Suffolk entrepreneur Mike Lynch loses $5bn fraud case with Hewlett Packard

BUSINESS - CHAMBERS
PICTURE ANDY ABBOTT 16.7.10
Autonomy Software entrepreneur Mike Lynch
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Entrepreneur Mike Lynch pictured at Ipswich waterfront - Credit: Archant

Hewlett Packard has won a multibillion-dollar fraud case over its acquisition of British software company Autonomy, founded by Suffolk's Mike Lynch, a decade ago.

The American technology giant sued Mr Lynch and its former chief financial officer, Sushovan Hussain, for around five billion dollars (£3.7 billion), following its purchase of the Cambridge-based firm for 11.1 billion dollars (£8.3 billion) in 2011.

HP claimed the two men "artificially inflated Autonomy's reported revenues, revenue growth and gross margins", claiming that Mr Lynch "committed a deliberate fraud over a sustained period of time," which it said forced it to announce an 8.8 billion dollar (£6.6 billion) write-down of the firm's worth just over a year after the acquisition.

Mr Justice Hildyard delivered a summary of his conclusions in the case on Friday, more than two years after the start of what was believed to be the UK's biggest civil fraud trial - which was heard over nine months in 2019.

Reading out the summary at the High Court in London, he said HP and the other claimants had "substantially won" their claim.

His full judgment in the case is expected to be published at a later date but remains embargoed until then.

This afternoon, Mr Lynch's lawyer said he would be appealing.

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Kelwin Nicholls, of Clifford Chance, said: "Today’s outcome is disappointing and Dr Lynch intends to appeal. We will study the full judgment over the coming weeks. We note the judge’s concerns over the reliability of some of HP’s witnesses. We also note the judge’s expectation that any loss suffered by HP will be substantially less than the $5billion claimed.”

The decision comes on the same day Home Secretary Priti Patel will have to reach a decision over whether to extradite Mr Lynch to the United States, where he is facing separate criminal proceedings over the sale of Autonomy.

US authorities claim that Mr Lynch, who denies all charges against him, deliberately overstated the value of his business, which specialised in software to sort through large data sets.

On Wednesday, Ms Patel was given until midnight on Friday to decide on his extradition after a High Court judge ruled against Mr Lynch's legal challenge over a previously set deadline.

Ms Patel had wanted to consider Mr Justice Hildyard's ruling on the High Court civil claim before making an extradition decision.

During the civil trial in 2019, HP said the write-down of Autonomy's value was because it had found "serious accounting improprieties".

Laurence Rabinowitz QC, representing HP, said Mr Lynch and Mr Hussain had knowingly caused Autonomy to "engage in a programme of widespread and systematic fraudulent" accounting practices ahead of the sale.

He said Autonomy had been "meeting its revenue and revenue growth targets by simply buying and selling third-party hardware, without any connection to Autonomy software".

Mr Rabinowitz added that the firm also used "a variety of other fraudulent devices" to either accelerate revenue or to invent revenue that never existed in the first place.

The two men denied the claims and Mr Lynch launched a counter-claim for at least 125 million dollars (£95 million) in damages against HP for "a series of false, misleading and unfair public statements" about his alleged responsibility for supposed accounting irregularities and misrepresentations at Autonomy.

He accused HP of "making a series of far-fetched allegations of fraud and scapegoating", arguing it had "destroyed one of the most successful and promising software companies of its time due to management incompetence, politics and infighting".

Mr Lynch, who studied at Bancroft’s School in Essex and now lives in Suffolk, where he is said to care for rare breeds which include red poll cattle, argued that the technology giant was trying to make him "a scapegoat for their failures".

Hussain was convicted in April 2018 in the US of wire fraud and other crimes related to Autonomy's sale and was sentenced to five years in prison.

In the separate criminal proceedings in the US, Mr Lynch faces charges of securities fraud, wire fraud and conspiracy in a federal court over the sale of Autonomy.

Mr Justice Hildyard said the amount of damages to be paid to HP and the other claimants will be dealt with at a later date.