At the trial for fraud of Mike Lynch, co-founder of British tech company Autonomy, the jury has been informed that the company made deals worth millions of dollars by paying customers to purchase their software through informal “handshake” agreements.
Lynch, the co-founder and former CEO of Autonomy, has entered a not guilty plea to 16 charges of wire fraud, securities fraud, and conspiracy. He is being accused of masterminding a large-scale fraud prior to the acquisition of Autonomy by Hewlett-Packard in 2011.
During the beginning of his trial in San Francisco on Monday, federal prosecutors have accused Autonomy of utilizing various deceptive accounting techniques to artificially increase their revenue growth. These tactics involved what is known as “round trip” deals, where customers received funds to then pay Autonomy back in seemingly unrelated transactions.
The assistant US attorney, Adam Reeves, utilized a theoretical scenario during the trial’s initial statements. He illustrated a situation where a company paid a customer $110 with the belief that they would receive a reimbursement of $100 in the form of a purchase. “If you increase the numbers,” he explained, “that is essentially what Autonomy was engaging in.”
On Thursday, the government contacted John Baiocco, an executive at Capax Global, a company based in New Jersey that had partnered with Autonomy. He recounted how Autonomy had proposed to “finance” Capax’s acquisitions of its software, beginning in 2009.
Reeves asked, “Is the seller of the software giving payment to the buyer of the software?” Baiocco confirmed, saying it was agreed upon with a handshake. He testified that there were approximately 10 of these types of deals, totaling millions of dollars.
Capax would invoice Autonomy for providing “services” related to the purchased software, according to Baiocco. When questioned about whether Capax actually carried out these services at any point, Baiocco responded with a negative answer.
Baiocco stated that upon receiving funds from Autonomy, Capax would promptly turn around and reimburse the UK software company within a day.
Federal attorneys contend that Autonomy employed these tactics in order to inflate its income and expand its progress, leading to favorable impressions from investors and, eventually, HP.
Chris Morvillo, who serves as Lynch’s attorney, pointed out that during questioning by prosecutors, Baiocco did not mention Lynch. Baiocco stated that he had only met Lynch “a time or two.”
Capax also distributed Autonomy software to other corporations. During questioning by Morvillo, Baiocco testified that Autonomy had made verbal agreements with Capax to assist in the sale of the software to a different company if a previous purchase did not go through.
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Inquired about the ongoing legal obligations with Autonomy, Baiocco confirmed that Capax would still have to pay for the software even if a sale to another company was unsuccessful. When the deal with McAfee fell through, Baiocco stated that Capax covered the cost of the software using their own funds.
During Baiocco’s interrogation by the government, a previous Autonomy employee named Steve Chamberlain, who worked closely with him, was brought up. Chamberlain, also a defendant alongside Lynch, formerly held the position of vice-president of finance at Autonomy and has denied 15 charges of wire fraud and conspiracy.
Attorneys representing Chamberlain presented emails from their client inquiring about the outstanding balances owed by Capax to Autonomy in October, November, and December 2009. Additionally, they provided a message from Baiocco to a different Autonomy executive expressing frustration over being “harassed” by Chamberlain.
Baiocco gave testimony as the third witness during the trial. Prior to her, Ganesh Vaidyanathan and Reena Prasad, both employees in Autonomy’s US finance department, had also testified. Prasad explained to the court that she and her manager were terminated for bringing attention to inconsistencies in accounting practices.
The trial will start again on Monday.
Source: theguardian.com
