Good morning. The tragic superyacht accident last week that claimed the life of tech millionaire Mike Lynch, often referred to as the “British Bill Gates,” brings attention to a case highlighting the crucial role CFOs play in ethical accounting. The finance chief who managed Lynch’s company, Autonomy, recently completed a five-year U.S. prison sentence and was banned from the industry for nearly 15 years.
Autonomy, a software firm founded by Lynch in 1996, experienced a significant rise in value over 15 years, leading to its $11.7 billion acquisition by California-based Hewlett-Packard in 2011, as reported by Fortune. However, within a year of the acquisition, HP announced it had discovered “accounting improprieties” and “outright misrepresentations” that occurred before the purchase. HP subsequently wrote down Autonomy’s value by $8.8 billion. (Hewlett-Packard split in 2015 into HP Inc. and Hewlett-Packard Enterprises, both of which have since become more agile, focused, and successful, as noted by Fortune’s Diane Brady in CEO Daily.)
In ensuing legal battles, HP accused Lynch and his associates, including Autonomy’s former vice president for finance Stephen Keith Chamberlain and former CFO Sushovan Hussain, of using accounting maneuvers to inflate Autonomy’s value before the sale.
After years of litigation, Hussain was convicted of 16 counts of fraud in 2018. Between 2009 and 2011, he engaged in “backdated contracts, roundtrips, channel stuffing, and other forms of accounting fraud to inflate Autonomy’s publicly reported revenues,” according to the U.S. Attorney’s Office, Northern District of California. It was also determined that he presented Autonomy’s false and misleading financial statements to senior HP executives.
Last month, the Financial Reporting Council, a UK regulator for corporate governance, reporting, and audit, banned Hussain from practicing as an accountant until November 2038.
During the trial, Lynch claimed he was unaware of some of the wrongdoing attributed to him, stating that key decisions had been delegated to subordinates, and he also denied other allegations. In June, a San Francisco court found Lynch and Chamberlain not guilty of criminal charges. Both had faced the same 15 charges, including one count of conspiracy and 14 counts of wire fraud.
However, Lynch’s legal challenges were far from over, with a civil suit and potential U.K. investigations still looming. Last week, Chamberlain died after being struck by a car while jogging in Stretham, Cambridgeshire, the same week Lynch passed away. (You can find Fortune’s coverage of the yacht tragedy here.)
The decision to bar Hussain from practicing accounting recalls a conversation I had with Dan Lefler, partner emeritus at the Los Angeles law firm Irell & Manella LLP, about the importance of fraud risk management. Ultimately, the responsibility falls on the CFO. “At the end of the day, it’s the CFO, the controller, and those managing the company’s accounts who are responsible for ensuring things are done correctly,” he said.
“I believe most CFOs strive to do things the right way,” Lefler shared with me. “There are significant penalties for those who don’t.” The Autonomy case underscores this point.
