Irish-born entrepreneur Mike Lynch, once a prominent figure in the UK technology sector, was found innocent in a San Francisco court on Thursday, bringing to a close a 12-year legal case linked to significant fraud allegations in Silicon Valley. The prior Autonomy CEO faced allegations of revenue falsification at the British software firm, prior to its selling to Hewlett-Packard (HP) at a cost of €10.1 billion ($11 billion) in 2011. This verdict provides Lynch, who was extradited to the US and experienced house confinement under constant surveillance prior to the trial, with a sense of vindication.
Lynch, 58, consistently contended that he was made a scapegoat by HP due to its own mistakes with respect to acquisition and later management of Autonomy. Despite his arguments, he was unsuccessful in having the charges heard in the UK, but after a trial lasting two and a half months, the jury vindicated him on all counts on Tuesday. Autonomy’s former Vice President of Finance, Stephen Chamberlain, who was also on trial, was similarly found innocent.
After the verdict, Lynch stated he felt euphoric and was looking forward to rejoining his family in the UK and returning to the field he is passionate about: innovation.
The prosecution had portrayed Lynch and Chamberlain as masterminding illegal revenue inflation two years prior to the HP acquisition. They did this by antedating Autonomy contracts, implementing “round trip” deals to offer customers compensation for their purchases, and concealing the fact that some high-margin software revenue was really being generated by unprofitable hardware sales.
The defendants faced 14 wire fraud charges and one conspiracy charge. A further securities fraud charge was dismissed by the judge in the final parts of the trial.
A representative for the San Francisco US attorney’s office expressed respect for the verdict and thanked the jury for examining the evidence presented by the government. Lynch’s legal team, Christopher Morvillo of Clifford Chance and Brian Heberlig of Steptoe, in a statement, accused the government of “overreach” and insisted that the verdict put an end to a relentless 13-year attempt by HP to blame its well-documented incompetence on Lynch.
At a time when the “Silicon Fen” area near Cambridge was gaining traction, the sale of Autonomy was a significant moment for the British technology sector. Autonomy, based in this region, created software integral in sifting unstructured database information, a tool deemed crucial for both large-scale businesses and government entities alike. This positioned it as an essential intervention in HP’s strategy to rejuvenate its struggling computer hardware enterprise by focusing more on software.
Nevertheless, HP was forced to significantly reduce its investment by a staggering $8.8 billion merely a year later. Of this decrease, $5 billion was attributed to supposed fraudulent inflation of Autonomy’s revenues prior to the transaction. The succeeding company, HPE, largely succeeded in a civil case against Lynch in the UK in 2022, seeking damages of $4 billion.
Sushovan Hussain, the ex-chief financial officer of Autonomy, had earlier been convicted of fraud over related allegations and was let off in January, after serving a five-year sentence in the states. Prosecutors asserted that allowing Hussain to be the central culprit in the scam granted Lynch the freedom to maintain control without the presence of a physical evidence trail leading to him, thus portraying him as an imposing, overbearing employer who went after critics aggressively.
During the trial, Lynch insisted that he had delegated intricate accounting and contract matters, focusing his attention on technical and marketing issues. Thus, he claimed, he was unaware of the fraud unfolding.
Lynch, a Cambridge graduate with a PhD, emerged as a significant figure in the UK’s tech industry. He served as an advisor to the UK prime minister’s scientific group and joined committees at the Royal Society. He received an OBE for services to enterprising in 2006. Six years later, he established a venture capital company called Invoke Capital, investing in entities such as Darktrace, a cybersecurity firm. Copyright The Financial Times Limited 2024.