Former British tech mogul Mike Lynch goes on trial for defrauding HP

Every morning, at his home in San Francisco's upscale Pacific Heights neighborhood, the man once nicknamed Britain's Bill Gates gets to work.

This man, Mike Lynch, inquires about his recent performance with his investment company, Invoke Capital. He talks to researchers in Cambridge, England, whom he personally funds, about how artificial intelligence could be used to help people with hearing loss. He receives updates on Red Poll cattle and other livestock on his farm in Suffolk, eastern England.

Finally, Mr. Lynch, 58, turns to his most important task: defending himself against 16 counts of conspiracy and fraud. If convicted, he faces up to 20 years in prison.

The trial begins Monday in San Francisco, where federal prosecutors — who extradited Mr. Lynch from Britain in May and placed him under house arrest — have accused the former technology mogul of defrauding Hewlett-Packard of several billion when sold its software company, Autonomy, to HP for $11 billion in 2011.

In 2012, HP announced a Impairment of $8.8 billion and blamed it on “serious accounting irregularities” at Autonomy. Stunned investors called him one of worst acquisitions in history. Since then, Mr. Lynch has fought a series of complex and overlapping legal battles in the United States and Britain.

In 2022, a London judge a civil matter said Mr. Lynch and Sushovan Hussain, Autonomy's former chief financial officer, were responsible for defrauding HP. The judge said the case was “among the longest and most complex in English legal history”, with a trial lasting more than three months, the submission of tens of thousands of documents and, in ultimately a decision that ran to well over 1,000 pages.

Mr. Lynch disputes HP's claims and plans to appeal the decision. Its lawyers have called it a “case study in buyer's remorse” and point the finger at HP executives for their mismanagement of Autonomy. Hearings were held last month to decide damages, with HP seeking some $4 billion and Mr. Lynch arguing he owed nothing.

Mr. Lynch's legal woes also recall the decline of Hewlett-Packard, a former titan of the American technology industry. The former Silicon Valley giant has since broken up and has long been overshadowed by younger leviathans like Alphabet, Apple and Microsoft.

For his upcoming criminal trial, Mr. Lynch's chances do not look good. Judge Charles Breyer of the Northern District of California rejected some of the evidence Mr. Lynch's lawyers tried to present that they said showed HP mismanaged Autonomy after it acquired the company. Justice Breyer also oversaw the trial of Mr. Hussain, who was convicted in 2018 charges similar to those Mr. Lynch currently faces. Mr. Hussain was recently released from a federal prison in Pennsylvania.

Last year, Mr. Lynch lost his bid to avoid extradition despite pressure on the British government, which approved his transfer to the United States on the same day as the judgment against him in the civil lawsuit filed by HP.

Last month, it sued the Serious Fraud Office, Britain's securities regulator, over its handling of U.S. government data requests. This trial, a final attempt to delay the American criminal trial, has been settled earlier this month.

Mr. Lynch still has considerable resources available to defend himself in court in San Francisco. “Mike Lynch is confident that he will be vindicated when he finally gets the opportunity to tell his story in front of a jury,” said Reid Weingarten, one of several white-collar defense attorneys representing Mr. Lynch in the States. -United, in a press release. . “We look forward to this opportunity to tell Mike Lynch’s story and allow him to put this unfortunate chapter behind him.”

Since his extradition, Mr. Lynch has lived under 24-hour surveillance and court-mandated private security, a drastic fall for a man once considered one of Britain's greatest technological success stories.

Born into a working-class family outside London, he attended a private school on a scholarship and graduated from Cambridge before founding Autonomy in 1996. The company helped clients analyze unstructured information to uncover insights. hidden information about their businesses.

By 2011, Autonomy had become one of Britain's most valuable technology companies, with its headquarters in Cambridge sometimes referred to as “Silicon Fen”.

“It certainly raised the profile of Cambridge technology,” said Tony Quested, editor of Business Weekly, a technology trade publication based in Cambridge. “There wasn’t much back then.”

Mr Lynch has become a celebrity in British technology circles. He was a member of the Royal Society, one of the country's leading scientific associations; an adviser to David Cameron, then prime minister; and served on the board of directors of the BBC.

HP, then led by Léo Apotheker, former boss of German software giant SAP, had the idea of ​​buying Autonomy to transform itself from an aging hardware supplier to a higher-margin software publisher. HP agreed to buy autonomy in mid-2011 for about 60 percent more than its market value.

Things deteriorated quickly.

Mr. Apotheker stepped down as chief executive a month after the deal was announced, as investors and analysts revolted against both the high price of the Autonomy acquisition and a proposed spinoff of HP's personal computer division (born from another major acquisition of Compaq.)

He was replaced by Meg Whitman, the former eBay executive who served on HP's board of directors. At HP, Autonomy's star quickly faded amid rapidly declining sales. Mr. Lynch, who clashed with Ms. Whitman, was fired in May 2012.

Later that year, HP said it had been deceived by Autonomy, misled by irregularities including backdating contracts and using hardware sales to boost revenue, particularly at the end of a quarter. The multibillion-dollar writedown marked the start of Mr. Lynch's legal efforts, which will culminate this month in another long and complex trial.

Over the years, Mr. Lynch has denied allegations that the company was riddled with fraud. He has blame Ms. Whitman, now US Ambassador to Kenya, and other senior leaders who clashed with him over the disintegration of Autonomy. His lawyers argued in court that HP executives, for example, knew about the hardware sales and did not raise the issue.

They pointed to internal emails showing changes in calculations of Autonomy's value, at one point putting it at more than $11 billion. They also noted that accountants at EY, the global accounting and consulting firm formerly known as Ernst & Young, who worked for HP, did not believe Autonomy's buyout price was inflated due to accounting irregularities.

U.S. federal prosecutors argued in court papers that Mr. Lynch, long known as a demanding boss, liked to be tough and in control. (In one filing, government lawyers described an internal sales video at Autonomy in which he introduced himself as a Mafia don, and noted that he named the conference rooms after James Bond movie villains.) Witness depositions include Ms. Whitman and Catherine Lesjak, HP's former chief financial officer.

Prosecutors have sought to present tens of thousands of exhibits and a witness list of 44 people and estimate the trial could last until the end of May.

Mr. Lynch's freedom and his legacy are at stake.

He has sought to build a reputation as a public intellectual by giving technology-themed interviews, but has kept a low profile since his extradition. His last published article was in April, when he encouraged British policymakers to embrace AI startups.

Autonomy is now part of Canadian software company OpenText. Mr. Lynch's investment firm, Invoke, made crucial early investments in companies like cybersecurity provider Darktrace.

But associations with Mr. Lynch can be difficult. In December, Darktrace shareholders rejected a board candidate proposed by Invoke. And in the company financial documentsDarktrace described “autonomy issues” as a risk “from both a reputational and legal perspective.”

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