Federal prosecutors on Monday painted former British tech star Mike Lynch as the ruthless mastermind of an $11 billion deal that defrauded Silicon Valley pioneer Hewlett Packard.
But his lawyer described him as a visionary who became the scapegoat for a desperate buyer’s bad decision.
The contrasting portraits of Lynch, 58, emerged at the start of a criminal trial revolving around HP’s acquisition of British software maker Autonomy in 2011 – a deal that was initially celebrated as a coup, but which instead turned into a costly debacle.
Lynch, once hailed as an example of British ingenuity, is facing 16 fraud and conspiracy charges that could send him to prison for more than 20 years if a jury convicts him of all charges. The trial in federal court in San Francisco will last two to three months.
While the trial is primarily about Lynch’s 16-year reign, which culminated in his 2012 firing by then-HP CEO Meg Whitman just nine months after the takeover, the proceedings will also cast a spotlight on the decay and chaos of a historic Silicon Valley company.
Whitman’s predecessor, Leo Apotheker, acquired Autonomy as part of a plan to reduce HP’s reliance on sales of personal computers and printers amid the upheaval unleashed by the rise of smartphones. But after the deal turned into a financial scandal, Whitman ended up firing thousands of workers as HP’s fortunes plummeted, ultimately leading to the company being split in two in 2015.
Lynch’s lawyer, Reid Weingarten, insisted HP’s deteriorating condition in 2011 was the main reason the company tried to complete the acquisition of Autonomy without even conducting a thorough review of the business. Things were so bad, Weingarten told the jury, that Apotheker had compared HP to a “burning platform” in the ocean. Meanwhile, Whitman, he said, had praised Autonomy’s products as “magical software.”
“HP was in desperate shape, so they needed to do something,” Weingarten told the jury during his hour-long opening statement.
In his 80-minute opening statement, federal prosecutor Adam Reeves said Lynch began lying to HP executives as soon as discussions about the settlement began with a meeting held in early 2011 at HP headquarters in Palo Alto , California, the same city where Bill Hewlett and Dave Packard started working. the company in 1939.
“It was the scene of an $11 billion fraud,” Reeves said of the initial meeting between Lynch and HP executives. Although Lynch made it seem like he was running a “money-making machine,” Reeves said, “Autonomy’s success was actually an elaborate, multi-year, multi-layered fraud.”
Reeves said the prosecution will present witnesses who will explain how Autonomy manipulated its books and engineered a series of deals to inflate its revenue in illegal ways during a 2 1/2-year period that duped HP into paying for a acquisition that would have become inconvenient. . And Lynch orchestrated the scam, according to Reeves.
“He was a dominant, controlling boss,” Reeves told the jury. “For many years he ran Autonomy with an iron fist.”
While acknowledging that Lynch is a “hard charger” who demands the best from his employees, Weingarten said Lynch delegated most accounting and marketing matters while focusing primarily on innovation.
“Mike was ahead of everyone for a long time,” Weingarten said. “He IS a startup guy who liked to eat cold pizza at 2 in the morning while he invented something.”
Weingarten also showed the jury an internal HP document drawn up in July 2011 – a month before the acquisition was announced – that valued Autonomy at $46 billion, suggesting that the valuation showed that HP thought it would be a bargain to acquire the rights to software that helped companies find information buried in emails and Word documents.
Autonomy’s software “was so powerful that no competitor was close to them and it sold like hot cakes,” Weingarten said.
Lynch, who has been free on $100 million bail since he was extradited to the United States last May, sat through most of the opening statements stoically as he watched presentations appear on a display and occasionally peered at the lawyers and jury.
Ultimately the jury will hear from Lynch, who Weingarten promised will testify to tell his side of the story.
“We want you to know about it, we think this helps us,” Weingarten said.
The testimony will likely open the door for prosecutors to delve into Lynch’s motivations for making a deal from which he pocketed more than $800 million, according to court documents.
Apotheker, who was replaced by Whitman a few weeks after the Autonomy deal was announced, is also expected to testify. Whitman, currently the US ambassador to Kenya, is not expected to come to court during the trial, although his handling of HP and the acquisition of Autonomy is expected to be scrutinized.
Lynch’s trial will simultaneously cover fraud charges brought against Stephen Chamberlain, Autonomy’s former vice president of finance.
Sushovan Hussain, Autonomy’s former chief financial officer and Lynch’s former officemate, was sentenced to five years in prison in 2019 after being found guilty of 16 counts of fraud and conspiracy. Although Hussain’s name was mentioned during Monday’s opening statements, his sentencing was not.