The US has filed criminal charges against Mike Lynch, one of Britain’s most prominent tech executives and investors, over the $11bn sale of UK software company Autonomy to Hewlett-Packard seven years ago.
The charges, which carry a maximum penalty of 20 years in prison, include 14 counts of conspiracy and fraud. The US has also sought to force Mr Lynch to forfeit $815m of gains made from selling Autonomy, which he founded and ran.
The case from the US Department of Justice, which was filed in federal court in San Francisco late on Thursday, caps a six-year investigation into one of the biggest alleged corporate frauds of recent years.
Stephen Chamberlain, a former Autonomy finance executive, was also charged.
Sushovan Hussain, Autonomy’s former chief financial officer, was convicted in the US on similar charges earlier this year. He is seeking to overturn the ruling.
The justice department has accused Mr Lynch and Mr Chamberlain of inflating Autonomy’s apparent financial performance from the beginning of 2009 until October 2011, when the acquisition by HP was announced. The indictment, which includes one count of conspiracy and 13 counts of fraud, lists 28 instances in which the former Autonomy executives are alleged to have issued false statements.
Mr Lynch sold the company to HP for $11bn in 2011. A year later Meg Whitman, at the time HP’s chief executive, accused him and other Autonomy executives of having deliberately misstated the company’s financial performance, leading to an $8.8bn writedown.
Lawyers for Mr Lynch called the indictment a “travesty of justice” and said the software entrepreneur would “vigorously defend the charges against him”.
Chris Morvillo of Clifford Chance and Reid Weingarten of Steptoe & Johnson said in a statement: “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.”
Mr Lynch has always maintained that Ms Whitman tried to make him a scapegoat for management mistakes by HP, which he said had damaged the Autonomy business after the acquisition. He also claimed that items in the Autonomy accounts that HP called serious misstatements were really the result of differences in US and international accounting standards.
The US indictment accuses Mr Lynch and Mr Chamberlain of “artificially inflating revenues” at the company, and then making “false and misleading statements” to hide the fact.
This included backdating transactions in order to report sales early, booking revenues that were subject to “round-trip” agreements that saw the money returned to the customer and failing to properly apply all the tests in both international and US accounting standards for when revenue should be recognised.
Hewlett Packard Enterprise, a successor company to HP, issued a statement welcoming the charges. “HPE believes that the facts uncovered during the course of this matter will further demonstrate the harm that was caused by Dr Lynch, Mr Chamberlain, Mr Hussain and others to HP and looks forward to seeing justice served once again,” it said.
HP has sued Mr Lynch and Mr Hussain for $5.1bn in a British court, but its case has been held up pending the outcome of the US criminal investigation. The UK’s Serious Fraud Office dropped its own investigation into alleged Autonomy fraud in 2015, saying that it had “insufficient evidence for a realistic prospect of conviction”.
Since leaving Autonomy, Mr Lynch has reinvented himself as a technology investor, launching new ventures through his Invoke Capital vehicle. His most successful bet has been Darktrace, a cyber security company he helped launch in 2013 that has since attracted investment from the likes of KKR and Summit Partners.
Mr Lynch is a member of the UK government’s Council for Science and Technology, which advises the prime minister, and also a fellow of the Royal Society. His past roles have included board positions at the BBC and the British Library. He was made an officer of the Order of the British Empire in 2006.
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