Every moment of every day, Mike Lynch is being watched. It’s easy to imagine the British tech tycoon’s days, shuffling around the kitchen, watching American political pundits scream at each other on cable news, all under the watchful eye of the video cameras strategically placed throughout the rooms of the San Francisco house he has called home since he was extradited to the US in May 2023.
In addition to 24-hour video surveillance, a GPS monitor fitted to his ankle ensures that he complies with rules that prohibit him from leaving the house except for medical or religious reasons. The judge overseeing his impending criminal fraud trial slightly relaxed those terms recently, allowing him outside between the hours of 9am and 9pm — but not without the escort of two private security guards, paid for by Lynch.
Even then, he cannot go beyond the city limits. He has surrendered his passport, and put up $100 million in a bond that he would lose if he tried to flee. This seems unlikely. Lynch, said his security company, has been a “model supervisee”.
Such is the life of the 58-year-old once fêted as Britain’s answer to Bill Gates: under house arrest, facing 17 counts of conspiracy, wire fraud and securities fraud. If found guilty, Lynch could spend the next 20 years in a federal prison. The decision as to whether he does spend his golden years behind bars falls to 12 jurors, who will hear the opening arguments in a San Francisco courtroom from March 18.
It all started 13 years ago with Lynch’s crowning achievement: the $11.7 billion sale of his data analytics company, Autonomy, to Hewlett Packard (HP), the American tech giant. The deal was celebrated. It turned Autonomy into a rare British tech success story and Lynch into one of the richest men in Britain.
Then it all went wrong. Just a year after the takeover closed, HP wrote down the value of Autonomy by 75 percent — or $8.8 billion. The company uncovered what it claimed was a sprawling fraud designed to make it seem as though Autonomy was far bigger, and more profitable, than it actually was. Lynch was fired, and the lawsuits began to fly. What ensued has been an improbably protracted legal dispute that is finally approaching its denouement.
The US government will make its case that Lynch was a mafioso-style fraudster who cooked his company’s books and duped one of America’s most prominent companies into overpaying. Lynch has strenuously and repeatedly denied the allegations. He has also launched an explosive lawsuit against the Serious Fraud Office in the UK over its handling of data related to the case.
Just a year after the takeover closed, HP wrote down the value of Autonomy by 75 percent—or $8.8 billion.
The odds are stacked against the computer scientist from Chelmsford, Essex, who a friend from the British tech scene called “one of the great brains of his generation”.
Lynch was extradited after a High Court session in London, presiding over a separate but related case, found in 2022 that HP — now called Hewlett Packard Enterprise (HPE) — had “substantially proven” that he had defrauded the Americans and broke US law in doing so. The company operated dual headquarters in San Francisco and London, and derived nearly 70 percent of its sales from the American operation. HPE last week asked the High Court to force Lynch and the former Autonomy finance chief Sushovan Hussain to pay it $4 billion in damages.
Several former lieutenants have struck plea deals to testify against Lynch. Hussain, Lynch’s one-time right-hand man, has only just walked out of a federal prison after being found guilty in 2019 of 16 counts of fraud related to the HP deal. Hussain, who began his sentence at the low-security Allenwood prison in Pennsylvania, was released on January 30, and has returned to his home in the UK. Lawyers for Hussain, 59, who was born in Bangladesh and came to Britain when he was seven, declined to comment.
Lynch’s trial will be the third that covers broadly the same facts. In both previous cases — the Hussain trial and the civil case against Lynch in the High Court in London — HPE won.
Behind the Story
In a grainy black-and-white video, Lynch is sat at his desk, sharpening a long, broad knife while his underlings, each of them wearing a fedora, explained why their part of “the business” was struggling. One bemoaned his inability to fit a rival’s “wife in the trunk of the car” because “the broad’s legs was too long”. Fed up with excuses about workers’ inability to “collect”, another lieutenant became so angry he smashed a telephone with a baseball bat. Lynch, knife in hand, opined coolly: “Well chaps, I think that went rather well, didn’t you?”
This scene was not, of course, the portrayal of an actual mafia boss discussing actual mafia business. It was far worse. It was a corporate video. Autonomy made it nearly 20 years ago, for a 2005 internal sales conference as a jokey attempt to motivate the troops.
