Former Autonomy CEO Charged With Wire Fraud
Defendant Allegedly Defrauded Hewlett-Packard Company in the Acquisition of Autonomy for $11 Billion
SAN FRANCISCO – Today, a federal grand jury indicted Michael Richard Lynch, the former Chief Executive Officer (“CEO”) of Autonomy Corporation plc (“Autonomy”), with conspiracy to commit wire fraud and multiple counts of wire fraud, announced United States Attorney Alex G. Tse and Federal Bureau of Investigation (FBI) Special Agent in Charge John F. Bennett. Stephen Keith Chamberlain, Autonomy’s former Vice President for Finance, was also indicted today in the same indictment for the same offenses.
According to the indictment, Lynch, 53, and Chamberlain, 46, both citizens and residents of the United Kingdom, allegedly engaged in a scheme to defraud purchasers and sellers of Autonomy securities, including the Hewlett-Packard Company, about the true performance of Autonomy’s business, its financial condition, and its prospects for growth.
Prior to October 2011, Autonomy was a company incorporated in the United Kingdom that maintained dual headquarters in San Francisco and Cambridge. In 2010, about 68% of Autonomy’s reported revenues came from the United States and other countries in the Americas. The case involves the acquisition by Palo Alto-based Hewlett-Packard Company and Hewlett-Packard Vision B.V., a wholly-owned subsidiary of HP (collectively “HP”), of Autonomy. On August 18, 2011, HP entered into an Offer Agreement with Autonomy and publicly announced its offer to acquire Autonomy for approximately $11 billion. On October 3, 2011, HP’s acquisition of Autonomy closed and HP acquired control of Autonomy.
According to the Indictment, between 2009 and 2011, Lynch and Chamberlain, and other co-conspirators, (1) artificially inflating Autonomy’s revenues by backdating written agreements to record revenue in prior periods; recording 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 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 acquisition announcement. Allegedly, the defendants, and their co-conspirators, made false and misleading statements about the nature of Autonomy’s products, concealed Autonomy’s non-appliance hardware sales, and made other false and misleading statements during HP’s “due diligence” of Autonomy.
In sum, the indictment charges Lynch and Chamberlain with one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and thirteen (13) counts of wire fraud, in violation of 18 U.S.C. § 1343. The indictment also includes asset forfeiture allegations.
No federal court appearance has yet been scheduled for the defendants.
The indictment filed today merely alleges that crimes have been committed, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt. If convicted, the defendants face a maximum sentence of twenty (20) years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for the conspiracy count. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
Assistant U.S. Attorneys Robert S. Leach, Adam A. Reeves, and William Frentzen are prosecuting the case with the assistance of Beth Margen, Phillip Villanueva, and Bridget Kilkenny. The prosecution is the result of a multi-year investigation involving the FBI and the United States Securities and Exchange Commission.