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November 30, 2018

UK’s Mike Lynch Charged with Fraud Over $11 Billion Autonomy Sale to HP

Indictment alleges artificial revenue inflation and "hidden, loss-making resales of hardware.”

By CBR Staff Writer

US federal prosecutors have filed criminal charges against UK tech executive and investor Mike Lynch over the $11 billion sale of his software company Autonomy to HP in 2011. The charges include 14 counts of conspiracy and fraud.

The acquisition was disastrous for HP, costing then-CEO Léo Apotheke his job and spawning multiple lawsuits. After writing off three quarters of Autonomy’s value, it sold the what was left of the company to Micro Focus in 2016.

Dr Mike Lynch. Credit: Invoke Capital

As seen by Computer Business Review, they include allegations that Autonomy artificially inflated revenues, mislead independent auditors and market analysts and, contrary to claims to be a pure software company, concealed the fact that it was “engaged in hidden, loss-making resales of hardware.”

The charges carry a maximum penalty of 20 years in prison.

“A Travesty of Justice”

As the Financial Times reports, lawyers for Dr 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.”

mike lynch indicted

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Lynch has maintained that losses were the result of management mistakes by HP.

Commenting on the fallout between HP and Autonomy at a conference last December, Lynch said: “When Hewlett Packard came along… the people that were doing it at the time… had an amazing strategy. What they wanted to do was to take the company, refocus it into this new age of big data and software and machine intelligence and that was exciting and we got convinced by them.”

“The problem was the week after the deal they get fired and we’re left with a hardware group that used to call us the step-child. All the understanding of clever, high growth, software people wasn’t there.”

See also: HP and Shareholders Bury the Hatchet over Autonomy Acquisition

The UK’s Serious Fraud Office (SFO) dropped its own investigation into similar charges in 2015, saying lack of evidence would make it difficult to prosecute.

Dr Lynch became a technology investor following the sale of Autonomy and was an early investor in UK cybersecurity unicorn Darktrace.

He 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 of Autonomy for over fifteen years

He is a member of the UK government’s Council for Science and Technology, which advises the Prime Minister, and also a fellow at the Royal Society.


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