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March 25, 2019

Wronged, or Rogue? Mike Lynch Case Begins

"A wild west, ‘shoot first, ask questions later’ approach"

By CBR Staff Writer

A multi-billion civil suit that pitches corporate giant HP against British entrepreneur Mike Lynch was due to begin this morning, days after US prosecutors hit the former Autonomy CEO with a fresh array of criminal charges – robustly denied by the businessman – in a separate clash.

US prosecutors on Friday added charges of wire fraud, securities fraud and conspiracy to 14 counts of conspiracy and fraud made in a November indictment. The latest charges include allegations “hush money” was paid to prevent unnamed people from testifying in court.

Lynch’s lawyers, Chris Morvillo of Clifford Chance and Reid Weingarten of Steptoe & Johnson, added that US prosecutors had shown a “wild west, ‘shoot first, ask questions later’ approach to investigations”. They said the alleged hush money pertained to legal employment of former Autonomy colleagues by Lynch.

Both the criminal charges and this week’s civil suit pivot around the $11 billion sale of Lynch’s software company Autonomy to HP in 2011. The controversial 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, HP sold what was left of the company to Micro Focus in 2016.

Mike Lynch Trial: HP’s Automony Acquisition was a Car Crash –  But Whose Fault Was That?

In the civil trial that begins today, HP is seeking damages of some $5 billion from Lynch and his former colleague Sushovan Hussain. The company alleges that they inflated the value of Autonomy before selling the data analytics company.

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.

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Lynch became a technology investor following the sale of Autonomy and was an early investor in UK cybersecurity unicorn Darktrace. He has since held senior government advisory roles and sat on Royal Society committees; all activities he has since stood down from ahead of the trial.

HP alleges Autonomy’s management made undisclosed, loss-making hardware sales and misrepresented revenue to inflate Autonomy’s value. Lynch will deny all of HP’s claims, his defence says and a counterclaim document shows. Defence documents cited by Reuters say Lynch’s team will argue that HP’s executives have “campaigned over a number of years to shift the responsibility for their failures in the acquisition and integration of Autonomy onto him.”

The 53-year-old, whose doctoral thesis on adaptive techniques in signal processing and connectionist models is one of the most consulted at Cambridge University, is counter-suing for more than $160 million for loss and damage caused by HP’s actions. The case is set to last until the end of year.

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