What has been hailed as the biggest tech fraud case in the UK is now underway as courts are now investigating the circumstances that have led to the lawsuit against the head of the software firm Autonomy. The civil case was filed by the Palo Alto-based information technology company Hewlett-Packard, which alleges that Autonomy had inflated the value of Autonomy prior to its sale. HP bought the company back in 2011 for US$11 billion.
According to HP and US prosecutors, they have reason to believe that Autonomy's founder Mike Lynch and the company's chief financial officer Sushovan Hussain had knowingly inflated the value of Autonomy, which resulted in HP's overpayment. Both executives allegedly paid customers to buy their products in a "revenue-pumping" scheme.
To hype up its sales number and its value, Autonomy allegedly struck deals with companies such as Capax Discover, Vidient Systems, MicroTech, and EMC. The deal involved a "reciprocal transactions" agreement that ultimately pumped up Autonomy's sales figures. The fake sales and fraud allegedly happened over a two year period, between 2009 and 2011, before the company was bought by HP. The US firm claimed that Autonomy had tricked it into a merger through over-inflating its financial performance.
Both Lynch and Hussain have denied any wrongdoing. Lynch's representative recently told the press that there was no fraud at the company and that HP was just covering up its string of failed acquisitions. According to the representative, they believe that HP is just finding someone to blame after having mismanaged the companies it had acquired. Lynch's attorneys have also stated the same claim, mentioning that the case was nothing more than a dispute over "certain business judgments."
Apart from the civil case, US prosecutors have also added three new criminal charges to their indictment against Lynch. These charges include criminal securities fraud, wire fraud, and conspiracy. The new charges are part of a 17-count indictment filed by prosecutors with a federal court in San Francisco. In the UK, HP is seeking to fine both Lynch and Hussain US$5.1 billion for the alleged fraud. If Lynch is found guilty, the Cambridge graduate who was once hailed as UK's Bill Gates may be facing jail time in the United States.
Lynch originally established Autonomy back in 1996. The firm developed specialized software that could basically extract data from often impossible to track sources such as video and telephone calls. The firm eventually landed on the top 100 UK public companies list. Over 68 percent of the company's revenue had come from its customers in North America.
