Autonomy’s legal endgame leaves few real winners
07/06/2024 15:11
(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own. Refiles to add graphic.)
By Aimee Donnellan
LONDON, June 7 (Reuters Breakingviews) - Autonomy’s epic
tale of woe is nearing its denouement. On Thursday, Mike Lynch,
founder of the UK software company sold to Hewlett-Packard in
2011, was acquitted of fraud connected with the transaction.
That’s a major vindication for him, but the snail pace of
justice still cost him over a decade of his career.
San Francisco prosecutors accused Lynch and Stephen
Chamberlain, Autonomy’s former vice president of finance, of
illegally inflating the company’s revenues in the two years
prior to the HP deal. HP argued those practices contributed to a
$8.8 billion write down just a year later; Lynch protested his
innocence and said his company was merely following standard UK
accounting practices at the time. A jury has now found Lynch
innocent of 14 counts of wire fraud and one count of conspiracy.
Even though the UK’s Serious Fraud Office closed an
investigation into the sale citing insufficient evidence as far
back as 2015, U.S. prosecutors may have been confident of
victory. After all, following years of back and forth they had
managed to extradite Lynch from the UK, and a U.S. jury in 2019
convicted Autonomy’s former chief financial officer, Sushovan
Hussain, of fraud. Yet they still had to prove Lynch was aware
of any wrongdoing. In the event, hampered by witnesses who were
unable to remember sufficient details of conversations that
happened over a decade ago, they couldn’t adequately do so.
The ruling refocuses attention on the due diligence mess
made by HP, which has since been broken up. Back in 2011 the
company’s desperation to pivot away from flogging computers led
it to offer a 64% premium and pay in cash, while scrimping on
proper diligence. Hence it ignored red flags that were clear
enough at the time – like the fact Autonomy's cash flow didn’t
always match profit in certain quarters. HP CEO Meg Whitman
later said gremlins like these meant an assumed 45% Autonomy
operating margin was actually more like 30%. Thursday’s legal
findings underscore the folly of the company’s dysfunctional
board.
Lynch, who plans to return to the UK to focus on his
family and “innovating in my field”, looks like ending up the
least-scathed in the wider debacle. But the slow grind of
justice has still seen his career put on hold for 12 years,
whilst the negative publicity has affected his ability to move
on via new ventures like $5 billion Darktrace DARK.L . As
victories go, it’s fairly pyrrhic.
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CONTEXT NEWS
Autonomy founder Mike Lynch was acquitted of fraud on June 6
by a jury in San Francisco, a major win for the entrepreneur who
has been dogged by legal problems since the sale of his company
to Hewlett-Packard (HP) for $11.7 billion in 2011.
Representatives for Lynch and U.S. prosecutors said Lynch
was acquitted on all 15 charges – one count of conspiracy, and
14 counts of wire fraud, each connected to specific transactions
or communications.
Former Autonomy finance executive Stephen Chamberlain, who
faced the same charges at trial alongside Lynch, was also
acquitted on all counts, the Lynch representative said.
The trial, where prosecutors said Lynch and Chamberlain
schemed to inflate Autonomy's revenue, was the latest chapter in
a legal saga stemming from the failed deal.
The Autonomy sale was one of the biggest British tech deals
at the time but quickly went sour, with HP writing down
Autonomy's value by $8.8 billion within a year.
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(Editing by George Hay and Pranav Kiran)
((For previous columns by the author, Reuters customers can
click on DONNELLAN/
Aimee.Donnellan@thomsonreuters.com; Reuters Messaging:
Aimee.Donnellan.thomsonreuters.com@reuters.net))