Autonomy founder Mike Lynch strikes back at US Air Force claims

7 Jan 2014

Mike Lynch, founder of software company Autonomy

The US Air Force has misunderstood international accounting rules, Autonomy founder Mike Lynch has said in response to accusations from the military service that the company manipulated its sales figures before being sold to HP.

The US Air Force is a user of Autonomy’s software, which enables the automated personalisation and categorisation of text sources.

The military service has raised the possibility of Lynch, five other executives, and two American resellers of being barred from federal contracts because American resellers booked revenues before any transaction took place, The Telegraph reported.

Autonomy allegedly booked US$11m in sales on a failed reseller deal from which it eventually received only US$500,000.

The US Air Force said when an outside auditor questioned the deal, Autonomy wired US$9.6m to the reseller for services, which subsequently wired US$9.6m back to Autonomy as outstanding receivables, the paper reported.

One of Autonomy’s US resellers was MicroTech. The Washington Post has obtained a letter to MicroTech, which contains the claims.

The US Air Force also wrote to Lynch in September, saying the alleged accounting improprieties by him and Autonomy were “sufficient to support your proposed debarment [from federal contracts]”, The Telegraph added.

In November 2012, one year after buying Autonomy for US$10bn, HP reported serious accounting improprieties were discovered at Autonomy, causing it to write-down US$8.8bn on its fourth-quarter and full-year 2012 results.

HP said in a statement it relied on the audited financial statements and the representations of Autonomy’s management and its auditors regarding Autonomy’s business and revenue.

Lynch, a native of Carrick-on-Suir in Ireland, has strongly denied any wrongdoing.

Lynch’s spokeswoman has said the allegations raised in the US Air Force’s letter showed a misunderstanding of international accounting rules and accused HP of “unsupported accusations, leaks and PR spin”, The Telegraph reported.

“Under American GAAP rules you can’t book the revenues before the reseller sells the product on to their customer, but under international rules you can because the reseller is the customer. That’s all that happened here,” she said.

Tina Costanza was a journalist and sub-editor at Silicon Republic