Mike Lynch

Tony Blair’s ludicrous UK/US Extradition Treaty of 2003, a legal document so one-sided it may as well be written in the white horizontal bar inside a red disc, proved itself a farce 20 years later when a British businessman, once again, was thrown under the bus.

Dr Mike Lynch, entrepreneur, engineer and founder of Autonomy – at one time, the UK’s second largest software company – was unceremoniously hauled off to the USA on a series of fraud charges, courtesy of a trumped up arrest and extradition warrant by US authorities and Corporate America.

Platinum looks at the career – and the extraordinary failed prosecution – of a complex tycoon.

 

Dr Michael Richard Lynch OBE DL FRS FREng was born in Ilford, (now Greater London, but then in Essex) on June 16th 1965, and grew up in Chelmsford. His parents were both Irish.

Lynch won a scholarship to Bancroft’s School, a fee-paying school in nearby Woodford. From there, he went to Christ’s College, Cambridge to study Natural Sciences. After graduating, he went on to study for a PhD in Neural Networks (a fore-runner of AI). He then undertook a research fellowship in Adaptive Pattern Recognition.

Following his degree, PhD and post-doctoral research at Cambridge University, he applied his research in Machine Learning (another branch of AI) to set up software companies and become a major figure in the so-called Silicon Fen.

He set up his first company in the late 1980s, while he was still studying for his PhD. Lynett Systems Ltd produced designs and audio products for the music industry, including electronic synthesisers and a sampler for the Atari ST.

In 1991, he started a fingerprint recognition company, Cambridge Neurodynamics. This, in turn, launched three more companies – Neurascript, which searched business documents based on character recognition; NCorp, which database search engine; and Autonomy, which searched unstructured sources including phone calls, emails and videos.

Autonomy was founded in 1996 by Lynch, David Tabizel and Richard Gaunt. With Lynch as CEO, it grew to become one of the UK’s top 100 public companies, and a leading company in Silicon Fen.

In 2011, Autonomy was sold to US giant Hewlett-Packard for over $11bn (£8.6bn at the time). The sale would eventually lead to civil and criminal cases against Lynch and Autonomy’s CFO Sushovan Hussain.

After the sale of Autonomy, Lynch founded a venture capital firm called Invoke Capital. One of the first companies backed by Invoke Capital was cybersecurity firm Darktrace. Many of the staff at Darktrace, including its CEO, had moved across from Autonomy, with Lynch being a board member until 2018, and continuing as an advisor until 2021. He was also a member of the Darktrace science and technology council until February 2023.

As a leading technology entrepreneur, Lynch held a number of positions on boards and committees. After being charged with fraud in the United States, he resigned from his role as a government advisor on the Council for Science and Technology, and from Royal Society committees. He had also been on the board of Cambridge Enterprise, Royal Botanic Gardens in Kew, the BBC, the British Library, Nesta, and the Francis Crick Institute.

Such is Lynch’s standing, he was awarded an OBE for services to enterprise in the 2006 New Year Honours; he was elected a Fellow of the Royal Academy of Engineering two years later; in 2011, he was named as the most influential person in UK IT by Computer Weekly; he was elected a Fellow of the Royal Society in 2014, and in the same year was made a Deputy Lieutenant of the County of Suffolk.

 

Sale of Autonomy and trial

In 2011, Lynch sold Autonomy to Hewlett-Packard for around $11bn; about £8.6bn. Lynch himself is estimated to have made around $800 million from the transaction.

By the end of the following year, Hewlett-Packard instigated an £8.8bn write down of assets following its purchase of Autonomy due to – according to the company – “serious accounting improprieties, disclosure failures and outright misrepresentations” which occurred before the acquisition and artificially inflated the value of Autonomy.

Lynch denied the allegations, which were investigated by the UK Serious Fraud Office who, in turn, announced in January 2015 that there was insufficient evidence in respect of certain aspects of the allegations. Other allegations were handed over to the US authorities.

Nearly four years later, Lynch was indicted for fraud in the US along with Stephen Chamberlain, former VP of Finance at Autonomy. Lynch’s case was not helped when, the previous year, Sushovan Hussain, Autonomy’s former CFO, had been found guilty of fraud in the US and sentenced to five years in prison.

 

Civil action

In March 2019, Hewlett-Packard also brought a civil action for fraud in the High Court in London. The action alleged that Autonomy CFO Sushovan Hussain and founder Lynch “artificially inflated Autonomy’s reported revenues, revenue growth and gross margins.”

The burden of proof in a civil action is much lower than in a criminal court case, being mostly based on the balance of probabilities, rather than ‘beyond reasonable doubt.’

The case was heard by Justice Hildyard, at the Royal Courts of Justice, Rolls Building, in the City of London. He eventually delivered his conclusions in January 2022, ruling that Hewlett-Packard had largely succeeded in its claims. Damages were to be decided later, but the judge said they were likely to be considerably less than the $5 billion Hewlett Packard was claiming.

