Business

UK tech entrepreneur Mike Lynch goes on trial in US over Silicon Valley’s ‘largest fraud’

Autonomy founder faces charges of falsifying accounts before HP bought his software company in 2011

Mike Lynch: he is set to go on trial in San Francisco 13 years after what US prosecutors have called 'the largest fraud in the history' of Silicon Valley. Photograph: Yui Mok/PA Wire

Sun Mar 17 2024 - 16:11

Mike Lynch, once one of the UK’s most successful tech entrepreneurs, is set to go on trial in San Francisco on Monday, 13 years after what US prosecutors have called “the largest fraud in the history” of Silicon Valley.

Mr Lynch, who sold his software company Autonomy to Hewlett Packard (HP) for $11.7 billion (€10.7bn) in 2011, faces charges that he falsified Autonomy’s accounts in the two years before the deal. He was extradited from the UK last year after a five-year battle.

Alongside Stephen Chamberlain, Autonomy’s former vice-president of finance, Mr Lynch will be tried on 16 counts of wire and securities fraud, which carry sentences of up to 20 years. The charges are similar to ones that have already resulted in a five-year jail sentence for former Autonomy chief financial officer Sushovan Hussain.

In a setback for Mr Lynch some of the defence evidence he had hoped to rely on was chipped away during pretrial hearings in recent weeks. Judge Charles Breyer, who will oversee the three-month jury trial, barred some of the main evidence that his lawyers had planned to present.

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The acquisition of Autonomy’s data analysis software played a central role in efforts to turn around HP, one of Silicon Valley’s founding companies, which at the time was trying to rebuild itself around software. But a year after the deal Meg Whitman, HP’s chief executive, accused Autonomy’s former management of falsifying its accounts, leading to a $5 billion write-off. She later gave up on trying to remake HP and broke up the company.

Mr Lynch sought to turn the accusations back on Ms Whitman by claiming that he was being made a scapegoat for her own alleged mismanagement of Autonomy’s business, putting the reputations of some of Silicon Valley’s top names in the spotlight.

Besides Ms Whitman, a former eBay chief executive who is now the US ambassador to Kenya, they include Frank Quattrone, Silicon Valley’s top investment banker during the 1990s dotcom boom, who handled the Autonomy sale after also shopping it to other companies including Oracle and Cisco. Mr Quattrone has been listed as a potential witness by the prosecution, along with Léo Apotheker, the HP chief executive at the time of the deal.

M Lynch is also likely to appear, his lawyers have told the judge, though the case he wants to put directly to the jury has been hampered by the limitations on evidence he can use, his lawyers said.

The US has sought to portray the former Autonomy boss as a micromanager who had close control over its finances, including personally approving any payment above $30,000.

Mr Lynch’s lawyers succeeded in persuading Judge Breyer to disallow evidence the prosecution had sought to bring showing that he delighted in comparing himself to James Bond villains, and that he kept a tank of piranhas in Autonomy’s reception area.

However, the judge rejected the defence’s attempt to bar two witness statements that Mr Lynch had compared his company to the mafia, saying that, even if he was joking, it could be seen as relevant to the amount of control he exerted over the company.

In the biggest blow to the defence, the judge has ruled out almost all evidence that relates to the period after HP bought Autonomy, making it hard for Mr Lynch to redirect the spotlight on to Ms Whitman and other HP staff.

According to the US charges Mr Lynch and Mr Chamberlain artificially inflated Autonomy’s revenues by backdating sales and engaging in round-trip deals in which customers were compensated for fake purchases of Autonomy’s software. The alleged fraud also involved misrepresenting low-margin hardware sales as software deals, giving the false impression that Autonomy’s software was growing much faster than it was.

– Copyright The Financial Times Limited 2024

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