back to article Brit tech tycoon Mike Lynch cleared of all charges in US Autonomy fraud trial

Mike Lynch, founder and CEO of Autonomy, has been acquitted of criminal fraud and conspiracy charges arising from the 2011 sale of the British software company to Hewlett-Packard. On Thursday, a federal court jury in San Francisco cleared Lynch of all 15 charges – 14 counts of wire fraud and one count of conspiracy. Co- …

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  1. Like a badger

    No kidding?

    Saw the headline in a sidebar flash and thought you were having me on. I do so hope it's true and the dimwits at HP have to eat an $11bn slice of humble pie.

    1. Anonymous Coward
      Anonymous Coward

      Re: No kidding?

      I'm sure he is a t*** but it's always nice to see HP lose

      1. Lord Elpuss Silver badge

        Re: No kidding?

        "I'm sure he is a t***"

        Why? How? And how is this relevant? And why do you feel the need to utter it?

        Pointless comment.

        1. Headley_Grange Silver badge

          Re: No kidding?

          If you could go to prison just for being a twat then I know plenty of outlaws - myself included.

          1. Arthur the cat Silver badge

            Re: No kidding?

            If you could go to prison just for being a twat then I know plenty of outlaws - myself included.

            To save on building costs it would be cheaper to put the non-twats in prison for their own safety and leave the rest of us outside.

        2. Anonymous Coward
          Anonymous Coward

          Re: No kidding?

          The FRC found Deloitte auditors had serious failings and that reflected badly on both the auditors and Autonomy/Lynch/Hussain

          My personal opinion is that HP should have done full due diligence, understood what little due diligence was done (and the impact - some of HPs write downs were the direct result of how they merged entities choosing to crystalize tax for Autonomy acquisitions rather than allowing them to continue as separate entities to minimize tax) and negotiate a price closer to the actual value of the company at the time (~$5-6bn versus share price of $7bn). The HP board panicked and overpaid ($11bn) and were burnt because of their own mistakes far more than any potential...exaggerations or dodgy dealings....by Autonomy.

          Ref: https://www.theguardian.com/business/2020/sep/17/deloitte-fined-record-15m-for-failings-in-autonomy-audits

          1. Anonymous Coward
            Anonymous Coward

            Re: No kidding?

            Can hardly blame Deloitte when HP didn't read the due diligence report.

            1. Charlie Clark Silver badge

              Re: No kidding?

              PWC were supposed to do due diligence – which is generally designed to give the report the management wanted anyway – but I seem to recall HP waived due diligence, presumably because someone somewhere was leaning on them for a payout. Or Apotheker just wanted an impressive deal before he left and boost his own severance package. Whatever, they subsequently lost any recourse when it turned out that Autonomy had indeed be juicing results, but they didn't do it just for the takeover. Caveat emptor, which loosely translates as, Mine's a double because it's other people's money.

            2. Anonymous Coward
              Anonymous Coward

              Re: No kidding?

              Deloitte were Autonomys auditors and were sanctioned by the FRC for audit failings in annual audits in the 2 years leading up to the acquisition.

              HP used KPMG for approximately 3 days of due diligence and during that time KPMG and Autonomy managed to carry out a half-decent audit given KPMG had initially asked for 3 months to complete the audit process before HP stopped due diligence. The due diligence report was presented to the HP board but I suspect that may have been unwelcome...

          2. sanmigueelbeer
            Coat

            Re: No kidding?

            HP should have done full due diligence, understood what little due diligence was done

            HP did.

            Both the external and internal "due diligence" were ignored by Léo Apotheker "someone high up in HP". When the HP CFO objected, Léo Apotheker tried to get her fired ("Mad Leo tried to sack me over Autonomy, says top HP Inc beancounter").

            Instead of blaming HP themselves, HP is looking for someone outside of the company to blame (and claw back some billions).

            * First, Mike Lynch is their top priority. And HP may not stop until he's dead (or ran out of money).

            * Next one on the list may be the external auditor(s) who did "due diligence".

            * If they still can't get any money back, they'll find some poor sod at Wakanda to sue.

