Priti Patel Approves Extradition Of Autonomy Founder Mike Lynch

Home Secretary Priti Patel late on Friday approved the extradition to US of the co-founder and former CEO of Autonomy, Dr Mike Lynch.

The decision finishes off a terrible week for Mike Lynch, after he lost a multibillion-dollar fraud action in London on Friday morning.

A decision about that lawsuit had been expected, after it was delayed earlier this month. On Friday Mr Justice Hildyard ruled that HPE (Hewlett Packard Enterprise) had “substantially succeeded” in its UK case against Lynch, but financial damages are yet to be revealed.

Court case

It all centres around an acquisition made 11 years ago. HP’s acquisition of Autonomy in 2011 was the largest-ever buyout of a European technology firm at the time.

The $11bn (£8.7 billion) acquisition was intended to spearhead HP’s move into software, but it quickly became an accounting nightmare, and a year later HP took a whopping $8.8 billion (£5bn) “intangible asset impairment” charge over the acquisition, which was nearly three-quarters of what it had paid for Autonomy.

HP alleged at the time that the majority of that charge, more than $5 billion, resulted from a number of practices used by former members of Autonomy’s management team to inflate the value of the company and mislead investors and potential buyers at the time of the acquisition.

The remainder of that write-off charge was related to other factors such as the trading value of HP stock and marketplace performance.

Legal battles soon followed, and in April 2015 HP sued Lynch, alongside former Autonomy CFO Sushovan Hussain at the High Court in London, seeking $5bn in damages.

Dr Mike Lynch countersued HP for $160m in 2015, saying at the time the company had ruined his reputation and that it was “incompetent in its operation of Autonomy”, leading to the acquisition’s failure.

In the UK the Serious Fraud Office (SFO) in 2015 closed its investigation into the sale of Autonomy to HP, claiming there was ‘insufficient evidence’ for a realistic prospect of conviction.

Eventually in September 2016 HPE sold its software business, including the Autonomy division, to British IT firm Micro Focus for only $8.8 billion.

Friday ruling

After that the HPE court case in London against Lynch continued, and in March 2019 Justice Hildyard began overseeing the High Court trial battle.

Last Friday Justice Hildyard delivered his public summary of his 1,500-page judgement – which is still not finalised, The Register reported.

The judge rejected Lynch’s argument that HP had not read due diligence documents before agreeing to acquire Autonomy, and said it was not law that it was a “buyer beware” case.

HPE had alleged there was a carousel of cash flowing back and forth to generate a fake impression of real sales and real revenues. And the judge sided with HPE on this issue, and said that Autonomy had not properly accounted for hardware sales with its value added resellers.

Lynch’s counterclaim was dismissed, with the judge refusing even to address its substance.

“Dr Lynch and Mr Hussain defrauded and deliberately misled the market and HP,” the Register quoted an HPE spokesman as saying outside the courtroom. “HPE is pleased that the judge has held them accountable.”

But the judge said HPE was likely to receive “substantially less” than the amount ($5bn) claimed in damages.

Mike Lynch on Friday said he would appeal the case.

Extradition granted

Meanwhile the Home Secretary Priti Patel had been waiting for the court verdict before her Friday midnight deadline on whether to grant the US extradition.

US officials had upset MPs and indeed normal protocol (where local legal cases should be settled first) when they sought to pre-empt the High Court’s verdict, and take Dr Lynch to stand trial in San Francisco before a decision was reached in the British trial.

Dr Lynch is facing 17 counts of US charges, including wire fraud, conspiracy and securities fraud, which carries a maximum term of 20 years in prison.

Lynch continues to deny all charges,and has previously stated that the dispute stems from a misunderstanding of UK and US accounting rules.

Dr Lynch on the witness stand also denied HP’s allegations that he had mislead markets and inflated his firm’s value before it was sold to Hewlett Packard.

During his lengthy testimony on the stand, the 54 year old hit out at HP and its management, in particular HP’s former CEO Meg Whitman (she is now the US Ambassador to Kenya).

Dr Lynch said that Whitman was “out of her depth” and “could not cope with all the fires” at the company.

Autonomy’s former chief financial officer Sushovan Hussain was found guilty in 2018 in the US of artificially inflating the firm’s financial position before it was sold.

In August 2020 Hussain lost his appeal against his conviction (his sentence was delayed during his appeal), and he is currently serving five years in prison in the US.

He was also fined $10.1m.

And now on Friday Home Secretary Priti Patel has granted the US extradition request, after she received the ruling of Justice Hildyard.

Dr Lynch, 56, will reportedly appeal that decision as well (he has 14 days to file his appeal).

Anger at US

But the Home Secretary’s decision has not gone down well with some MPs, upset at what they see is judicial overreach by the United States.

Tory MP Tom Tugendhat, chairman of the Commons Foreign Affairs Committee, was quoted by the Daily Mail as slamming the extradition treaty, claiming that “US prosecutors can force our citizens to America while Americans are much harder to bring to justice in this country.”

“Mike Lynch’s case is another sign that the extradition treaty signed by the Blair government is unequal,” he reportedly said.

Tugendhat called for the treaty to be “rebalanced”, and said “it’s not acceptable to have Brits at a disadvantage.”