A British technology tycoon once lauded as “Britain’s Bill Gates” was the “driving force” behind a “massive” years-long fraud, prosecutors alleged, as his criminal trial got under way in San Francisco on Monday.
Prosecutors said Mike Lynch, co-founder of the UK software company Autonomy, ruled the firm “with an iron fist” before its blockbuster takeover by Hewlett-Packard in 2011.
The businessman will personally testify as he fights to avoid prison. His lawyer Reid Weingarten argued that the case amounts to a “routine business dispute” which was spiraled into an “overblown fraud case” where “not one penny was missing”.
Lynch stands accused of artificially inflating the software firm’s sales; misleading auditors, analysts and regulators; and intimidating people who raised concerns.
He has pleaded not guilty, having always denied the allegations of wrongdoing. If convicted, he faces up to 25 years in jail.
Lynch “spun a fabulous tale of corporate success” when pitching Autonomy to HP, assistant US attorney Adam Reeves, representing the government, told the court. “The evidence in this case will prove that this was the scene of an $11bn fraud.”
HP bought Autonomy in an $11.1bn (£8.72bn) deal designed to turbocharge its software business. Lynch walked away with £500m from the deal, Reeves claimed.
Barely a year later, however, HP wrote down the value of the acquisition by $8.8bn, and alleged “serious accounting improprieties, disclosure failures and outright misrepresentations” at the business.
“Autonomy’s financial statements were materially false and misleading,” Reeves alleged, claiming the company lied to auditors and investors “again and again” over 10 quarters, and fraudulently inflated its revenue between 2009 and 2011 to suggest growth.
Attorneys for Lynch pushed back hard, presenting him to the jury as a talented inventor. “He’s not an accountant; not interested in accounting,” Weingarten said. Lynch “relied on others to do the day-to-day stuff”, he added.
“Was Mike desperate to sell? No,” Weingarten claimed, of HP’s takeover. “He was perfectly happy where he was.”
He dismissed the idea that Lynch would orchestrate a vast fraud and then work for HP as “preposterous”.
In 2019 Lynch was indicted by a federal grand jury. He has been charged with 17 counts of wire fraud, securities fraud and conspiracy. This trial covers 16 of the counts.
Lynch was previously lauded for his achievements. He was awarded an OBE (Order of the British Empire) for services to enterprise in 2006, and appointed in 2011 to the science and technology council of then prime minister David Cameron. He also served on the board of the BBC, and established an investment firm that backed Darktrace, the cybersecurity firm.
On Monday morning Lynch sat impassively in court, occasionally speaking quietly with his lawyers, as Reeves laid out the US government’s allegations for the jury.
At the heart of the government’s case lies the claim that while Autonomy had pitched itself as a software company it was heavily reliant on less profitable hardware sales.
Lynch “did everything he could” to conceal this from the market, according to Reeves, falsely attributing business from hardware to software and “straight-out lying” to analysts.
Weingarten, representing Lynch, countered that selling software was an “important business reason” for Autonomy to sell hardware.
For years Lynch has argued that Autonomy’s underperformance at HP was the result of mismanagement by its new owner, rather than fraud before the takeover. He has spent much of the past year preparing for trial under house arrest.
Lynch was extradited from the UK to the United States last May. After posting a $100m bond, he has been required to wear a GPS ankle tag and remain under the watch of armed guards around the clock.
Only in November was he permitted to leave the lavish San Francisco property he has been using a base between 9am and 9pm each day, albeit under strict conditions.
Concluding the government’s opening argument, Reeves suggested Lynch had been motivated to engineer the alleged fraud by two factors: money and power.
