Capital Economy, Business and Finance
There are three ways of looking at the trial of Mike Lynch, the tech entrepreneur and former UK government advisor whose fraud trial began in San Francisco this week more than ten years after the US first sought his extradition: the prosecutor’s way, the defence’s and the historian’s.
The prosecution alleges “massive” fraud to overstate the value of Lynch’s Autonomy software company before Hewlett Packard bought it for $10 billion in 2011. The defence has said jurors will see only smoke, not fire, and that everything alleged by prosecutors in opening statements was “normal business”.
Historians may be more interested in what preceded and followed Autonomy’s acquisition: a run of other purchases by HP that failed to reverse its long decline from Silicon Valley powerhouse to also-ran; and a doomed battle by Lynch to avoid extradition to the US from the UK, where Autonomy was based.
In a series of articles for the libertarian Zero Hedge blog, a writer using the pseudonym Tyler Durden (Brad Pitt’s character in Fight Club) makes the case that having seen its share price tumble from more than $20 to roughly $6 in the year and a half to July 2012, HP attacked Autonomy as a scapegoat.
There’s a logic to this argument. It’s implausible to blame Autonomy for the whole share price swoon because the company wasn’t acquired till October 2011; and because court papers show in mid-2012 HP’s accountants still thought Autonomy was worth what its parent company had paid for it.
Even so, prosecutors accuse Autonomy of trying to make its numbers look good by backdating sales, recording bad hardware deals as not-so-bad software deals and offering so-called round trip transactions to thank customers for buying HP software.
Which prompts two questions: if what’s alleged is true, why didn’t the UK’s Serious Fraud Office find out about it? And why wasn’t Lynch tried in the London rather than the US? The answers appear to be that the SFO was toothless and, having judged it wouldn’t win in a UK court, handed the case to the US where prosecutors might stand a better chance.
They are going to have to spend time reminding jurors it’s Lynch on trial, not HP – but time is one thing they have plenty of. The trial is expected to last three months.
