The jury in the fraud trial of Mike Lynch, co-founder of Autonomy, learned that the British technology company made deals worth millions of dollars through informal agreements where they paid customers to purchase their software.
Lynch, one of the founders and former CEO of Autonomy, has denied all allegations of committing 16 counts of wire fraud, securities fraud and conspiracy. He is facing charges of masterminding a large-scale fraud leading up to Hewlett-Packard’s acquisition of Autonomy in 2011.
Federal prosecutors in San Francisco have accused Autonomy of utilizing various deceptive practices to artificially boost its revenue during the criminal trial that began on Monday. These practices allegedly involved engaging in “round trip” deals where customers were given payments that they could then use to reimburse Autonomy for unrelated transactions.
In the beginning statements of the trial, assistant US attorney Adam Reeves presented a hypothetical scenario where a company gives a customer $110 with the anticipation of receiving $100 as a purchase. He then stated, “If you multiple that amount by ten, that is similar to what Autonomy was doing.”
The government contacted John Baiocco, a high-ranking member of Capax Global, a company in New Jersey that had collaborated with Autonomy. He recounted how Autonomy had proposed to “finance” the software purchases made by Capax in 2009.
Reeves inquired, “Is the seller of the software compensating the buyer?” Baiocco confirmed, explaining that it was a verbal agreement. According to his testimony, there were approximately 10 similar agreements, totaling millions of dollars.
Baiocco stated that Capax intended to charge Autonomy for services related to the purchased software. When asked if Capax had ever actually provided these services, Baiocco responded with a negative.
After receiving funds from Autonomy, Baiocco stated that Capax would promptly repay the UK software firm.
Prosecutors at the federal level claim that Autonomy engaged in tactics aimed at increasing revenue and promoting growth, which in turn impressed investors and ultimately captured the attention of HP.
Attorney Chris Morvillo, representing Lynch, stated that during his questioning by prosecutors, Baiocco failed to mention Lynch. Baiocco claimed to have only met with Lynch a few times.
Capax was also involved in selling Autonomy software to other businesses. During questioning by Morvillo, Baiocco stated that if a sale fell through, Autonomy had made informal agreements to assist Capax in finding another buyer for the software.
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When asked about the legality of Capax’s relationship with Autonomy and whether they still had to pay for the software if it didn’t work out, Baiocco confirmed that this was the case. Regarding a specific deal with McAfee that fell through, Baiocco stated that Capax used their own funds to pay for the software.
During Baiocco’s interrogation by the government, a former Autonomy executive, Steve Chamberlain, was brought up. Chamberlain, who served as the vice-president of finance at Autonomy, was directly involved with Baiocco. He is currently facing 15 charges for wire fraud and conspiracy, and has pleaded not guilty.
The attorneys representing Chamberlain presented emails that their client had sent to Baiocco in October, November, and December 2009 to inquire about the outstanding debts that Capax owed to Autonomy. Additionally, they displayed a message from Baiocco to another executive at Autonomy in which he expressed frustration about being “harassed” by Chamberlain.
Baiocco was the third individual to give evidence during the court case. The first two, Ganesh Vaidyanathan and Reena Prasad, were employees in Autonomy’s finance division in the United States. Prasad shared with the court that she and her manager were fired after reporting concerns about accounting misconduct.
The court proceedings will reconvene on the first day of the week.
Source: theguardian.com
