceive purchasers and sellers of Autonomy securities”. The executives did this to “enrich themselves and others through bonuses, salaries, and options”, the indictment alleges.
Autonomy executives asked counterparties to backdate transactions so revenues could be recorded in different quarters, as well as making “false and misleading statements” on the company’s performance ahead of the completion of the purchase by HP, the indictment alleges.
Hussain was convicted on separate charges by a US jury of wire fraud in August in relation to HP’s purchase of Autonomy and faces up to 20 years in prison. He is appealing and has been ordered to wear a GPS ankle tag and hand over $5m as part of his bail conditions.
Lynch, a mathematician educated at Christ’s College, Cambridge, founded Autonomy in 1996. The company specialised in using complex pattern recognition techniques to help organisations search and sort through unstructured information such as emails and phone records.
Lynch is now a partner at Invoke Capital, an investor in European tech companies including Darktrace, a British cybersecurity firm, and Luminance Technologies, a legal tech company.
A British citizen who was made a member of the Order of the British Empire in 2006, Lynch lives in England. Following the announcement of the charges yesterday Lynch resigned as a member of the government’s Council for Science and Technology and from the advisory board of the Royal Society, although he remains a fellow.
