Michael Richard Lynch, Former CEO Of Autonomy Corporation, Makes Appearance In Federal Court To Face Conspiracy, Fraud Charges

SAN FRANCISCO – Michael Richard Lynch, the former Chief Executive Officer of Autonomy Corporation, was extradited from the United Kingdom to the United States to face charges in the Northern District of California, 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 million 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 billion.

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. 

In sum, the superseding indictment charges Lynch and Chamberlain with one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349; fourteen (14) counts of wire fraud, in violation of 18 U.S.C. § 1343; and one count of conspiracy, in violation of 18 U.S.C. § 371. The superseding indictment charges Lynch with an additional count of securities fraud, in violation of 18 U.S.C. § 1348. 

Chamberlain appeared before the Court on February 4, 2019, and has pleaded not guilty to all counts.

The superseding indictment against Lynch and Chamberlain merely alleges that crimes have been committed, and Lynch and Chamberlain are presumed innocent until proven guilty beyond a reasonable doubt. If convicted, the defendants face a maximum sentence of 20 years in prison, and a fine of $250,000, plus restitution, for each count of wire fraud and for the count alleging conspiracy to commit wire fraud and 5 years on the count of conspiracy in violation of 18 U.S.C. § 371. The maximum penalty for the securities fraud count against Lynch is 25 years in prison. 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 and Adam A. Reeves are prosecuting the case with the assistance of Beth Margen, Kathy Tat, and Megan Pagaduan. The prosecution is the result of an investigation involving the FBI, IRS-CI, and the United States Securities and Exchange Commission. 

The Justice Department’s Office of International Affairs worked with law enforcement partners in the United Kingdom to secure the arrest and extradition of Lynch to the United States.