Mike Lynch has lost the latest round of a legal fight (Dominic Lipinski/PA)
(Picture: PA Archive)Mike Lynch, the Autonomy founder, has lost his acrimonious court battle with Hewlett Packard over false accounting.
“The claimants have substantially succeeded in its claims in these proceedings,” Judge Robert Hildyard said reading a summary of his judgment on Friday.
While HP was seeking $5 billion in damages from Lynch, the judge said the amount is likely to be less. The tech entrepreneur can appeal Friday’s decision.
All attention will now turn to the UK government, which has until the end of the day to decide whether to extradite Lynch to the US where he faces criminal charges that he orchestrated a massive fraud at Autonomy.
The ruling damages his chances of staving off being sent to the US.
The judgment is the latest in a hard fought battle for Lynch stemming from the sale of his software company Autonomy to Hewlett Packard for $11 billion in 2011.
The Silicon Valley hardware giant wrote down the value of the company by $8.8 billion a year later.
Lynch, who personally made $850 million from the sale of the firm he built into the UK’s second largest software company, was sued for $5 billion by HP in 2015.
The Silicon Valley company alleged that Lynch and his deputy illegally bolstered revenue wherever they could to dress Autonomy up for a sale.
The nine-month, £40 million civil trial was among the longest and most expensive in modern British history.
HP argued it had been conned into overpaying as Lynch and his chief financial officer Sushovan Hussain inflated revenue by disguising hardware sales and booking fake transactions.
Lynch used the platform to argue that HP had simply run his firm into the ground, painting a picture of an American corporation riven with infighting that he documented with emails shown for the first time.
Lynch, one of the UK’s most prominent businesspeople and adviser to former Prime Minister David Cameron, lost his first attempt at preventing extradition when a judge said in July he should be sent to the US.
He’d insisted from the outset that the case should not be heard in the US, asserting that none of the alleged misconduct took place overseas.
This is the critical political moment in Lynch’s case.
The extradition is a test of the UK-US extradition treaty, which critics call highly unequal. Home Secretary Priti Patel and the Conservative Party have regularly fought the courts over recent rulings and are considering ways to curtail the powers of judges.
Lynch’s huge gamble explained
British software tycoon Mike Lynch took a huge gamble when he decided to fight a civil case brought by Hewlett Packard in a UK court, writes Bloomberg.
Rather than face the US Department of Justice and criminal charges of fraud, Lynch instead first opted to fight HP and its civil claim in London.
The case focused on events leading up to HP’s $11 billion takeover in 2011 of Lynch’s firm, Autonomy Corp.
HP alleged that Lynch inflated the value of Autonomy. Lynch argued that HP management simply ran his company into the ground.
HP wants $5 billion in damages from Lynch and Sushovan Hussain, Autonomy’s former finance director.
Now, almost two years after Lynch walked out of the civil court - a moment before the Covid-19 pandemic hit Britain - High Court Justice Robert Hildyard has outlined his findings.
The case turned on these points:
HP’s central allegation of fraud
The two sides clashed during the trial over whether Autonomy bent the rules to beat stock market expectations, effectively deceiving HP.
The Silicon Valley hardware giant paid $11 billion to acquire Autonomy, only to write down the value by $8.8 billion a year later.
The verdict hangs on whether the judge believes Lynch and his subordinates deliberately inflated Autonomy’s value.
He’s accused of using undisclosed hardware sales and “contrived” contracts with friendly resellers to boost Autonomy’s revenue as quarters were coming to an end.
Lynch’s personal role
HP’s attorneys characterised Lynch as a controlling and dishonest chief executive officer with intimate knowledge of his company’s accounting practices.
Lynch argued that HP spent millions of dollars and failed to tie the Autonomy founder to any wrongdoing.
In reality, HP brought the case because it was suffering from “buyer’s remorse,” Lynch’s lawyer Robert Miles said.
“Even where arguably there is some evidence of wrong taking place,” there is none to show Lynch was involved or even aware of it, he said.
HP’s management of Autonomy
The lawsuit also looked at whether HP sufficiently scrutinized Autonomy’s books before the deal, in a period when the computing giant sought to transform itself into a software-focused company only to change course months later.
Lynch’s attorney used internal company documents to argue the case was a function of infighting at HP, where top executives disagreed about the Autonomy purchase and the board wavered on strategy.
Former HP chief Meg Whitman, who testified at the trial, was forced to confront emails where she wrote that she was prepared to throw her predecessor “under the bus” to deflect blame over the failed deal.
Where did any harm take place?
Lynch and his legal team will be looking to Hildyard’s ruling for clues on where the judge deems any harms to have taken place.
Today’s ruling will also be instrumental in whether the UK government decides to extradite Lynch to the US to face the criminal fraud charges, a process that is unfolding separately to the HP civil case.
Once the verdict is in, attention will turn to Home Secretary Priti Patel, who has the final say on extradition. Her decision may come soon after the judgment is handed down.
Lynch is expected to argue that a person should not be extradited if the alleged offenses could have been tried in the UK.
