Autonomy CEO and finance exec face US fraud charges

The US government has brought fraud charges against Mike Lynch, CEO and founder of Autonomy, and Stephen Chamberlain, former vice president of finance, relating to the software company’s $11bn (£8.6bn) sale to US tech giant Hewlett Packard (HP) in 2011

The indictment, filed by the US Department of Justice (DoJ) in a federal court in San Francisco, includes one count of conspiracy and 13 counts of fraud.

It claims that: ‘Beginning in or about January 2009 and continuing in or through about October 2011, defendants Lynch and Chamberlain together with others including former chief financial officer Sushovan Hussein engaged in a  fraudulent scheme to deceive purchasers and sellers of Autonomy securities about the true performance of Autonomy’s business, its financial performance and condition, the nature and composition of its products, revenue and expenses and its prospects for growth.’

The indictment also makes claims of making ‘false and misleading statements to Autonomy’s independent auditor and ‘issuing materially false and misleading quarterly and annual reports’.

The document suggests the objectives of the fraud included creating opportunities for the defendants to ‘enrich themselves and others through bonuses, salaries and options’ and to maintain the company’s share price ‘to make Autonomy attractive to investors’.

If found guilty, the offences carry a maximum term of 20 years in prison, plus a fine of up to twice the gross gain or loss. The court papers state: ‘On or about October 3, 2011, Lynch owned or controlled approximately 7% of Autonomy’s total outstanding shares of stock and Chamberlain owned or controlled approximately 99,000 shares of Autonomy’s stock. After the acquisition closed, and their shares were acquired by HP, Lynch made approximately $815m and Chamberlain made approximately $4m.’

Lynch has always strongly denied claims of accounting malpractice or fraud and his lawyers described the indictment as a ‘travesty of justice.’

In a statement, his legal team said: ‘These stale allegations are meritless and we reject them emphatically. 

‘This case is unsupportable. It targets a British citizen with rehashed allegations about a British company regarding events that occurred in Britain a decade ago. It has no place in a US court. 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. 

‘There was no conspiracy at Autonomy and no fraud against HP for the DoJ to take up. HP has a long history of failed acquisitions. Autonomy was merely the latest successful company it destroyed. HP has sought to blame Autonomy for its own crippling errors, and has falsely accused Mike Lynch to cover its own tracks.

‘Mike Lynch will not be a scapegoat for their failures. He has done nothing wrong and will vigorously defend the charges against him.’

The legal move is the latest in a series over the Autonomy sale, which saw HP forced to write down the acquisition by $8bn (£6.9bn) the following year, of which $5bn (£3.9bn) related to alleged accounting irregularities and alleged misrepresentation of how software rental and acquisitions were shown.

Sushovan Hussain, Autonomy’s former CFO, was convicted on 16 counts of fraud in a US court in April. He has launched an appeal.

The Financial Reporting Council is investigating a complaint against Hussain, Chamberlain, and Autonomy auditor Deloitte and two audit engagement partners over the accounting treatment of third party sales. The complaint against Hussain has been stayed pending his appeal on the US charges.

United State of America vs Michael Richard Lynch and Stephen Keith Chamberlain is here.

Report by Pat Sweet

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