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Mike Lynch & VP for finance Stephen Chamberlain charged with fraud in US over sale of Autonomy

Added on the 30th Nov 2018 at 2:17 pm
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This article was updated at 15:01 on 30 November

US criminal prosecutors have charged former Autonomy boss Mike Lynch with 14 counts of fraud relating to the $11bn sale of Autonomy to Hewlett-Packard in 2011, in the latest twist in a long running saga that also sees Lynch face a $5.1bn UK civil claim by HP next year: claims that he and his lawyers are strongly contesting.

Lynch was charged on 29 November alongside former vice president for finance Stephen Chamberlain with engaging in a scheme to defraud HP about the true value of Autonomy, providing misleading statements and artificially inflating revenues; charges that his lawyers say are “a travesty of justice.”

Autonomy’s former chief financial officer and ex-Darktrace director Sushovan Hussain was found guilty of fraud in May: a 12-member federal jury convicted Hussain of 16 counts of wire and securities fraud.

Hussain was in February 2015 appointed as a director of cyber defence company Darktrace – a company backed by Lynch’s investment vehicle Invoke Capital, which also backs Luminance (it is Luminance’s controlling party). However, Hussein’s appointment came to an end in November 2016 at around the time he was charged with fraud, and it will be interesting to see whether Lynch will also now relinquish his directorship.

While the long running prosecutions appear to have had no impact to date on the success of the companies backed by Invoke Capital – Luminance in particular has been enjoying a run of wins – Luminance’s accounts due by 30 September have not yet been filed with Companies House and are marked as overdue. Luminance’s CEO Emily Foges could not immediately be reached with regard to why the accounts have not been filed but we will update this article accordingly.*

With court cases taking place on both sides of the Atlantic, in the London courts Hewlett Packard’s civil claim also alleges that senior Autonomy managers inflated the company’s financial position.

However, Lynch is counter-suing for $160m, claiming lost investment opportunities due to reputational damage. He has long strongly rejected HP’s claims that management misled HP over the company’s value.

The UK’s Serious Fraud Office dropped its own investigation into Autonomy in 2015 after concluding it had “insufficient evidence for a realistic prospect of conviction”.

In a statement regarding the US prosecution, Lynch’s lawyers said he will “vigorously defend” the charges. Clifford Chance’s Chris Morvillo and Reid Weingarten, of Steptoe & Johnson, said in a now widely circulated statement initially sent to The Register:

“This indictment is a travesty of justice. Mike Lynch is a world-leading entrepreneur who started from nothing and spent his life building a multi-billion 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.

“There was no conspiracy at Autonomy and no fraud against HP for the DoJ 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.”

*Update

According to spokesman for Luminance, its accounts were filed three days ago on 27 November but have yet to show up on Companies House. He said: “I can also confirm Mike is also not stepping down from the board at Luminance.”

 

 

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