UK Tech Mogul Mike Lynch's Fraud Trial Begins, HP's $11 Billion Acquisition in Focus

The highly awaited criminal fraud trial of the British technology tycoon Mike Lynch began on Monday (March 18, 2024) in San Francisco. Lynch, the co-founder of the UK software company Autonomy, has been accused of defrauding Hewlett-Packard (HP) in the $11 billion sale of his software company. Federal prosecutors allege that Lynch along with his former finance executive Stephen Chamberlain inflated Autonomy’s revenue in a scheme that resulted in HP's disastrous acquisition of the company in 2011, per Reuters. The unraveling of Autonomy’s acquisition by HP is one of the worst corporate deals, which led to the firing of HP's then-chief executive officer and an $8.8 billion write-down.

The implosion triggered legal battles for Lynch and HP which have lasted for over a decade. Lynch has pleaded not guilty throughout and denied all allegations of wrongdoing. He was extradited to the US last year and if convicted, he faces up to 25 years in jail.

Who is Mike Lynch?

Mike Lynch was born in Essex in 1965 and had fairly humble beginnings with his mother working as a nurse and his father working as a fireman. Lynch received a scholarship at the age of 11 to attend the exclusive Bancroft’s School. He then went on to attend the prestigious University of Cambridge and then did a PhD in signals processing and communications.

In the 1980s, after completing his studies, Lynch founded a business called Lynett Systems Ltd which produced designs and audio products for the music industry. A few years later in the early 90s, he founded a fingerprint recognition business called Cambridge Neurodynamics which counted South Yorkshire Police among its customers, per CNBC.

However, Lynch’s big break came when he co-founded Autonomy in 1996 along with David Tabizel and Richard Gaunt as a spinoff from Cambridge Neurodynamics. Autonomy developed software that extracted useful information from "unstructured" data sources such as phone calls, emails, or video.

Autonomy was listed on the US Nasdaq exchange in May 2000 at the height of the technology boom and was subsequently listed in London. While the company suffered during the technology bubble burst, it grew rapidly opened joint head offices in Cambridge and San Francisco, and served 65,000 customer companies. Eventually, Autonomy was sold to HP for $11.1 billion (per Fortune) in 2011 and Lynch left the company the following year.

What is Mike Lynch accused of?

HP bought Autonomy in a deal designed to turbocharge its software business. The company’s offer was 64% higher than Autonomy’s market value, according to CNBC. However, one year later, HP announced an $8.8 billion write-down on Autonomy, claiming “accounting irregularities” that led it to pay too much for the company. HP’s main accusation is that Autonomy’s executives inflated the company’s revenues by around $700 million. Thus, HP sued Autonomy for $5 billion and Lynch counter-sued, which led to a complex legal battle.

In 2019, Lynch was indicted by a federal grand jury and he was extradited from the UK to the United States last year in May. Lynch was charged with 17 counts of wire fraud, securities fraud, and conspiracy, per The Guardian. He was posted a $100 million bond and has been in the U.S. since his extradition, wearing a GPS ankle tag while living under the watch of armed guards. If convicted by a jury, both Lynch and Chamberlain could face a sentence of over 20 to 25 years in federal prison.