Autonomy’s Mike Lynch plays down knowledge of alleged fraud ahead of HP sale

British tech entrepreneur Mike Lynch attempted to downplay US prosecutors’ allegations about backdated contracts, inconsistent revenue figures and relationships with analysts and press during testimony in one of the biggest fraud cases ever to hit Silicon Valley.

Lynch, the former chief executive of UK software company Autonomy, has been charged with multiple counts of wire fraud and conspiracy. He is accused by US prosecutors of inflating his company’s revenues by tens of millions of dollars, which led Hewlett-Packard to overpay in a $11.5bn acquisition.

The 2011 Autonomy deal had been central to HP’s efforts to reinvent itself as a software company, but within a year the American company wrote down the value of the business by $8.8bn. As its strategy foundered, HP laid off more than 100,000 workers and eventually split up.

Lynch, who has pleaded not guilty, decided to take the stand in his own defence, a relative rarity in white-collar fraud trials. Following questioning from his own lawyers last week, US prosecutors cross-examined Lynch for one-and-a-half days at court in San Francisco this week, challenging him on dozens of internal Autonomy emails and financial reports exchanged between its management and HP executives.

Dressed in a black suit and regularly talking directly to the jury, Lynch sought to portray the limits of his former role, repeatedly claiming he did not understand certain spreadsheets prepared by Autonomy executives about its financial performance.

“The CEO doesn’t do those things, you don’t do the accounting, you don’t do the customer support . . . You have a department that does [those things] and you set a culture for what you want them to do,” he said.

During cross-examination on Thursday, US prosecutors displayed emails that appeared to show a software contract had been backdated by one of Lynch’s sales team in order to recognise revenue in an earlier quarter, helping to boost gross margins closer to Wall Street targets. Lynch said it was “incorrect” to suggest he had been involved in any discussion relating to the contract’s date.

Lynch was also questioned about his relationship with a Deutsche Bank analyst, Marc Geall, who had previously worked at Autonomy. In 2010 the analyst criticised Autonomy’s financial position, claiming that without certain hardware sales its “organic growth rate will be next to nothing”.

Prosecutors asked whether Lynch had “ever threatened to destroy people in the UK press” and whether he had “burnished his corporate image in advance of a sale” of Autonomy, although he did not go into further detail.

Lynch said: “I don’t have any connections in the UK press capable of destroying people.”

A further set of questions related to a document prepared by Autonomy executives to discuss potential analysts’ questions during an earnings call in 2010. Prosecutors said Lynch had written “WAFFLE IT” as advice to his team if asked about Autonomy’s operating revenue.

Lynch said he did not recall whether he had written that and that the process of drafting responses “is not the process I am used to”.

Also among the emails presented by the prosecution was correspondence between Lynch and Sushovan Hussain, the former chief financial officer at Autonomy, who was convicted of fraud in 2018 and sentenced to five years in prison. Hussain raised concerns in a number of emails between 2009 and 2011, including that Europe revenues had been a “disaster” in 2009.

Lynch said the emails were part of the “sausage-making” that goes into closing a company’s quarterly accounts.

Lynch, 58, is standing trial alongside Stephen Chamberlain, Autonomy’s former vice-president of finance, on 15 charges that carry potentially lengthy prison sentences. Lynch also faced a charge of securities fraud but that was dismissed by the judge later on Thursday.

The trial is in its final stages after around two months of evidence and witnesses taking the stand, with jury deliberations expected next week.

Lynch was extradited to the US last year, forcing him to live under house arrest and 24-hour surveillance in San Francisco. He separately lost a civil case in London in 2022 to HP, which is seeking $4bn in damages.