Mike Lynch jury told of staff fired after raising red flags

A former employee of U.K. tech mogul Mike Lynch’s Autonomy Corp. told jurors at his U.S. criminal trial that she and one of her higher-ups were both fired after flagging concerns about accounting irregularities.

U.S. prosecutors have argued Lynch was a domineering boss and was vindictive toward whistleblowers who openly challenged the accounting tricks that the government says allowed him to pull off a “massive fraud” when he sold his software startup to Hewlett Packard Co. for $11 billion in 2011.

It would cap a remarkable downfall for Lynch if he’s convicted in the three-month trial that started this week in San Francisco. He was the darling of the U.K.’s tech industry before the sale of Autonomy, which was then the nation’s second-largest software company, but has been dogged by allegations of deceit ever since Hewlett Packard took an $8.8 billion write down the following year.

Reena Prasad, whose job in Autonomy’s finance department ended in 2010, testified Wednesday that she repeatedly emailed Stephen Chamberlain, who was then the company’s vice president for finance and is now Lynch’s co-defendant, to voice concern that debt needed to be written off. 

Prasad said she felt that collecting certain payments was risky because she was told companies that resold Autonomy products had no end user to pay for the product, among other issues. She also said that resellers received extended payment terms, meaning there was a long period during which the customers weren’t paying any cash.

She said she was later fired “effective immediately,” but was provided no reason as to why beyond that she was an at-will employee. Prasad told the jury that Autonomy’s U.S. finance chief, Brent Hogenson, who escalated accounting concerns to Lynch, was also fired.

During cross examination, Chamberlain’s lawyer argued that Prasad took issue with some debt that wasn’t due for years to come and other debt that was being put on a payment plan. The lawyer also pointed to emails in which Chamberlain told Prasad that he would review the debtors’ list with auditors.

Lynch’s attorney said Prasad never claimed to have discussed the issues directly with Lynch and that every company has risky debt. He also pointed to some big-name Autonomy customers that had pushed out payment terms, noting that the practice wasn’t specific to resellers.

The government’s first witness, Ganesh Vaidyanathan, a former member of Autonomy’s accounting department, testified earlier in the week about accounting issues at the company, but Lynch’s lawyer countered that Vaidyanathan was not familiar with the U.K. accounting standards that Autonomy followed.

The trial will feature much of the same evidence and witness testimony that helped Hewlett Packard persuade a London judge to conclude in 2022 in a civil case that Lynch and Autonomy’s former finance chief Sushovan Hussain inflated the startup’s revenue to make the sale. Hussain was convicted of fraud by a San Francisco jury in 2018 and sentenced to five years in prison.

Lynch, who was extradited to the U.S. last year, 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. 

The entrepreneur has argued over the years that he was scapegoated for the failed Autonomy acquisition — which he has claimed was really Hewlett Packard’s fault.

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