Michael Richard Lynch, Conspiracy, Fraud, California 2019

Michael Richard Lynch, the former Chief Executive Officer of Autonomy Corporation, appeared in federal court in San Francisco to face conspiracy and fraud charges, announced First Assistant United States Attorney Stephanie M. Hinds; Federal Bureau of Investigation Special Agent in Charge Robert K. Tripp; and Internal Revenue Service, Criminal Investigation (IRS-CI), Special Agent in Charge Darren Lian.

Lynch, 57, a citizen of the United Kingdom, was charged in a 17-count superseding indictment on March 21, 2019. He made his initial appearance before the Honorable Charles R. Breyer, United States District Judge, who ordered the defendant released to home confinement in San Francisco upon his posting a $100,000,000 bond.

The superseding indictment alleges Lynch and Stephen Chamberlain, Autonomy’s former Vice President of Finance, engaged in a scheme to defraud purchasers and sellers of Autonomy securities, including Palo Alto-based Hewlett-Packard Company (‘HP’), about the true performance of Autonomy’s business, its financial condition, and its prospects for growth.

Prior to October 2011, Autonomy was a company with dual headquarters in San Francisco and Cambridge, England. In 2010, about 68% of Autonomy’s reported revenues came from the United States and other countries in the Americas. HP announced on August 18, 2011, it was acquiring Autonomy through a wholly owned subsidiary, Hewlett-Packard Vision B.V.

According to the superseding indictment, between 2009 and 2011, Lynch and Chamberlain, and other co-conspirators, (1) artificially inflated Autonomy’s revenues by backdating written agreements to record revenue in prior periods; recorded revenue on contracts that were subject to side letters or other contingencies that impacted revenue recognition; and improperly recorded revenue for reciprocal or roundtrip transactions; (2) made false and misleading statements to Autonomy’s independent auditor about transactions allegedly supporting the recognition of revenue and other items in Autonomy’s financial statements; (3) made false and misleading statements to market analysts covering Autonomy about Autonomy’s true performance and the nature and composition of its products, revenues and expenses; (4) made false and misleading statements to Autonomy’s regulators in response to inquiries about its financial statements; (5) made false and misleading statements that Autonomy was a so-called ‘pure software’ company while concealing the fact that Autonomy engaged in hidden, loss-making resales of hardware separate from its sale of appliances; (6) made false and misleading statements about Autonomy’s alleged sales of original manufactured equipment or ‘OEM’ licenses; and (7) intimidated, pressured and paid off persons who raised complaints about or openly criticized Autonomy’s financial practices and performance.

As part of the alleged scheme to defraud, Autonomy issued materially false and misleading quarterly and annual financial statements which the defendants allegedly provided to HP during the time that HP was considering whether to purchase Autonomy. The superseding indictment alleges that Lynch and Chamberlain caused Autonomy to make materially false and misleading statements directly to HP regarding Autonomy’s financial condition, performance, and business during the negotiations between HP and Autonomy leading up to the August 18, 2011, announcement by HP to acquire Autonomy for approximately $11,000,000,000.

The superseding indictment further alleges that Lynch and Chamberlain conspired to commit offenses against the United States, the objectives of which were, among other things, to cover up, conceal, influence witnesses to, and otherwise obstruct investigations of the scheme to defraud.

Lynch and Chamberlain are charged with one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349; fourteen counts of wire fraud, in violation of 18 U.S.C. § 1343; two counts of securities fraud, in violation of 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5; and one count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h).

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