US prosecutors slam Autonomy tycoon's attempt to get charges tossed
Allege that 'greed and hubris' led Mike Lynch and co to 'pretend Autonomy thrived'
The lengthy legal story of Autonomy co-founder Mike Lynch took another turn this weekend as prosecutors snapped back at attempts to have criminal charges thrown out of court.
The 57-year-old UK tycoon is facing US prosecutors' allegations that he inflated the books at Autonomy to generate a higher sale price for the business, the value of which buyer HP subsequently wrote down by billions of dollars (see sidebar).
Papers filed at the weekend [PDF] in the Northern District of California US District Court opposed arguments to toss the charges. US prosecutors described the arguments as "unpersuasive," claiming that Lynch's lawyers' insistence that selling Autonomy at a premium would have been "a goal potentially made more difficult if that share price was already too high" made no sense:
The conspiracy's objective was to fraudulently inflate Autonomy's value so as to drive up the price of its shares and of the company itself.
To suggest that the conspirators would prefer to sell Autonomy at a certain premium over its share price at the expense of a lower overall price is nonsensical.
The comments came in response to a September 29 motion [PDF] from Lynch to dismiss the charges related to wire fraud and an alleged conspiracy to cover up and conceal fraud at Autonomy after the HP acquisition.
Prosecutors were having none of it and, in responses [PDF] filed over the weekend, thundered: "The defendants employed virtually every accounting trick in the book - backdating, channel stuffing, roundtrip transactions, undisclosed side agreements, feigned delivery, and massive hidden hardware sales – to create the false appearance that Autonomy was growing when, in fact, it was really flat-lining.
"Greed and hubris motivated the defendants to pretend Autonomy thrived when, in fact, it stagnated like other companies in the tech sector in 2009-2011."
But what of the British software boss's specific motion around count 17 – the alleged cover-up of fraud at Autonomy? The essence of the motion is that the count should be dismissed since it alleges multiple conspiracies rather than a single one.
Again, prosecutors wasted no time in insisting the count was valid and gave examples, including the destruction of records, a request to wipe a defendant's laptop, and the witnessing by an HP employee of "two lorries [i.e., trucks] in the back of the Autonomy building in Cambridge that were there shredding hard drives."
For its part, the defense said: "Even if those acts had been part of an agreement between Dr Lynch and Mr Chamberlain, however, that agreement would not have qualified as a conspiracy."
And the response? As far as the prosecution is concerned, count 17 "is not ornate or multi-faceted as the defendants contend. This case is like other cases in which defendants first conspire to defraud and then separately conspire to cover-up and conceal their fraud.
"The indictment sets a plain target for the government to prove and the defendants to defend. It need do no more. For these reasons, the court should deny the defendants' motion to dismiss count 17."
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Lawyers are also keen for the depositions of Poppy Gustafsson, Lisa Harris, and Matt Stephan. Harris was an Autonomy finance team member reporting to ex-CFO Stephen Chamberlain – Lynch's co-defendant – and Gustafsson was a former Deloitte auditor and Autonomy finance team member also reporting to Chamberlain. Stephan was also on the finance team.
Depositions from Harris and Gustafsson are sought by Chamberlain's counsel. The US government said it intends to file an application to depose Stephan.
All have indicated that they have no intention of traveling to the US.
Be that as it may, the court has now ordered that the trio appear for a deposition, and "due to exceptional circumstances and in the interest of justice," could be deposed in the UK and Australia.
Judge Charles R. Breyer agreed, "and that, to the extent necessary, the Court will issue Letters Rogatory to enforce the Court's Order." ®