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Former Autonomy Executives Indicted On Criminal Conspiracy And Fraud Charges

Former Autonomy CEO Mike Lynch and Finance VP Stephen Chamberlain allegedly engaged in fraudulent accounting practices to boost the company's value prior to its acquisition by HP in 2011.

Former Autonomy Corp. CEO Mike Lynch has been indicted on criminal fraud charges surrounding the $11 billion sale of Autonomy to Hewlett Packard in 2011.

The charges, including 14 counts of conspiracy and fraud, were filed in U.S. District Court in San Francisco late last week and carry a penalty of up to 20 years.

The charges stem from Autonomy's allegedly fraudulent accounting practices that were intended to inflate Autonomy's value and boost the price HP paid for the company. The indictments say that Lynch fraudulently made $815 million from the alleged crimes.

Lynch has vowed to fight the charges, according to statements from his attorneys, calling them "a travesty of justice."

The new indictments also charge Stephen Chamberlain, who was Autonomy's vice president of finance from 2005 to 2011, with fraud.

The indictments are the latest twist in the long-running saga of Autonomy, once seen as one of the U.K.'s most successful IT companies, and its acquisition by Hewlett-Packard Co. in 2011. HP bought Autonomy as part of its efforts to expand its software technology portfolio.

Within a year HP, which has since split into HP Inc. and Hewlett Packard Enterprise (HPE), took a massive $8.8 billion write down of the Autonomy assets, claiming that the company's value had been inflated through fraudulent accounting practices.

Many of the Autonomy assets were sold off to Micro Focus in 2016 as part of a broader deal.

Lynch, who co-founded Autonomy in 1996, has publicly countered the charges by saying HP botched the acquisition and subsequent integration, leading to its reduced value.

Lynch's lawyers, Chris Morvillo of Clifford Chance and Reid Weingarten of Steptoe & Johnson, said the indictment was a "travesty of justice" and that Lynch would contest the charges, according to a Reuters report.

"HP has sought to blame Autonomy for its own crippling errors and has falsely accused Mike Lynch to cover its own tracks," the lawyers said in a statement. "Mike Lynch will not be a scapegoat for their failures. He has done nothing wrong and will vigorously defend the charges against him," the statement said, adding that the claims come down to a dispute over the application of U.K. accounting standards, according to the Reuters story.

Lynch’s lawyers did not respond to emails from CRN for additional comment.

Lynch and Chamberlain aren't the first to face charges in the case. In April of this year Sushovan Hussain, Autonomy's former chief financial officer, was found guilty by a U.S. federal court jury on 16 counts of wire and securities fraud related to Autonomy's finances prior to the HP acquisition. He has vowed to appeal that conviction.

The charges against Lynch and Chamberlain could provide some vindication for HPE's claims about Autonomy and its financial state prior to the 2011 acquisition.

"HPE is gratified that justice prevailed and that Mr. Hussain was held accountable for his criminal actions when he was convicted in April of this year," HPE said in a statement issued following the indictments.

"HPE is now pleased to learn that Dr. Lynch and Mr. Chamberlain have also been criminally charged in this matter by a federal Grand Jury. HPE believes that the facts uncovered during the course of this matter will further demonstrate the harm that was caused by Dr. Lynch, Mr. Chamberlain, Mr. Hussain and others to HP and looks forward to seeing justice served once again," HPE said.

HPE is also pursuing a $5.1 billion civil case against Lynch and Hussain in London, seeking damages, while Lynch has counter-sued claiming HP's statements have damaged his career and reputation.

Following the indictment, Lynch stepped down as a U.K. government scientific advisor with the Council for Science and Technology, according to a BBC story.

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