While the civil trial was taking place in London, the US authorities were seeking Lynch’s extradition to face criminal charges of conspiracy and fraud in the US. Again, Lynch denied the allegations. He submitted himself for arrest in February 2020, and was released on bail of £10 million by Westminster Magistrates’ Court.

The case created a debate about the farcical, one-sided workings of UK–US Extradition Treaty of 2003, with five former Cabinet ministers signing a letter to The Times arguing against the extradition, while MP David Davis, himself a lawyer, commented in Parliament that it was an attempt to by the American authorities to “exercise extraterritorial jurisdiction”.

In July 2021, Westminster Magistrates’ Court ruled that Lynch could be extradited. Lynch appealed for a judicial review, which failed. Subsequent appeals, brought on a variety of legal standpoints, also failed. The then-home Secretary Priti Patel approved his extradition in 2022.

Lynch was unceremoniously arrested by US authorities, and frog-marched, in handcuffs in his home country, to be flown to the US in May 2023. There, he spent his time in anklets, under house arrest in San Francisco to await trial.

Lynch, together with Chamberlain, went on trial in San Francisco on March 18th 2024. He was charged with 16 counts of wire fraud, securities fraud and conspiracy, while Chamberlain faced 15 counts of wire fraud and conspiracy. Both defendants pleaded not guilty.

The court heard evidence and arguments over the course of 11 weeks. During the trial, one of the 16 charges was dropped. The jury retired for deliberation and, on June 6th 2024, he was found not guilty of all charges.

 

How come?

Lynch’s main defence was that he was a tech expert and start-up specialist, not a finance expert and, as such, had little or no interest in the minutiae of reports and spreadsheets which, he claimed in court, not to have completely understood.

The US authorities’ case was not helped by the fact that, throughout the trial, the judge, who also presided over and sentenced Sushovan Hussain five years earlier, admonished the prosecution for presenting such poorly-researched and meandering evidence, and for procrastination during cross-examination. The jurors, he pointed out, were not able to follow proceedings.

Without proving any direct evidence linking Lynch to the contracts and accounting records they claimed were fraudulent, prosecutors resorted to depicting him as a demanding and micro-managing chief who had kept a close hand on all aspects of his company’s business. Again, it was an approach they were poorly equipped to present effectively.

During the trial, Lynch also informed the jury that the witnesses the prosecution had brought in to testify against him were, for the most part, people he’d never met. This was compounded when several of these witnesses were found wanting when giving their evidence.

As a result of the trial, what we learned was, according to Andrew Orlowski in The Telegraph, that in 2011, HP was a desperate giant, trying to re-invent itself as a software and services company, when it approached Lynch’s Autonomy, then Britain’s most valuable software company.

“HP was so desperate that it paid a 68% premium in a deal worth $11bn. They were in such a hurry that HP’s CFO admitted she didn’t read a due diligence report on the acquisition prepared for her by KPMG.

“A few months later, HP had disposed of its CEO, torn up the strategy, and written down the value of the deal by almost $9bn.”

“HP’s management had no stomach for the transformational change that was the objective of the acquisition, and contrived this extraordinary series of proceedings to shift the blame away from themselves,” Autonomy argued in the High Court many years later.

 

Immediate aftermath

In cases where the US federal authorities prosecute for fraud, only 0.4% end in acquittal. This, plus Sushovan Hussain’s 2018 conviction, meant the odds were stacked against Lynch. His first insistence was always to plead his innocence, even if it meant thumbing his nose at the giant US law-enforcement machine.

That said, it now seems extraordinary that the prosecutors – given Hewlett-Packard’s hubris, together with the US federal authorities’ willingness to throw their weight around overseas, hampered by the weakness of its own case – could have ever persuaded the High Court in London that there was a case to answer.

The workings, as well as the public perception, of the US/UK Extradition Treaty don’t help.

As Ian King, writing for Sky News, opined, “The acquittal will not only be embarrassing to US prosecutors. It again serves to remind us how Hewlett Packard, which wrote down the value of Autonomy by $8.8bn a year after the takeover, overpaid for the business.

“Autonomy was always a company that divided opinions in the City and HP would, had it sought them out during the due diligence process, found no shortage of analysts who had questioned Autonomy’s accounting.

“Its subsequent pursuit of Dr Lynch was, at best, an attempt at face-covering and, at worst, a bad case of sour grapes.”

 

The future

Now that Lynch has returned home a free man, the next consideration will be how will be received in Silicon Fen; the victim of a huge miscarriage of justice, or will they treat him as a maverick who oversaw a “consistent and clear” fraud, as HP insists? Lynch, for his part, won’t care. His team says it’s of little import to him.

His one cloud still on the horizon is that the final settlement of the civil action, brought by HP in London in 2019, still has not been announced. HP has wanted, since day one, around £5bn. The judge has already pre-warned them – then and now – that that figure will be considerably lower.

How much lower will almost certainly determine where Dr Mike Lynch goes from here.

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