    2. Anonymous Coward
      Anonymous Coward

      Re: No kidding?

      It would be nice for those who signed off on the purchase of Autonomy to admit that they didn't read the due diligence report and overpaid as a result. An American mate who had HP stock during the Autonomy purchase thinks Leo Apotheker (and others) should be forced to admit that he's an idiot and pay back the large severance check he got.

      1. Yet Another Anonymous coward Silver badge

        Re: No kidding?

        A CEO taking responsibility for a massive acquisition fsckup?

        I think that's what they mean by un-American activities

        1. Charlie Clark Silver badge
          Pint

          Re: No kidding?

          You, sir, deserve one of these!

      2. Anonymous Coward
        Anonymous Coward

        Re: No kidding?

        I'm an operations management freelancer. Ages ago I got hired to help with an aquisition that had gone wrong. A private equity firm bought a company for its products because they could shift it into new and much bigger markets with potential for a decent top-line multiple. The consultancy that did the due diligence had focused on the financials and forecasts, not the actual factory making the products. After they completed the deal they found that the production lines were on the ragged edge of the possible. I got hired to try to get something out of it without building a new factory, but they lost* a lot on the deal vs their plan. As a result the PE hired me for a few of their subsequent deals to do due diligence on the operational side of potential buys alongside the consultants, who really focused on financial, forecasts and legal stuff. I guess that HP's greed and haste was likely the main cause of their Autonomy woes, but I do wonder if their consultants focused too much on the financials and not enough on the actual day-to-day operation.

        * "lost" as in didn't make as much money as they thought they would. They flipped it for about 3x topline growth when their expectation was a lot more. No prizes for guessing how we did it.

        1. I ain't Spartacus Gold badge

          Re: No kidding?

          I guess that HP's greed and haste was likely the main cause of their Autonomy woes, but I do wonder if their consultants focused too much on the financials and not enough on the actual day-to-day operation.

          I remember reading the draft report from, I think PwC, at time of the civil suit against Lynch in London. And it was purely financial. They had asked into one of the things that HP eventually blamed (and tried to claim was fraud) - which was Autonomy booking hardware and software sales together. Their software being a lot more profitable than hardware. They'd not got an answer by the time HP made the purchase, so it's just left as a comment about a question they'd asked on the draft that HP management admitted to not having read.

          I think hardware sales had, something like, doubled. So Autonomy's sales growth wasn't quite as impressive as it looked on the surface - as some of it was low-margin.

          However I got the impression from El Reg commentards that Autonomy's product wasn't all that amazing. The report doesn't cover that at all, as an HP comptetitor that should be entirely on them, to know their market. As they seemed to have compteting products of at least roughly similar quality, the purchase seems pointless from the outside.

          The report didn't cover Autonomy's development process - or ability to keep improving their software. Which HP may not have cared about, as they may have always been planning to hand development over to their own in-house teams. But is surely something you ought to check on such a large purchase, just as you should check the factory if you plan to buy a company and expand production.

      3. Charlie Clark Silver badge
        Facepalm

        Re: No kidding?

        Dear me: what kind of medication is your mate on?

        Not only would he have to pay back severance, he'd also likely to be subject of class action if he admitted anything.

    3. John Brown (no body) Silver badge

      Re: No kidding?

      "Saw the headline in a sidebar flash and thought you were having me on."

      Same here. I had to check the calender in case April 1st had sneaked up on me again!

  2. Forget It
    Thumb Up

    WOW

    that was unexpected

    (call off the lynch mob)

    1. Anonymous Coward
      Anonymous Coward

      Re: WOW

      :(

      -- former employee

      1. Throatwarbler Mangrove Silver badge
        IT Angle

        Re: WOW

        @AC: former employee of Autonomy? So you were hoping he'd be convicted? Do tell us more ...

        1. Altrux

          Re: WOW

          I am too - utterly grim place to work. The worst in my long and overly varied career!

          1. wyatt

            Re: WOW

            I interviewed for a pre-sales role flogging autonomy, I said no once I found out what the product was!

            1. Lord Elpuss Silver badge

              Re: WOW

              "I interviewed for a pre-sales role flogging autonomy, I said no once I found out what the product was!"

