Irish-born tech entrepreneur and former Autonomy founder and chief executive Mike Lynch told jurors in San Francisco federal court that he was not involved in the transactions at the heart of a criminal case alleging he took part in one of the biggest fraud cases ever to hit Silicon Valley.
The testimony from Mr Lynch on Thursday came during a trial in which he and Autonomy’s former vice-president of finance, Stephen Chamberlain, face multiple charges of wire fraud and conspiracy.
They are accused of involvement in a scheme to overstate Autonomy’s revenues in advance of an $11.5 billion (€10.6 billion) acquisition by Hewlett-Packard in 2011 using complex and illegal accounting methods, including backdating sales, engaging in “round-trip” transactions with customers to pay them to buy products and falsely dressing up hardware deals as software deals.
US prosecutors at the trial, which started in March, have portrayed Mr Lynch as the driving force behind a fraudulent deal in which HP attempted to reinvent itself as a software company only to write down Autonomy’s value by $8.8 billion and lay off thousands of employees.
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Mr Lynch (58) was wearing a dark suit, white shirt and blue tie, and appeared relaxed as his testimony got under way on Thursday, addressing the jury directly while occasionally chuckling and exchanging quips with his lawyer.
Mr Lynch told jurors the weeks of trial testimony had been “surreal” to him. “I’ve sat and watched a parade of witnesses that I’ve never met ... and a series of transactions I had no involvement in, and not much else,” he said.
While Autonomy “wasn’t perfect”, it was a successful business, and the year before the HP acquisition “it was putting $300 million in the bank”, Mr Lynch testified.
Mr Lynch was fired by HP in 2012 over the underperformance of the business. In 2022 a UK judge in a civil fraud case found Mr Lynch liable for defrauding HP. He was extradited to the US last year to face federal criminal charges, to which he has pleaded not guilty, and has been living under house arrest in San Francisco.
Mr Lynch has claimed that HP attempted to cover up its mismanagement of Autonomy after the acquisition by using him as a scapegoat. The trial judge has placed limits on what can be discussed in front of the jury regarding issues that arose post-acquisition.
The 60 per cent premium on its stock price that HP was offering Autonomy shareholders in the acquisition was effectively impossible for a chief executive to refuse, Mr Lynch said. “If you tried to block that deal ... you would not be CEO.”
[ Autonomy founder Mike Lynch called ‘driving force’ of ‘massive fraud’ in US trialOpens in new window ]
Mr Lynch said Autonomy served more than 20,000 customers across more than 20 countries from the start of 2009, with the allegedly fraudulent transactions at issue in the trial representing only a “small” fraction of them. Mr Lynch said he had not been aware of any of these deals.
“If you take the microscope into even a spotless kitchen, you’ll find a bacteria,” he said.
Mr Lynch also distanced himself from Autonomy’s former chief financial officer, Sushovan Hussain. Hussain was sentenced to five years in a US prison for his role in the fraud in 2019.
Mr Lynch rejected any suggestion that he and Hussain were childhood friends, even though they attended the same school. Asked what he might have done differently, Mr Lynch said he would have addressed Hussain’s growing involvement in the sales team sooner.
Mr Lynch described to jurors his modest background as a child of Irish immigrants in London in the 1970s, his early interest in technology, his studies and founding of Autonomy, and his current family life.
Mr Lynch’s wife was present in the courtroom. His two daughters, he said, could not attend as they were sitting university exams. At one point, as Mr Lynch discussed his farmhouse in the English countryside, he turned to his interest in livestock.
“The medieval breeds of pigs are really robust, they stay out, they live in the woods, that sort of thing,” Lynch explained. Shortly after, the judge suggested the defence move on to the issues in the case.
Mr Lynch’s testimony is expected to continue for several days, with cross examination from the prosecution to follow.
Earlier, Mr Lynch’s team had requested a mistrial, saying the government had deliberately aimed to bring the subject of his extradition into the trial. The judge denied the request on Thursday morning, but admonished the government for posing “entirely improper” questions to one of Lynch’s legal team who testified on Wednesday. – Copyright The Financial Times Limited 2024
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