Dr. Michael Lynch was the former CEO of Autonomy Corporation PLC, a U.K.-listed software company that was purchased by HP Inc. in 2011 for $11 billion. A year after the acquisition, HP wrote off approximately US$8.8 billion of the purchase price, and accused Dr. Lynch and others at Autonomy of accounting fraud (which HP suggested caused $5 billion of the write-down).
In 2022, a UK High Court judge found that Dr. Lynch (along with former CFO Mr. Sushovan Hussain) had “on the civil standard of the balance of probabilities,…dishonestly misrepresented the financial position and performance of Autonomy…” which meant that “[HP] bought a smaller and less successful company than it was represented to be and that HP was led to and did believe that it was acquiring.” In a separate US federal criminal case, Mr. Hussain was convicted in April 2018 for his role in the alleged conspiracy.
In May 2023, the United States Department of Justice extradited Dr. Lynch from the U.K. to face a jury trial in federal court in San Francisco on 16 counts of wire fraud and securities fraud related to Autonomy’s accounting and disclosures prior to the sale to HP.
Taking the stand in the fraud case
AlixPartners was asked by Steptoe LLP and Clifford Chance LLP, counsel for Dr. Lynch, to provide expert testimony on various accounting issues under International Financial Reporting Standards in relation to Autonomy’s audited financial statements. The issues related to:
- revenue recognition for software sales to value-added resellers, OEM clients and hosting clients, as well as potentially linked transactions;
- disclosure of hardware sales; allocation of expenses;
- the use of hindsight;
- and post balance sheet events and adjustments.
Partner and Managing Director Greig Taylor testified and was cross-examined before the jury over the course of two days as part of Dr. Lynch’s affirmative defense, and in response to the United States’ technical accounting expert from an international audit firm.
Impactful evidence on financial reporting standards
Dr. Lynch was found not guilty on all counts and completely acquitted. Through the explanation of technical accounting concepts in simple terms, providing practical applications rather than theoretical or academic explanations that rely on technical jargon, Mr. Taylor assisted Dr. Lynch’s defense in relation to how accountants apply International Financial Reporting Standards. Mr. Taylor provided evidence in relation to the more subjective elements that require judgment and estimates, how the accounting standards are designed, how they operate within the overall accounting framework, and how these issues related to Autonomy’s audited financial statements.
