Mike Lynch Seeks Dismissal Of US Fraud Case

UK tech entrepreneur Dr Mike Lynch launched a legal challenge last week to dismiss the US allegations against him.

The Daily Telegraph reported that Dr Lynch has filed a legal challenge to have the criminal fraud charges thrown out by US courts.

Mike Lynch has long argued that the case should be heard in UK courts, after a very long campaign by HP and its then CEO Meg Whitman to pursue the senior management of Autonomy after the HP acquisition went south.

Court case

The legal case all centres around an acquisition made 13 years ago.

Back in 2011, HP’s acquisition of Autonomy was the largest-ever buyout of a European technology firm at the time.

The $11bn (£9.5 billion) acquisition was intended to spearhead HP’s move into software, but it quickly became an accounting nightmare, and a year later HP took a $8.8 billion (£7.2bn) “intangible asset impairment” charge over the acquisition.

HP alleged at the time that the majority of that charge, more than $5 billion, had resulted from a number of practices used by former members of Autonomy’s management team to inflate the value of the company and mislead investors and potential buyers at the time of the acquisition.

The remainder of that write-off charge was related to other factors such as the trading value of HP stock and marketplace performance.

Legal battles soon followed, and in April 2015 HP sued Lynch, alongside former Autonomy CFO Sushovan Hussain at the High Court in London, seeking $5bn in damages.

Lynch countersued HP for $160m in 2015, saying at the time the company had ruined his reputation and that it was “incompetent in its operation of Autonomy”, leading to the acquisition’s failure.

In the UK the Serious Fraud Office (SFO) in 2015 dropped its investigation into the sale of Autonomy to HP.

Eventually in September 2016 HPE sold its software business, including the Autonomy division, to British IT firm Micro Focus for $8.8 billion.

UK justice

In late 2019 US officials angered British MPs and indeed normal protocol (where local legal cases should be settled first) when they sought to pre-empt the High Court’s verdict, and extradite Dr Lynch to stand trial in San Francisco before a decision was reached in the British trial.

Dr Lynch is facing 17 counts of US charges, including wire fraud, conspiracy and securities fraud, which carries a maximum term of 20 years in prison.

Lynch denies all charges, and has previously stated that the dispute stems from a misunderstanding of UK and US accounting rules.

Dr Lynch on the witness stand in 2019 also denied HP’s allegations that he had mislead markets and inflated his firm’s value before it was sold to Hewlett Packard.

During his lengthy testimony on the stand, the Lynch hit out at HP and its management, in particular HP’s former CEO Meg Whitman (she is now the US Ambassador to Kenya).

Dr Lynch said that Whitman was “out of her depth” and “could not cope with all the fires” at the company.

However Autonomy’s former chief financial officer Sushovan Hussain was found guilty in 2018 in the US of artificially inflating the firm’s financial position before it was sold.

In August 2020 Hussain lost his appeal against his conviction (his sentence was delayed during his appeal), and he is currently serving five years in prison in the US.

Hussain was also fined $10.1m.

In January 2020 a British judge ruled that HP “substantially succeeded” in its lawsuit, although the judge ruled any damages would be “considerably less” than the $5 billion sought by HP.

After that verdict, then Home Secretary Priti Patel approved the extradition to US of Mike Lynch – a decision slammed by fellow Tory MP Tom Tugendhat, chairman of the Commons Foreign Affairs Committee.

Lynch was finally extradited to the US in May 2023, and confined to an address in San Francisco. Lynch was also ordered to pay a $100 million (£79m) bond and is watched by 24-hour armed guards he must pay for himself.

Legal challenge

Now the Daily Telegraph has reported that Mike Lynch has launched a legal bid to have a string of US criminal charges against him thrown out.

Lynch reportedly filed to dismiss the 17 charges against him, saying the US has no jurisdiction over the case.

His lawyers describe the charges, which could lead to decades in prison, as “impermissibly extraterritorial” and say they contain “fatal legal deficiencies”.

In legal filings, Lynch’s lawyers reportedly argue that “the alleged conspiracy to defraud Autonomy shareholders lacks virtually any connection to the United States”.

According to the Daily Telegraph, Lynch’s team add that the “scant US touchpoints in the [charges] are at best incidental to the scheme, not in furtherance of it, much less ‘essential’ or ‘core’ components of the alleged fraud”.

The filing also reportedly states: “At all times between 2009 and 2011, Autonomy was fundamentally a UK-centric business. Autonomy listed its shares on the London Stock Exchange. All major decisions about the strategic direction of the company, its revenue-generating operations, and its compliance with financial reporting obligations were made in England.

“The ‘means and methods’ identified in the [indictment] – revenue recognition issues, allegedly fraudulent entries in Autonomy’s books, allegedly false and misleading quarterly and annual reports – all comprise conduct that occurred in another country.”

Mike Lynch has long maintained that any case against him should be heard in the UK, the Telegraph reported.

The request to throw out the case will be heard by a US judge in November.