A British tech mogul once hailed as “Britain’s Bill Gates” was the “driving force” behind a “massive” fraud that spanned several years, prosecutors said, as his criminal trial opened Monday in San Francisco .
Prosecutors said Mike Lynch, co-founder of British software company Autonomy, ruled the company “with an iron fist” before its blockbuster takeover by Hewlett-Packard in 2011.
The businessman will give personal testimony as he fights to avoid prison. His lawyer, Reid Weingarten, argued that the case amounted to a “routine business dispute” that turned into an “exaggerated fraud case” in which “not a penny was missing.”
Lynch is accused of artificially inflating the software company’s sales; mislead auditors, analysts and regulators; and intimidating people who raised concerns.
He has pleaded not guilty, having always denied allegations of wrongdoing. If convicted, he faces up to 25 years in prison.
Lynch “told a fabulous corporate success story” in introducing Autonomy to HP, Assistant U.S. Attorney Adam Reeves, representing the government, told the court. “The evidence in this case will prove that this location was the site of an $11 billion fraud. »
HP bought Autonomy in an $11.1 billion (£8.72 billion) deal intended to boost its software business. Lynch walked away with £500m from the deal, Reeves claimed.
However, just a year later, HP wrote down the value of the acquisition by $8.8 billion and alleged “serious accounting irregularities, disclosure failures and outright misrepresentations” within the company. .
“Autonomy’s financial statements were materially false and misleading,” Reeves asserted, saying the company lied to auditors and investors “over and over again” for 10 quarters and fraudulently inflated its revenue between 2009 and 2011 to suggest a growth.
Lynch’s lawyers fought back forcefully, 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 complete daily tasks,” he added.
“Was Mike desperate to sell?” No,” Weingarten said of the HP takeover. “He was perfectly happy where he was.”
He dismissed the idea that Lynch orchestrated a massive fraud and then worked for HP, calling it “absurd.”
In 2019, Lynch was indicted by a federal grand jury. He was charged with 17 counts of wire fraud, securities fraud and conspiracy. This trial covers 16 of the counts.
Lynch had previously been praised for his achievements. He was awarded the OBE (Order of the British Empire) for services to business in 2006 and was appointed to Prime Minister David Cameron’s science and technology council in 2011. He also served on the BBC board and set up an investment company that backed Darktrace, the cybersecurity company.
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On Monday morning, Lynch sat impassively in court, occasionally speaking in hushed tones with his lawyers, as Reeves outlined the U.S. government’s allegations to the jury.
At the heart of the government’s argument is the assertion that although Autonomy had presented itself as a software company, it was heavily dependent on less profitable hardware sales.
Lynch “did everything he could” to hide this from the market, according to Reeves, falsely attributing the hardware business to software and “outright lying” to analysts.
Weingarten, representing Lynch, countered that selling software was an “important business reason” why Autonomy sold hardware.
For years, Lynch has argued that Autonomy’s underperformance at HP was the result of mismanagement by its new owner, rather than pre-takeover fraud. He has spent much of the past year preparing for his trial under house arrest.
Lynch was extradited from the United Kingdom to the United States last May. After posting $100 million bail, he had to wear a GPS tag on his ankle and remain under 24-hour surveillance by armed guards.
It was only in November that he was allowed to leave the lavish San Francisco property where he uses a base between 9 a.m. and 9 p.m. each day, but under strict conditions.
Concluding the government’s closing argument, Reeves suggested that Lynch was motivated to organize the alleged fraud by two factors: money and power.