DOJ Charges Four In
Panama Papers Investigation
Defendant Allegedly Defrauded Hewlett-Packard Company in the Acquisition
of Autonomy for $11 Billion
Today, a federal grand jury indicted Michael Richard Lynch, the former
Chief Executive Officer (“CEO”) of Autonomy Corporation plc
(“Autonomy”), with conspiracy to commit wire fraud and multiple counts
of wire fraud, announced United States Attorney Alex G. Tse and Federal
Bureau of Investigation (FBI) Special Agent in Charge John F. Bennett.
Stephen Keith Chamberlain, Autonomy’s former Vice President for Finance,
was also indicted today in the same indictment for the same offenses.
According to the indictment, Lynch, 53, and Chamberlain, 46, both
citizens and residents of the United Kingdom, allegedly engaged in a
scheme to defraud purchasers and sellers of Autonomy securities,
including the Hewlett-Packard Company, about the true performance of
Autonomy’s business, its financial condition, and its prospects for
Prior to October 2011, Autonomy was a company incorporated in the United
Kingdom that maintained dual headquarters in San Francisco and
Cambridge. In 2010, about 68% of Autonomy’s reported revenues came from
the United States and other countries in the Americas. The case involves
the acquisition by Palo Alto-based Hewlett-Packard Company and
Hewlett-Packard Vision B.V., a wholly-owned subsidiary of HP
(collectively “HP”), of Autonomy. On August 18, 2011, HP entered into an
Offer Agreement with Autonomy and publicly announced its offer to
acquire Autonomy for approximately $11 billion. On October 3, 2011, HP’s
acquisition of Autonomy closed and HP acquired control of Autonomy.
According to the Indictment, between 2009 and 2011, Lynch and
Chamberlain, and other co-conspirators, (1) artificially inflating
Autonomy’s revenues by backdating written agreements to record revenue
in prior periods; recording revenue on contracts that were subject to
side letters or other contingencies that impacted revenue recognition;
and improperly recorded revenue for reciprocal or roundtrip
transactions; (2) made false and misleading statements to Autonomy’s
independent auditor about transactions allegedly supporting the
recognition of revenue and other items in Autonomy’s financial
statements; (3) made false and misleading statements to market analysts
covering Autonomy about Autonomy’s true performance and the nature and
composition of its products, revenues and expenses; (4) made false and
misleading statements to Autonomy’s regulators in response to inquiries
about its financial statements; (5) made false and misleading statements
that Autonomy was a so-called “pure software” company while concealing
the fact that Autonomy engaged in hidden, loss-making resales of
hardware separate from its sale of appliances; (6) made false and
misleading statements about Autonomy’s alleged sales of original
manufactured equipment or “OEM” licenses; and (7) intimidated, pressured
and paid off persons who raised complaints about or openly criticized
Autonomy’s financial practices and performance.
As part of the alleged scheme to defraud, Autonomy issued materially
false and misleading quarterly and annual financial statements which the
defendants allegedly provided to HP during the time that HP was
considering whether to purchase Autonomy. The indictment alleges that
Lynch and Chamberlain caused Autonomy to make materially false and
misleading statements directly to HP regarding Autonomy’s financial
condition, performance, and business during the negotiations between HP
and Autonomy leading up to the August 18, 2011 acquisition announcement.
Allegedly, the defendants, and their co-conspirators, made false and
misleading statements about the nature of Autonomy’s products, concealed
Autonomy’s non-appliance hardware sales, and made other false and
misleading statements during HP’s “due diligence” of Autonomy.
In sum, the indictment charges Lynch and Chamberlain with one count of
conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and
thirteen (13) counts of wire fraud, in violation of 18 U.S.C. § 1343.
The indictment also includes asset forfeiture allegations.
federal court appearance has yet been scheduled for the defendants.
The indictment filed today merely alleges that crimes have been
committed, and the defendants are presumed innocent until proven guilty
beyond a reasonable doubt. If convicted, the defendants face a maximum
sentence of twenty (20) years in prison, and a fine of $250,000, plus
restitution, for each count of wire fraud and for the conspiracy count.
However, any sentence following conviction would be imposed by the court
after consideration of the U.S. Sentencing Guidelines and the federal
statute governing the imposition of a sentence, 18 U.S.C. § 3553.
Assistant U.S. Attorneys Robert S. Leach, Adam A. Reeves, and William
Frentzen are prosecuting the case with the assistance of Beth Margen,
Phillip Villanueva, and Bridget Kilkenny. The prosecution is the result
of a multi-year investigation involving the FBI and the United States
Securities and Exchange Commission.