              Course you did. You and Gandhi.

              1. Anonymous Coward
                Anonymous Coward

                Re: WOW

                We had Autonomy demonstrated a number of times as various management had spoken with their sales people and we carried out a small proof of concept (it was supposed to grow but there was little points)

                It stored data but provided very little in the way of useful features to turn that data into useful insights for our business. We copied methods used for our existing products and got average reports/insights after a lot of effort - Autonomy pre-sales suggested we needed more consulting and a better product understanding when my teams opinion was it was that the consultants didn't know how to extract information better than we did and was just a general purpose data collection tool requiring a lot of effort when there were much better alternatives available.

                And I've had similar sales experiences with Dark Trace - vaguely useable, difficult to demonstrate the products value while there are MUCH better options available.

    2. David 132 Silver badge
      Thumb Up

      Re: WOW

      “Lynch” mob?

      ISWYDT.

  3. TrevorH

    Does indeed seem to be true, other news sites are reporting it in more detail like https://www.bbc.co.uk/news/articles/cneel8ed2vvo

    1. diodesign (Written by Reg staff) Silver badge

      More info coming

      Yeah it's true and we've got a full story coming. We were in the process of writing two versions, one for guilty and one for not guilty, but the jury beat us to it. Edit: Now updated,.

      C.

      1. Anonymous Coward
        Anonymous Coward

        Re: More info coming

        Interesting to see how this saga wraps up. Glad to hear there is a follow up post coming. I'd suggest a review of ye olde Reg's own coverage of the case in the period before the merger was finalized to the point HP had a basket of kittens.

        The coverage of Mike Lynch has really changed over the years, and not just here at the Reg. It wasn't really clear back then he was the bad guy in this story, and it would be a great contrast to wrap that up with the current evidence to show what we didn't know at the time of the merger, compared to now.

        There has always been a through line where HP just made a colossally dumb business deal and desperately wanted re-frame the narrative in a way it was somebody else's fault.

        To be clear, Lynch and the rest of the leadership team may still bear some responsibility, even if he's not doing decades behind bars, but HP face planted from the get go, rushing the acquisition and due diligence to close the deal at a price no sane person could rationalize. Now that Lynch is not the center of the story for a moment, it might be worth revisiting the other players, and their roles, and where they are now. (though that might be a hard read for the old HP crowd, the people that fired those people(or let them pursue other opportunities/time with their families), and the remains of both companies.

        1. Anonymous Coward
          Anonymous Coward

          Re: More info coming

          Makes me wonder who will be singing the same story of woe as HP after the current round of AI fever....

      2. Lord Elpuss Silver badge

        Re: More info coming

        Would be interested to read the 'other' version as well, ust because I'm interested in how the editorial process works.

        Not that you'd be allowed to publish it I guess. Accusations of fake news would abound...

        1. Korev Silver badge

          Re: More info coming

          Me too

  4. katrinab Silver badge
    Happy

    It has slightly restored my faith in the US justice system.

    Oracle knew it was overpriced, random commentards on here knew at the time it was overpriced. He had a duty to his shareholders to get the best price for their investment, and he did a good job there.

    1. Anonymous Coward
      1. F. Frederick Skitty Silver badge

        Oracle considered bidding for Autonomy, but walked away when it was clear HP were going to pay way over the odds.

      2. katrinab Silver badge

        Yes, they looked at buying it and decided to walk away.

      3. Anonymous Coward
        Anonymous Coward

        https://www.theguardian.com/business/2011/sep/29/oracle-autonomy-mike-lynch

        1. Anonymous Coward
          Anonymous Coward

          Also, some of the documents linked in the Guardian article can be found on the Wayback Machine:

          https://web.archive.org/web/20110930140048/https://www.oracle.com/us/corporate/features/please-buy-autonomy-503330.html

        2. AVR

          How did Lynch piss Oracle off so badly? Just denying that they'd discussed acquisition wouldn't normally produce that sort of response, with docs attached and all.

    2. anothercynic Silver badge

      Same here, Katrina.