Now it is being used as evidence. Federal prosecutors have argued in court documents that it provides a glimpse into Lynch’s fearsome management style — (Hussain was the fedora-wearing lieutenant with the baseball bat). The government plans to call witnesses to testify that Lynch regularly compared Autonomy to the Mob and projected the image of a man “to whom the rules do not apply”. He allegedly told one employee: “You can never leave, we are like the mafia, we are like family.” In another instance, it is alleged that he told his head of investor relations that he could have a research analyst “killed” for criticizing the company.
Lynch, the documents say, exercised an “unusual” level of control, “so much so that Dr Lynch’s approval was required for any purchase over $30,000”, the documents allege. The argument was clear. If there was a fraud as the government alleges, Lynch not only knew about it, he directed it.
Amid the blizzard of motions and counter-motions ahead of the trial, Lynch’s attorneys have argued that evidence, including the 2005 video and Lynch’s apparent affinity for Bond villains — he named conference rooms “Dr No” and “Goldfinger” — should be excluded as flimsy attempts to assassinate his character. “The government seeks to turn innocuous banter into sinister behaviour on Dr Lynch’s part,” his lawyers wrote. “This claim is absurd.”
The core of the government’s case centers on the period between 2009 and 2011, when HPE bought the company. It claims that Lynch and Stephen Chamberlain, Autonomy’s former vice-president of finance who is also a defendant, engaged in an elaborate scheme to artificially inflate Autonomy’s balance sheet, and thus its value.
They “backdated” deals so they could report higher sales to investors, court documents allege. They concealed the fact that some sales were achieved through murky “reciprocal” agreements, where Autonomy would sell software to a third party but then effectively repay them by buying goods and services it did not need.
In addition, a sizeable chunk of Autonomy’s business was due not to software but lossmaking sales of hardware, according to court documents. This was a problem not least because Autonomy sold itself as a “pure software” company, a designation that brings with it a much higher market value than companies that sell low-margin equipment.
The U.S. government will make its case that Lynch was a mafioso-style fraudster who cooked his company’s books and duped one of America’s most prominent companies.
Lynch’s lawyers, in motions seeking to expand the possible evidence that they can use to rebut the claims, argue that the charges are baseless. “HP was not defrauded and got exactly what it bargained for,” they wrote.
The Lynch team argues instead that it was HPE’s own dysfunction that hobbled the company that Lynch had spent 15 years building. At the time of the deal, HP was a struggling tech dinosaur known for its laptops and printers. Its chief executive, Léo Apotheker, had announced the takeover in August 2011, but he was replaced by the former eBay boss Meg Whitman before the deal closed in October. She was HP’s third chief executive in as many years.
The Autonomy deal was part of HP’s tortured attempt to build a fast-growing arm to handle data for large companies, a business that was very different from its core PC and printer operation. In 2015, the company split into a consumer-facing laptop and printer business and an IT infrastructure company, HPE.
Lynch’s lawyers plan to show that not only did HPE bungle the integration of a complex business but also that it was fully aware of the lossmaking hardware business before the deal was done. What is more, they plan to show that Autonomy’s accounting “irregularities” were immaterial to the company’s overall value. Indeed, his lawyers have argued in pre-trial documents that in the summer of 2012, HPE valued the company internally at $13.7 billion — $2 billion more than the amount it paid.
This assessment was made nearly a full year after the company had closed the takeover, a period during which it had full access to Autonomy’s books. By then, the buyer had also received information from a “whistleblower” who raised concerns about Autonomy’s business. And yet, HPE remained convinced that Autonomy was worth more than the amount it had paid a year earlier.
Just two months later, however, HPE changed its tune. It announced the huge write-down, attributing $5 billion of the reduction to fraudulent accounting. Lynch’s lawyers claim that they have internal HP emails and documents that “demonstrate that virtually none of the write-down was attributable to alleged accounting misconduct”.
In the High Court proceedings, Lynch testified over 21 days. He is expected to take the stand in the San Francisco trial as well. The judge, Charles Breyer, knows the conflict well. It was in his court five years ago that Hussain was found guilty.
Breyer told Lynch’s lawyers in court, however, that they should not be concerned that he has pre-judged the case. “I don’t remember any of it. You know? I mean, maybe. It was — what? — five years ago? I don’t know how long ago it was. Maybe that’s the shelf life of what occupies my brain.” He added: “I don’t know what, if any, [Lynch’s] involvement was. So in that regard, it’s a clean slate … and we’ll just see how it goes.”
Danny Fortson is the West Coast correspondent at The Sunday Times of London. William Turvill is the chief business correspondent at The Sunday Times. And Jill Treanor is the city editor at The Sunday Times
