Jun 6, 2024 3:54 PM
Former Autonomy CEO Mike Lynch Cleared in US Fraud Trial
British entrepreneur Mike Lynch has been cleared of fraud charges by a jury in a court in San Francisco on Thursday, avoiding the prospect of a lengthy prison sentence. The once-celebrated cofounder of software company Autonomy was acquitted of all criminal charges, ending a 12-year legal saga accusing him of wire fraud and conspiracy.
In the course of a meandering, 11-week trial, the US Department of Justice accused Lynch of overseeing an elaborate, multiyear fraud that served to inflate the value of Autonomy before its purchase by Hewlett-Packard in 2011.
Lynch backdated and fabricated sales, the DOJ alleged, and lied about the condition of his company’s finances in public filings. The effect, claimed prosecutors, was to deceive HP into purchasing Autonomy for a puffed up price—$11.7 billion—with Lynch personally walking away from the deal with $640 million in cash.
At trial, Lynch argued that Autonomy’s accounting practices fell under the purview of others at the company, not himself. He also claimed that any business, put under the microscope in the way Autonomy has been, would present with the types of deficiencies characterized by the DOJ as evidence of fraud: “If you take a microscope to a spotless kitchen, you’ll find bacteria,” Lynch told the court.
Stephen Chamberlain, the former VP of finance at Autonomy, who was on trial alongside Lynch, was also acquitted.
Lynch, once described as “Britain’s Bill Gates,” was extradited to the US in 2023 to face criminal charges for his role in the sale of Autonomy to HP. At the time, the $11 billion deal was the largest ever takeover of a British technology business—a reflection of the eagerness at HP to find a footing in the high-margin software market. But within a year, HP had written down the value of the purchase by $8.8 billion, saying it had uncovered “serious accounting improprieties” and “outright misrepresentations.”
In 2019, the Department of Justice charged Lynch with 17 counts and then chose to prosecute 16 of them. Lynch was found not guilty on all counts, alongside Chamberlain.
The criminal trial followed a victory for HP in a years-long civil fraud case against Lynch in 2022. The High Court trial, the largest of its kind in UK history, culminated in a ruling that Autonomy executives had fraudulently boosted the firm’s reported revenue, earnings, and value.
The former chief financial officer of Autonomy, Sushovan Hussain, was indicted in the US in 2016 for defrauding HP and its investors over the company’s acquisition—similar to the charges faced by Lynch. Hussain was jailed for five years.
Ahead of his own criminal trial in the US, the odds for Lynch did not look pretty. In mid March, at the opening of the trial, the prosecution and defense painted contrasting pictures of Lynch. The lead prosecutor on the case cast Lynch as a bullying and tyrannical figure—the driving force behind a “massive fraud.” Whereas Lynch’s lawyer, Reid Weingarten of the law firm Steptoe, who frequently referred to Lynch just as “Mike,” characterized him as a tough but well-respected leader. He described the case as a “routine business dispute” that had been blown wildly out of proportion.
The objective of the defense, says Zachary Terwilliger, a former US prosecutor and partner at the law firm Vinson & Elkins, was to humanize Lynch. “As a defense attorney, you want to make your client relatable to the jury, even if they are a millionaire,” he says. The government, meanwhile, was aiming to “beat back the defense narrative: This isn’t some folksy guy named Mike, this is Dr. Lynch. This is someone that focuses on every excruciating detail,” says Terwilliger.
The bulk of the trial was taken up by testimony from more than 30 government witnesses—a ranging cast of Autonomy insiders, whistleblowers, and HP executives, among others. The witnesses testified to Lynch’s role in fooling auditors, analysts, and regulators about the state of the Autonomy’s finances, thus leading HP to overvalue the company. Lynch was the orchestrator, they alleged, of a careful campaign to inflate the software company’s sales figures by misdating and misclassifying sales and engaging in a practice known as round-tripping, whereby software resellers were effectively provided with the funds to purchase Autonomy software.
In the UK civil trial, Lynch had attempted to deflect similar fraud allegations by claiming that the underperformance of Autonomy after the acquisition was the fault of HP, which had used him as a scapegoat for a deal gone bad. This avenue of defense was ruled out in advance of the criminal trial by the presiding judge, Charles Breyer, who directed that only evidence relating to the period prior to the deal, when the fraud was alleged to have taken place, would be admissible.
Instead, Lynch was left to argue that the financial gymnastics allegedly performed at Autonomy had nothing to do with him personally, but other executives, like Hussain, the CFO. The defense was “built on the idea of a division of labor,” says Terwilliger. “The defense says that, even if what you’re saying actually happened, my client didn’t know about it or wasn’t involved.”
Lynch’s argument played on the fine distinction between negligence—a failure as chief executive to maintain effective oversight of company finances—which does not amount to fraud, and a willful blindness to the misconduct of other members of an organization. “Willful blindness is not a defense,”says Stephanie Siegmann, another former prosecutor and a partner at the law firm Hinckley Allen, but negligence could be.
At the end of the trial, in an unconventional step, Lynch took to the witness stand to plead his case. He described to the jury his “surreal” experience of the trial, sitting by as a “parade of witnesses I’ve never met” recounted “a series of transactions I have no involvement in, accounting decisions I have no involvement in, and not much else.”
Although the decision to testify risked exposing Lynch to cross-examination by prosecutors, it gave him the chance to appeal directly to the jury. “Even though it’s a calculated risk, in some cases defendants have been able to convince jurors,” says Siegmann. “The jury assesses the credibility of a witness—they determine whether he’s telling the truth. They [could] determine that he did not intend to defraud.”
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