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UK entrepreneur Mike Lynch on trial for what prosecutors say is ‘largest fraud in history’ of Silicon Valley

Silicon Valley has not changed that much since Mike Lynch was in his pomp

Mike Lynch has already experienced a humiliating fall from the dizzy heights of the 2011 sale, having spent the past 10 months in the US wearing a GPS ankle bracelet, under armed guard. Photograph: Yui Mok/PA

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Karlin Lillington
Thu Mar 28 2024 - 06:00

Legal arguments are now under way in San Francisco in the criminal trial of Mike Lynch, the founder of the UK company Autonomy, for what the US prosecuting team has called “the largest fraud in the history” of Silicon Valley.

Lynch sold Autonomy to HP in August 2011 for the extraordinary price – especially back then – of $11.7 billion (€10.8 billion). A mere year later, HP wrote off $8.8 billion of that value, claiming there were “serious accounting improprieties” and “outright misrepresentations” at Autonomy.

Now, over a decade on, the multibillionaire stands accused of 16 counts of wire fraud, conspiracy and securities fraud by US government authorities, following his extradition from the UK. His defence team argues that he is innocent and wasn’t aware of any accounting improprieties as financial management was delegated to managers and not closely overseen by Lynch.

They also say that, far from being duped, HP was desperate to buy a company with Autonomy’s type of software specialisation and, once it made the purchase, it mismanaged the company and its integration. The trial judge, however, has indicated that events following the purchase are not significant to the matters under consideration, hobbling one line of defence.

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Lynch’s background before setting up Autonomy was in adaptive pattern recognition, an early stage of what we’d now call AI

Lynch has already experienced a humiliating fall from the dizzy heights of the 2011 sale, having spent the past 10 months in the US wearing a GPS ankle bracelet, under armed guard. It could get far worse, with a possible 25 year prison sentence ahead.

Back in August 2011, HP’s bid for Autonomy made international headlines, with much gushing by the UK press over the success of this British company, set up by the man regularly called Britain’s Bill Gates. This was a big flagship Silicon Valley purchase and gave the UK tech sector new visibility at the highest level. By May, though, less than a year after the purchase, revenue had plummeted and serious questions were being asked.

[ Autonomy founder Mike Lynch called ‘driving force’ of ‘massive fraud’ in US trial ]

When I think back on how big a drama the original purchase and subsequent crash were, it’s startling to consider how swiftly the company and this headlining saga dropped out of sight. Until this trial, Mike Lynch and Autonomy had largely faded from tech memory. But the San Francisco spectacle has spiked renewed interest in this now-fraught piece of questionable Valley decision-making.

And yes, it was always questionable. Whatever may or may not have happened in terms of Autonomy’s own record keeping or any alleged fraudulent activity by Lynch (his former finance director at Autonomy, Sushovan Hussain, is already serving a prison sentence for fraud for the deal), the Autonomy purchase was viewed with much incredulity at the time, by analysts, shareholders and, dare I say, journalists.

I wrote about it at the time, in an August 2011 column on HP’s ongoing, odd business detachment and poor decision-making: “[Then-HP chief executive Leo] Apotheker’s bid to buy UK analytical search company Autonomy at a substantial premium to current share price… perturbed the market and analysts. Few could see any great benefit for HP – reflected in a plunge in HP’s share price and market cap – even as Autonomy shares shot up to match HP’s generous bid.”

Only the day before the purchase was revealed, HP had announced it was getting out of handsets and mobile computing, and abandoning its new TouchPad tablet, an iPad competitor and the main product outcome from HP’s $1.2 billion acquisition of once-mighty Palm Inc the year before.

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The haphazard nature of the mobile computing decision immediately came across to Irish journalists – we’d actually been contacted just hours earlier by HP representatives arranging for TouchPad trials. HP, I wrote then, seemed unsure of its identity, adrift and lacking in direction, and had flailed with recent acquisitions. Apotheker did not outlast the Autonomy debacle as chief executive, although the HP board also unanimously endorsed it.

Looking more closely at the company and Lynch now, both chime in curiously familiar ways with our current times. Lynch’s background before setting up Autonomy was in adaptive pattern recognition, an early stage of what we’d now call AI, and he’d already developed software for fingerprint, facial and auto licence recognition – use cases of ongoing controversy today.

[ UK tech entrepreneur Mike Lynch goes on trial in US over Silicon Valley’s ‘largest fraud’ ]

Autonomy specialised in enterprise search and knowledge management applications, programs that could sift and search through documents and other media formats, seeking ways of classifying and better interpreting information. Again, an early form of enterprise AI, accompanied by much industry hype and dramatic claims. Sound familiar?

Autonomy was part of an early wave of companies purchased at figures that far outweighed their valuation and price/earnings ratio. Autonomy had never made more than $1 billion in annual revenue, but HP forked out a 58 per cent premium on the share price. Then, this shocked; today, that would elicit a shrug. Outlandish valuations or acquisition prices for venture-capital-pumped companies with little revenue and vague future plans hardly raise an eyebrow.

As Mike Lynch awaits a verdict, much has certainly changed in the tech world since 2011. Then again, little has changed.

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