Fallen tech star Mike Lynch in fight to avoid prison for accounting fraud

Once-prominent U.K. technology entrepreneur Mike Lynch already is facing possible financial ruin after losing a London civil trial over his ill-fated 2011 deal with Hewlett Packard Co.

Prison could be next.

It would cap a remarkable downfall for Lynch if he’s convicted of accounting fraud in a three-month criminal trial set to kick off Monday in San Francisco federal court. He was the darling of the U.K.’s tech industry before he sold his startup Autonomy Corp., then the nation’s second-largest software company, to Hewlett Packard for $11 billion.

Lynch, 58, has a chance for redemption if he can prove he’s been scapegoated for the $8.8 billion write-down Hewlett Packard took the year after the acquisition — which he claims was really the Silicon Valley giant’s own fault.

The jury probably won’t be told about the London case, which dragged out over seven years and was among the longest and most expensive trials in modern British history. Instead, U.S. prosecutors will have to build their case from scratch, said University of Michigan Law School professor Barbara McQuade, a former prosecutor.

“They can’t just say, ‘Well, a jury found in our favor in England, so therefore we rest on that,'” she said.

Famed dealmaker Quattrone

The trial will feature much of the same evidence and witness testimony that helped HP persuade the London judge to conclude in 2022 that Lynch and Autonomy’s former finance chief inflated Autonomy’s revenue to induce the sale. Hewlett Packard has asked the U.K. judge for $4 billion in damages, though he’s said he’ll likely award “substantially less.”

U.S. prosecutors may call as witnesses former employees of both companies, including Leo Apotheker, who was Hewlett Packard’s chief executive officer when the Autonomy purchase was announced, and Christopher Egan, who headed Autonomy’s U.S. unit, as well as famed dealmaker Frank Quattrone, who advised Autonomy on the deal.

Egan previously admitted to wrongdoing in exchange for a deferred prosecution agreement with the U.S. Justice Department. He aided the government in its case against Sushovan Hussain, the former chief financial officer at Autonomy, who was sentenced to five years in prison after he was convicted in 2018 of accounting fraud by a San Francisco jury. 

Though Lynch fought hard against being sent to the U.S., he was extradited last year. U.S. District Judge Charles Breyer then called Lynch a flight risk and ordered him to pay for his own 24-hour security and surveillance to ensure he doesn’t leave San Francisco. At a bail hearing last year, Lynch’s attorneys said he was worth $400 million to $450 million.

Blaming Whitman

Lynch is charged with 14 counts of wire fraud, one count of securities fraud and one count of conspiracy to commit wire fraud. The most serious charge carries a maximum 25-year prison term if he’s convicted. Stephen Keith Chamberlain, who was Autonomy’s vice president for finance, also will be on trial.

Lynch, who served as an adviser to two U.K. prime ministers, David Cameron and Theresa May, has spent years aggressively defending his role in the disastrous Autonomy deal. When he took the stand in London in 2019, he told the court that former Hewlett Packard CEO Meg Whitman — who took over after Apotheker was ousted in 2011 — was “out of her depth” and botched the integration of the $11 billion deal. 

Whitman testified in London that she believed Lynch wanted to conceal the fraud by keeping his firm separate from the rest of HP even after the takeover.

A one-time candidate for governor of California who is now the U.S. Ambassador to Kenya, Whitman isn’t expected to take the stand in San Francisco. 

Hewlett Packard, one of the oldest fixtures of Silicon Valley, split in 2015 into two companies. Hewlett Packard Enterprise Co. took over the corporate computing and software divisions, while HP Inc. runs the printer and PC business. An HPE spokesperson said the company is not a party to Lynch’s trial and declined to comment further.

A representative for Lynch declined to comment ahead of the trial.

Theranos experience

Lynch’s case marks the first major white-collar fraud trial in San Francisco since Ismail “Izzy” Ramsey took on the role of northern California’s top federal prosecutor last year. A spokesperson for Ramsey declined to comment on the trial.

Two of the lead prosecutors in Lynch’s case previously won convictions against Elizabeth Holmes and Ramesh “Sunny” Balwani for fraud in the spectacular collapse of blood-testing startup Theranos Inc.

When U.K. Judge Robert Hildyard issued his final judgment in the London case in May 2022, which was more than 500,000 words, he said the misconduct at Autonomy wasn’t as bad as Theranos, but was still fraud.

While Autonomy did have “world-beating” technology, unlike Holmes’s startup, it was dressed up to be much larger and more successful than it really was, Hildyard said.

“One of the tragedies of the case is clear: an innovative and ground-breaking product, its architect and the company will probably always be associated with fraud,” he wrote.

The case is U.S. v. Lynch, 18-cr-00577, U.S. District Court, Northern District of California (San Francisco).