US case against former Autonomy CEO Mike Lynch
Service Area: Fraud
Member: Roger Isaacs
Dr Mike Lynch founded UK firm Autonomy in 1996 with three partners as a spin-off from Cambridge Neurodynamics, a firm specialising in computer-based fingerprint recognition.
In 2011, Autonomy was sold to Hewlett Packard (HP) but the US firm swiftly brought a criminal case in the US and a £3.8 billion civil fraud case in the UK against Dr Lynch after an investigation by the Serious Fraud Office (SFO) failed to find sufficient evidence of improper accounting in the $11 billion sale to proceed.
HP brought the case because it had to write down the value of Autonomy by a whopping $8.8 billion shortly after the buyout, amid claims that Autonomy had fraudulently misrepresented its value.
Dr Lynch has recently submitted to arrest in London because of extradition proceedings he faces in the US, where if convicted, he could serve 25 years in jail.
The charges against him include conspiracy and wire fraud but he has denied all the allegations.
However, in May 2019, former Autonomy finance chief Sushovan Hussain was convicted of fraud for inflating revenue ahead of the sale and jailed for five years.
Dr Lynch has described the allegations in the civil case as a “witch hunt”, claiming that HP was suffering from “buyer’s remorse” following a botched merger.
Much of the evidence in the UK case concerned complex accounting issues and a judgement is expected shortly.
If he is found not guilty in the UK courts, then former Brexit Secretary David Davis maintains that his extradition should not progress.
Much of the evidence in the trial related to deleted emails and phone call transcripts, as well as an examination of the company’s accounts.
This is quite normal in many financial and fraud disputes, as investigators need to know about the context in which accounting entries are made.
The judgement is eagerly awaited and should have a bearing on the US case, as all the evidence will have already been scrutinised in minute detail.
Roger Isaacs, Forensic Partner at Milsted Langdon, said: “The “buyer’s remorse” to which Dr Lynch refers is relatively common in circumstances in which a business is acquired and turns out to be less profitable than was expected. Often purchasers seek to mitigate their losses by holding back deferred consideration or claiming that there were breaches of warranties.
“Sellers often respond by accusing the buyers of having mismanaged the businesses that they bought. The thing that makes the Autonomy case unusual is not only its scale but also the evident high level of personal antipathy between the parties and the allegations that the wrongdoing was not just improper but criminal.”
Author: Roger Isaacs
14 February 2020