Good morning. The superyacht tragedy last week that took the life of Mike Lynch , a tech millionaire known as the “British Bill Gates,” puts a spotlight on a case that underscores the important role of CFOs in ethical accounting. The finance chief who ran Lynch's firm Autonomy recently finished serving a five-year U.S. prison sentence and was banned from the industry for almost 15 years.
Autonomy is a software firm that Lynch founded in 1996. The company soared in valuation in the 15 years following its creation, leading to its acquisition by California-based Hewlett-Packard for $11.7 billion in 2011, Fortune reported . Within a year of the acquisition, HP said it had uncovered "accounting improprieties” and "outright misrepresentations" that occurred before it acquired Autonomy. HP wrote down the value of Autonomy by $8.8 billion. (Hewlett Packard split in 2015 into HP Inc. and Hewlett-Packard Enterprises, “both of which have become nimbler, more focused, and more successful companies,” Fortune ’s Diane Brady writes in CEO Daily .)
In a legal battle, HP argued that Lynch and his allies, Autonomy’s former vice president for finance Stephen Keith Chamberlain and former CFO Sushovan Hussain, had used accounting tricks to inflate Autonomy’s value before its sale.
After years of litigation, Hussain was found guilty of 16 counts of fraud in 2018. From 2009 to 2011, he used “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. And it was determined that he touted Autonomy’s false and misleading financial statements to senior executives at HP.
Last month, the Financial Reporting Council, a UK regulator for corporate governance, reporting, and audit, banned Hussain from being an accountant until November 2038.
During the trial, Lynch said he was not aware of some of the wrongdoing attributed to him. Key decisions were delegated to subordinates, he said, and also denied other allegations. In June, a court in San Francisco found Lynch and Chamberlain not guilty of criminal charges . They both had faced the same 15 charges, which were one count of conspiracy and 14 counts of wire fraud.
However, Lynch’s legal troubles were not over—there was the civil suit, and possibly U.K. investigations. Last week, Chamberlain died after being hit by a car while running in Stretham, Cambridgeshire, the same week Lynch perished. (You can read Fortune ’s coverage of the yacht tragedy here .)
The decision to bar Hussain from practicing accounting brings to mind a previous conversation I had with Dan Lefler, a partner emeritus at the Los Angeles law firm Irell & Manella LLP, about the fraud risk management process. The buck seemingly stops with the CFO. “At the end of the day, it’s the CFO, and the controller and the people that are actually handling the company’s accounts that you rely on to make sure that they do things right,” he said.
“I do think most CFOs try to do things right,” Lefler told me . “There are a lot of penalties in place for people if they get things wrong.” The Autonomy case makes that especially clear.
Sheryl Estrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna
This story was originally featured on Fortune.com
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