A US jury has begun deliberating the fate of British tech entrepreneur Mike Lynch in a corporate fraud trial that began in March as the years-long saga of the 2011 acquisition draws to a close.
Lynch is charged with 15 counts of fraud, although he originally faced 16; one count of securities fraud was dismissed last week, a notable victory for his defense.
The charges center on allegations that Lynch artificially inflated numbers at his software firm, Autonomy, ahead of its $11 billion acquisition of Hewlett-Packard. HP wrote down Autonomy’s value by $8.8 billion in 2012, citing serious accounting errors.
The British tech mogul once hailed as “Britain’s Bill Gates” faces up to 25 years in prison and has been extradited to the US for a trial held at a federal courthouse in San Francisco. Lynch pleaded not guilty.
The 11-week trial chronicled the alleged missteps of a businessman who prosecutors said was the “driving force” behind a “massive” years-old fraud. Lynch’s team, meanwhile, argued that the case amounted to a “routine business dispute” in which there was no intentional wrongdoing.
After many days of arguments from opposing sides, including testimony from Lynch himself, we learned about the controversial case here.
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1. Prosecutors say Lynch showed a pattern of intimidation
Throughout the trial, prosecutors sought to portray Lynch as a ruthless businessman who “spun a fabulous corporate success story” to trick HP into a bad deal.
To that end, they interviewed witnesses about signs of a mafia business culture at Autonomy, citing everything from the presence of piranhas in fish tanks to boardrooms named after James Bond villains to characterize the manager as a tough and threatening boss.
On the stand, Lynch tried to humanize himself, discussing his childhood in England and the exciting rise of his company. He soberly explained the business decisions at Autonomy and claimed that he had no direct role in the alleged fraud being discussed.
In closing arguments, Assistant U.S. Attorney Robert Leach told jurors that they should have no reasonable doubt that there was fraud at Autonomy and that Lynch directed it. He pointed out that Lynch made 500 million pounds ($640 million) from the HP deal and told jurors to follow the money.
“Dr. Lynch had 500 million reasons to defraud HP,” he said. “It tells you a lot about who was in charge and who benefited from it.”
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2. Ten-year-old memories provide vague evidence: “I can’t give you a specific date for sure”
The lawsuit revolves around Hewlett-Packard’s acquisition of Autonomy in 2011 and the alleged fraudulent actions Lynch took in the time leading up to it. Crucially, US District Judge Charles Breyer ruled that the trial will not focus on post-acquisition actions. The defense criticized the decision because Lynch had long argued that the financial problems faced by Autonomy were the result of HP’s mismanagement.
With the proceedings centered around allegations that Lynch purposely inflated the company’s revenue starting in 2009 to lure buyers, much of the trial consisted of witnesses being forced to recall business details, accounting decisions and conversations from 15 years ago.
“I can’t give you a specific date for sure,” one former Autonomy employee said in early testimony. This sentiment was echoed throughout the proceedings, with Lynch himself declaring on the stand that it was “surreal” to watch the “parade of witnesses”. [he’s] never met” describe decisions in which he had no part.
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3. Lynch’s team argued that the process was unfair
The trial became contentious at times, with Lynch’s defense attorney at one point leaning toward a mistrial based on the plaintiff’s “outrageous” and “highly inappropriate” behavior.
In that line of questioning, which the defense said was “tainted with intentional misconduct highly prejudicial to Dr. Lynch,” prosecutors implied that Lynch was being extradited for trial. The only way Lynch could deal with such references, the defense argued, would be to discuss the events after the acquisition — which the judge ruled out. It effectively “hamstr[u]his fundamental rights to a fair trial,” the motion said.
Breyer denied the motion to dismiss, but acknowledged the prosecution’s questions were improper and ordered the jury to exclude the questions and subsequent testimony from deliberations.
Such language from the defense echoes the rhetoric used in the British trial of Autonomy executive Sushovan Hussain, whose lawyers called Hewlett-Packard’s case “overblown” and “unfair.”
Hussain was separately convicted in 2018 in a trial in the same court on charges of conspiracy, wire fraud and securities fraud in connection with the HP deal. He was released from an American prison in January after serving a five-year sentence.
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4. Lynch says it’s all just a big misunderstanding of the accounting differences between the UK and the US
Cultural, linguistic and business differences between the US and the UK proved to be points of contention during the 12-week trial. Some of the cultural exchanges were comic in nature – Lynch explaining Britishness to the jury, including his use of the term “bean counters” to refer to accountants in one business letter.
Others were more consistent, with differences between US and UK accounting standards central to Lynch’s defence. Prosecutors called Ganesh Vaidyanathan, Autonomy’s former U.S. chief accounting officer, as a witness to testify about potential accounting problems he first raised inside the company in 2010.
However, during Vaidyanathan’s cross-examination, defense attorneys sought to point out the differences between International Financial Reporting Standards (IFRS), which were used in Autonomy, and Generally Accepted Accounting Principles (GAAP), the financial reporting standards largely used in the US. established companies.
Lynch’s team has long argued that the case is a “dispute over the differences between British and American accounting systems” and “certain business judgments” and not intentional fraud.
Reuters contributed reporting