Friday, May 27

Tech Entrepreneur Mike Lynch Can Be Extradited To US, Priti Patel Rules | Law


Mike Lynch, the tech entrepreneur once hailed as Britain’s answer to Bill Gates, is facing extradition to the US to face criminal fraud charges, following a ruling by Home Secretary Priti Patel.

On Friday night, his lawyers said he would appeal.

Hours earlier, Hewlett-Packard won its six-year civil fraud case against Lynch after a superior court judge ruled he misled the US company into overpaying for his software company Autonomy, sold to HP for $11,000. million dollars (£8.2 billion) in 2011.

Lynch was found to have defrauded HP by manipulating Autonomy’s accounts to inflate the company’s value. He has always denied the accusation and said Friday that he would appeal.

But the outcome of the trial also coincided with a deadline for Patel to decide whether Lynch could be extradited to the United States. Earlier this week, he lost a high court bid that would have given Patel more time to decide.

He could now be sent to the US to face criminal trial on 14 counts of conspiracy and fraud over claims that investors in HP lost billions due to his actions. Lynch’s attorney, Chris Morvillo of Clifford Chance, said Friday night: “Dr. Lynch strongly denies the charges brought against him in the United States and will continue to fight to establish his innocence. He is a British citizen who ran a British company in Great Britain subject to British laws and regulations and that is where the matter should be resolved. This is not the end of the battle, far from it. Dr. Lynch will now appeal to the High Court in London.”

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Earlier on Friday, after a 93-day trial in superior court, Judge Hildyard found that Lynch had defrauded HP.

“Plaintiffs have been substantially successful in their claims in this proceeding,” the judge said.

He said the damages are likely to be significantly less than the $5 billion claimed by Hewlett-Packard (HP) and its successor companies, while also questioning the reliability of some of the US firm’s witnesses.

But it ruled that HP had been induced to overpay for the acquisition, due to fraud perpetrated by Lynch and former Autonomy CFO Sushovan Hussain, who He is in jail in the United States after being convicted of fraud related to the same deal.

The US company bought Autonomy for $11 billion in 2011 and focused on its software that helps businesses store and search “unstructured data” such as voicemail and email. Lynch made £500m from the sale and was hailed as one of Britain’s few global tech champions.

Profile

Who is Mike Lynch?

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Profile

Mike Lynch, 56, is the son of a nurse and a firefighter, born in Essex. He won a scholarship to a private school at the age of 11 and went on to study for a BA and a Ph.D. at Cambridge. His doctoral thesis is among the most consulted at the university and he is considered a world leader in the field of signal processing, key to data management.

A series of technology startups followed in the 1980s and 1990s, culminating in the 1996 formation of Autonomy. That company aimed to analyze and classify “unstructured” information from sources like phone calls, a potential data goldmine for large corporations.

His success brought with it great prestige. He was named Entrepreneur of the Year by the Confederation of British Industry in 1999, received an OBE in 2006 and became an adviser to 10 Downing Street in 2011. Lynch also served as a trustee of the Royal Botanic Gardens, Kew and served on the board director of the BBC and the British Library.

In 2011, he made a windfall of around $800m from the sale of Autonomy to US technology company Hewlett Packard in a deal worth $11bn (£8bn). However, the deal quickly fell apart. Lynch was fired from Autonomy in 2012.

Hewlett Packard’s successor companies have sued Lynch in a civil case in London, alleging that he fraudulently inflated Autonomy’s value. In 2018, US authorities brought criminal charges against him and other former Autonomy executives, alleging that they “participated in a fraudulent scheme to deceive buyers and sellers of Autonomy securities.” Extradition proceedings began in 2019.

However, Lynch remains influential on the UK tech scene. He was an early backer of cybersecurity company Darktrace and had a stake worth £220m as of July 2021 after it was listed on the London Stock Exchange. Darktrace said his connection to Lynch was a reputational risk when he filed his initial public offering.

Married with two daughters, his hobbies are listed in Who’s Who, including playing jazz saxophone and conserving rare breeds, including red cattle raised at his Suffolk home.

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Within a year, HP had reduced its own value by $9 billion, blaming “serious accounting improprieties” related to the deal. Lynch and his team, HP claimed, had falsely increased the company’s attractiveness through accounting tricks.

In a lengthy summary of his findings, Mr. JuHildyard found that Lynch and Hussain had been “dishonest” in implementing various strategies that had the effect of artificially inflating and generating revenue.

This included using hardware sales to “disguise” shortfalls in software revenues, hide costs, and enter into deals with “friendly” companies for sales proceeds, some of which never materialized, to meet market expectations.

However, he said HP would most likely have bought Autonomy, even if its financial performance hadn’t been artificially enhanced, because of the quality of its IDOL data structuring product, described by former HP boss Meg Whitman, as “almost magical”.

It also found that the scale of the damages, to be determined at a later date, is likely to be “considerably less” than the $5 billion claimed by HP.

A London court ruled last July that Lynch, who denies any wrongdoing, should be extradited, but the final decision rested with Patel. His decision could reignite claims that extradition deals with the United States unfairly favor American interests.

A trial in the United States would cover much of the same ground as the London civil case.

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Speaking after the high court verdict, a Hewlett-Packard Enterprise (HPE) spokesperson said: “Dr. Lynch and Mr. Hussain deliberately defrauded and misled the marketplace and Hewlett-Packard. HPE is pleased that the judge has held them accountable.”

Kelwin Nicholls of Clifford Chance, attorney for Lynch, said: “Today’s result is disappointing and Dr. Lynch intends to appeal. We will study the full sentence in the coming weeks.

“We note the judge’s concerns about the reliability of some of HP’s witnesses. We also note the judge’s expectation that any loss suffered by HP will be substantially less than the $5 billion claimed.”


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