Mike Lynch steps down from Darktrace board after Autonomy deal charges

Mike
Lynch has been charged in the US with fraud and conspiracy over
the sale of Autonomy to HP in 2011.
Ben Gurr/WPA Pool/ Getty Images

• British technology entrepreneur and investor Mike Lynch
  was charged with conspiracy and fraud in the US last
  Friday.
• The charges relate to the $11 billion sale of Lynch’s
  software firm to HP in 2011.
• The billionaire has resigned from the board of unicorn
  security startup, Darktrace, as well as advisory positions with
  the Royal Society and the UK government.
• His investment company, Invoke Capital, and its
  portfolio startups said it is business as usual, despite ties
  to Autonomy.

A prominent British entrepreneur and investor, Mike Lynch, has
resigned from the board of one of the UK’s most promising unicorn
startups after
being charged with fraud in the US last Friday.

Filings on the UK’s Companies House on Tuesday confirmed Lynch’s
resignation from the board of Darktrace, a cybersecurity startup
worth $1.65 billion (£1.3 billion).

The criminal
charges against Lynch and another ex-Autonomy executive,
Stephen Chamberlain, relate to the $11 billion sale of Lynch’s
software company Autonomy to Hewlett-Packard in 2011.

A Darktrace spokesman said: “Mike Lynch is a visionary
technologist and has been an invaluable advisor and mentor to
Darktrace. He offered to step down from the Board so as not to
create a distraction for the company, but we remain very grateful
for his advice and support.”

Lynch was involved with Darktrace through his investment company
Invoke Capital, which remains the startup’s biggest shareholder
with a 41% stake. Business Insider understands Lynch is still
active with Invoke Capital, even as he ostensibly distances
himself from its most successful portfolio company.

Darktrace co-CEO Poppy
Gustafsson.
Getty

The Telegraph
reported on Wednesday that Lynch would also step down from
the board of another Invoke-funded startup — Sophia Genetics.
Furthermore, he resigned last week from his advisory roles with
the Royal Society and the UK government’s council for science and
technology.

A Sophia spokesman confirmed that Lynch would relinquish his
board seat at the end of 2018, but said this was unrelated to the
US charges. He added: “Mike has been a fantastic supporter and we
thank him hugely for his time on the board.”

The billionaire is still involved in other British startups
funded by Invoke Capital. He will keep his board positions at AI
firm Luminance and fraud analysis company Feature Space.

Lynch is accused of conspiring with fellow Autonomy executives to
defraud HP

Meg Whitman, former CEO of HP, was in charge when the
firm blew the whistle on Autonomy.
AP
Images

Lynch’s established position in UK tech scene is under threat
after the US Department of Justice filed 14 charges of fraud and
conspiracy against him. The charges carry a maximum penalty of 20
years in prison, while US prosecutors would also like to see
Lynch give up the $815 million he made from the Autonomy sale.

It is expected that the case will go trial, although it isn’t
clear whether Lynch will travel to the US voluntarily to fight
the case or face extradition.

The charges are the latest development in a saga that has dragged
on for six years. HP acquired Autonomy in 2011, and shortly
afterwards accused its executives of inflating the firm’s
financial performance, writing down its acquisition by $8.8
billion. Autonomy’s executives have always denied the
accusations.

Autonomy’s CFO Sushovan Hussain was
convicted of fraud in April and is awaiting sentencing in the
US.

Lynch’s lawyers described the charges as a “travesty of justice”
and “stale allegations.” In a statement last week, they said:

“There was no conspiracy at Autonomy and no fraud against HP for
the DoJ to take up. HP has a long history of failed acquisitions.
Autonomy was merely the latest successful company it destroyed.
HP has sought to blame Autonomy for its own crippling errors, and
has falsely accused Mike Lynch to cover its own tracks.

“Mike Lynch will not be a scapegoat for their failures. He has
done nothing wrong and will vigorously defend the charges against
him.”

Lynch has always maintained that HP blamed Autonomy executives
for its own botched acquisition and integration process. The US
case notes that Lynch, as CEO, had ultimate oversight of
Autonomy’s finances.

Lynch had been due to fight a civil trial in the UK in March
2019, although it is possible that any US criminal case will
delay the British trial.

Lynch’s investment firm and startups say it’s business as
usual

The future of Lynch’s startups and his investment firm in the UK
looks unclear, in part thanks to his and colleagues’ ties to
Autonomy. At the very least, those deep connections could pose a
reputational risk.

Invoke Capital’s technology lead, Pete Menell, was formerly CTO
of Autonomy, while its communications chief Vanessa Colomar had
the same job at Autonomy. Andrew Kanter, a non-exec at Invoke,
was COO and legal counsel at Autonomy, and holds board positions
at Invoke portfolio startups Neurence, Darktrace, and Luminance.

Darktrace itself has even deeper links to Autonomy. Its current
co-chief executives, Nicole Eagan and Poppy Gustafsson, held
senior positions at both Autonomy and Invoke Capital.

Read more:
The incredible life of Mike Lynch, the Cambridge academic who
sold his search startup to HP for $11 billion

Invoke Capital and Darktrace, the most high-profile of Lynch’s
current projects, say business is continuing as usual. “It is
very much business as usual and there should be no impact on
them,” a spokesman said. A source close to Darktrace said Lynch
hadn’t been closely involved with the startup of late, and said
the firm continued to do well.

Invoke Capital does not operate like a traditional VC, with a
closed pool of funding, and is instead dependent on a number of
institutions who stump up capital on demand, as well as some
Invoke partners who invest.

A source with knowledge of the matter said Invoke is not
dependent on Lynch’s finances. Even if the entrepreneur is forced
to forfeit his $815 million gains from the Autonomy sale, the
company can continue operating as usual with its current
undisclosed backers.

The company is registered in the British Virgin Islands and so
does not need to file public accounts but, the spokesman said,
depends on external investment from unnamed institutions. The
company plans to continue its investment activity.