Amy Reeve 30 Nov 2018 12:40pm

US charges Mike Lynch over Autonomy sale to HP

The former CEO of UK software development firm Autonomy and its former vice president of finance have been criminally charged with 14 counts of fraud over the sale of the company to Hewlett Packard (HP) in 2011

Mike Lynch and Stephen Chamberlain, a chartered accountant, face a maximum penalty of 20 years in prison tied to the $10.3bn (£8bn) acquisition of Autonomy by HP. The Financial Reporting Council this week halted its formal complaint against former Autonomy CFO Sushovan Hussain, who was convicted in the US in April on similar charges of accounting fraud and is appealing the ruling.

Autonomy, which had headquarters in Cambridge, UK and San Francisco, US, was the UK’s second largest software firm when it sold to HP. The business deal quickly soured though when the American multinational wrote down Autonomy’s value by $8.8bn, accusing its executives of deliberately misstating financial performance and asking the US Justice Department to investigate.

The indictment states that as Autonomy’s CEO, Lynch was responsible for certifying its publicly filed financial statements. He was also responsible for the accuracy of statements to market analysts and shareholders about the nature and composition of Autonomy’s products, its revenue and potential for growth.

Chamberlain, as one of the company’s most senior finance professionals, was responsible for the preparation of its financial statements as well as the accuracy of the statements made to Autonomy’s independent auditor, Deloitte.

Yet the defendants are accused of, among other things, artificially inflating revenues; improperly recording revenue in accordance with IFRS (in particular the accounting requirements for revenue recognition defined by IAS 18), and making false and misleading statements that Autonomy was a “pure software” company while concealing loss-making resales of hardware.

In the FT today lawyers for Lynch called the indictment a “travesty of justice” and said he would “vigorously defend the charges against him”. Chris Morvillo of Clifford Chance and Reid Weingarten of Steptoe & Johnson said in a statement: “The claims amount to a business dispute over the application of UK accounting standards, which is the subject of a civil case with HP in the courts of England, where it belongs.”

The UK’s Serious Fraud Office investigated the deal but in 2015 decided not to proceed with charges. In May 2018 the FRC said Deloitte had failed to adequately challenge Autonomy on a number of aspects of its accounting practices.