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Mike Lynch charged with fraud over $11bn sale of Autonomy

It may be long forgotten, but HP once wanted to be in software and spent a lot of money on Autonomy, which was regarded as one of the hottest tech firms

Autonomy's founder Mike Lynch and former vice-president of finance, Stephen Chamberlain, have been charged with fraud in the US over the $11bn sale of Autonomy to HP in 2011.

According to the court papers from the US District Court for the Northern District of California filed on 29 November, from 2009 Lynch also with Chamberlain and CFO Sushovan Hussain, “engaged in a fraudulent scheme to deceive purchasers and sellers of Autonomy securities about the true performance of Autonomy’s business.”

Among the objectives of the scheme listed in the court filing was to ensure Autonomy met or exceeded its quarterly results and artificially increased the share price of Autonomy securities. The court papers reported that Lynch and Chamberlain also made false and misleading statements to the company’s auditors, regulators and to market analysts.

The court filing stated: “Michael Richard Lynch and Stephen Keith Chamberlain did knowingly, and with intent to defraud, devise and intend to devise a scheme and artifice to defraud as to a material matter and to obtain money and property by means of materially false and fraudulent pretences.”

In a statement, Chris Morvillo of Clifford Chance and Reid Weingarten of Steptoe & Johnson, attorneys for Mike Lynch wrote: 

“This indictment is a travesty of justice. Mike Lynch is a world-leading entrepreneur who started from nothing and spent his life building a multibillion-dollar technology business that solved critical problems for companies and governments all around the world. These stale allegations are meritless and we reject them emphatically.  This case is unsupportable. It targets a British citizen with rehashed allegations about a British company regarding events that occurred in Britain a decade ago. It has no place in a US court. 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."

The lawyers said there was no conspiracy at Autonomy and no fraud against HP for the US Department of Justice to take up: "HP has a long history of failed acquisitions. Autonomy was merely the latest successful company it destroyed. HP has sought to blame Autonomy for its own crippling errors, and has falsely accused Mike Lynch to cover its own tracks. Mike Lynch will not be a scapegoat for their failures.  He has done nothing wrong and will vigorously defend the charges against him.” 

$8.8bn write-down

In November 2012, HP wrote down the value of Autonomy by $8.8bn, proving the critics were correct in their analysis that HP had paid far too much for the software company.

This later led to a dispute with shareholders, who alleged that HP knew about Autonomy’ failings. In 2014 Lynch said: "It seems Meg Whitman [former CEO of HP] will be using a large sum of HP’s money to avoid explaining in court why she made false allegations regarding Autonomy in November 2012."

In 2015, legal papers filed by shareholders against HP alleged that industry experts warned that Autonomy’s technology was outdated and suffered from increased competition from numerous other companies. The filings showed then HP CEO, Léo Apotheker, drove through the acquisition of Autonomy despite reservations from HP’s chairman Ray Lane.

HPE, the successor company to HP after the tech giant demerged many of its business, said in a statement: "HPE is gratified that justice prevailed and that Mr Hussain was held accountable for his criminal actions when he was convicted in April of this year. HPE is now pleased to learn that Dr Lynch and Mr Chamberlain have also been criminally charged in this matter by a federal Grand Jury."

The Autonomy story

2011: Hewlett-Packard (HP) completed its acquisition of software company Autonomy for £7.1bn. HP said the acquisition positioned it as a leader in the large and growing enterprise information management space.

2012: HP blames Autonomy for misleading the firm before acquisition and refers former management to the Serious Fraud Office.

2013: HP CEO Meg Whitman defended her company’s attack on the former management of Autonomy, which it acquired in 2011 for $11.7bn.

2014: HP was close to settling the legal dispute filed by shareholders over the acquisition of British software company Autonomy.

2014: HP sued Autonomy's former chief financial officer, Sushovan Hussain, for his part in the 2011 acquisition of the UK software company.

2015: The UK Serious Fraud Office dropped its investigation into the sale of Autonomy to HP, but the US continued its investigation.

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