      As much as I have a very dim view of the federal court system, this time it's done the job right.

      1. Pascal Monett Silver badge
        Trollface

        Everyone can make mistakes . . .

        1. Petalium

          …But at C-level you don’t have to pay for them

      2. Michael Wojcik Silver badge

        Personally, I think Lynch is guilty, and I think the UK trial established that beyond reasonable doubt.

        But particularly since HP, and in particular Apotheker, were wildly reckless and foolish — also convincingly established by the UK trial — I can't say I'm upset by Lynch being acquitted here. The US jury wasn't convinced, and they did their job in not returning a conviction. I'm fine with that.

        Even if HP were blameless, Blackstone's Ratio would apply. You want a conviction, you convince the jury beyond a reasonable doubt. If you can't, then the defendant should walk.

  5. Throatwarbler Mangrove Silver badge
    Devil

    Hilarious

    I don't know whether Lynch is guilty, but I recall all the histrionic wailing about Lynch being extradited and the doom fortold about how he would never see justice in America and instead spend the rest of his life unjustly imprisoned in a grim federal Supermax trading blowjobs for cigarettes. How are we feeling now, fellas?

    1. Michael

      Re: Hilarious

      Well I feel pleased he was found not guilty.

      I still can't comprehend how a company the size of HP could have completed a purchase like that with performing due diligence. The blame all lay in the HP boards decisions.

      1. Yet Another Anonymous coward Silver badge

        Re: Hilarious

        Because it wasn't necessarily in HP's interest to do a deal - but it is in the interest of the individual at HP doing the deal

        They are going to appear on business sections of the TV news and in the business papers - so they are going to be familiar to people looking for their next CEO

        By the time the deal goes bad - all deals go bad or at least are obscured to the point that nobody knows if they were bad - they have moved on.

        They are just known as the person that worked on multi $Bn M&A deals

      2. Michael Wojcik Silver badge

        Re: Hilarious

        I still can't comprehend how a company the size of HP could have completed a purchase like that with performing due diligence.

        I can: Apotheker was a crap CEO. That's it, plain and simple. His own CFO told him it was a bad deal. He fired his own auditors (KPMG) without reading their preliminary report and before they delivered their final report — that's now a matter of record. He decided on a stupid course of action and refused to hear any arguments against it. Then he refused to own up to his mistake.

        The board should have shut him down, but they didn't because they weren't interested in doing their job either, and they didn't want to admit they were wrong to hire Apotheker in the first place.

    2. F. Frederick Skitty Silver badge

      Re: Hilarious

      The judge did his best to scupper the defence by disallowing any discussion of HP's actions post the takeover, but it looks like the jury saw what a lot of us who have followed this case for years saw. HP overpaid for Autonomy having not done their due diligence and despite reservations from some senior figures. As someone points out above, Lynch had a duty to the shareholders to get the best price, and he certainly succeeded.

      1. Michael Wojcik Silver badge

        Re: Hilarious

        Lynch had a duty to the shareholders to get the best price

        Nonsense. People need to stop repeating this canard. Even if there were such a duty (a highly dubious contention), it doesn't outweigh duty under the law.

        and he certainly succeeded

        Yes, fraudulently.

        But I'm just as happy he was acquitted. This is a classic case where neither side deserved to win, and under those circumstances I err on the side of liberty.

    3. Cruachan

      Re: Hilarious

      There were 2 schools of thought after the English trial (I specifically say English here as there's different legal systems in the UK), one was that Lynch would get away with it as the overwhelming tone of the coverage was that everyone at HP, with the possible exception of Cathie Lesjak who said don't buy them (and she was the CFO, but was ignored), was an idiot desperate to expand via acquisitions, and the other was that HP's markdown of Autonomy, being sued by their own shareholders and the general air of utter incompetence meant that they'd be desperate to find a scapegoat.

      IANAL but I won't deny I'm shocked that the legal cases have ended with the results the way they have.

      1. Anonymous Coward
        Anonymous Coward

        Re: Hilarious

        Lesjak should have resigned but did not. What's the point of a CFO who is OK to oversee $8bn of shareholder value being pissed away? Worthless.

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