Beware Tech Tycoons with Piranha Tanks - with Katie Prescott

Summary

Cautionary Tales with Tim Harford
Episode: Beware Tech Tycoons with Piranha Tanks – with Katie Prescott
Date: May 1, 2026
Podcast by Pushkin Industries

---

Episode Overview

In this gripping episode of "Cautionary Tales," host Tim Harford explores the dramatic rise and catastrophic fall of Mike Lynch—the "Bill Gates of Britain," founder of the software company Autonomy. With tech journalist and author Katie Prescott, Harford dissects the intersection of innovation, ambition, and ethics in the world of software startups. Together, they unravel how Lynch's improbable journey from working-class roots led to a multi-billion-dollar deal with Hewlett Packard (HP), a global scandal, and a series of tragic events worthy of a modern cautionary fable.

---

Key Discussion Points & Insights

1. Mike Lynch’s Unlikely Rise (04:45–11:03)

• Background & Upbringing

  • Lynch was born to Irish immigrant parents: his mother was a nurse, his father a fireman.
    "He didn’t start wealthy...in a Britain which is still riven by class, Mike Lynch was the outlier."
    —Katie Prescott (05:00)
  • Was recognized as precociously smart, earning a scholarship to a private school at age 11.

• Early Interests & Cambridge Years

  • Passionate about computing and engineering; social and outgoing, not a stereotypical 'lonely geek.'
  • Started synth-building businesses and societies, including an electronics society and jazz band.
  • Entered Cambridge in 1983, during the early days of personal computing. Lynch specialized in signal processing and digitization of audio.
  • Transitioned from academia to entrepreneurship with Cambridge Neurodynamics, chosen for its “clever-sounding” name (09:05).

2. The Autonomy Story: Innovation and Culture (11:03–14:29)

• Breaking New Ground

  • Autonomy innovated in information retrieval, promising to find 'concepts' rather than just keywords—a precursor of what Google would later achieve.
  • Lynch regretted not turning Autonomy into a consumer-facing product like Google.
    “Lynch always said he regretted not selling it to the consumer market and not turning it into Google.”
    —Katie Prescott (11:03)

• Working at Autonomy

  • The company was known for a harsh, high-pressure culture, symbolized by a piranha tank in the lobby.
    "That was the tank that he would throw failing salespeople into" (12:26).
    Lynch was "a very hard taskmaster…deliberate cruelty," with stories of aggressive and bullying behavior (13:58).

3. Boom, Bust, and Bayes’ Probability (14:29–20:13)

• Market Success and Dotcom Bubble

  • Autonomy went public, briefly becoming a top-100 UK company during the dotcom boom despite revenue lagging behind sky-high valuations.
  • When the bubble burst, its valuation dropped, but the company's intrinsic value and technology remained.

• The Bayesian Approach

  • Lynch was obsessed with probability and Bayesian thinking, both in life and business decisions.
    "He’s constantly weighing up the odds…everything about Lynch’s life was completely improbable"
    —Katie Prescott (18:19)
  • Lynch was literally born with no fingerprints, a fact he joked made him a suitable criminal (18:49).

4. Financial Pressure and Questionable Practices (20:13–27:35)

• Public Company Pressures

  • Autonomy, listed on both the London Stock Exchange and NASDAQ, reported quarterly—unusual for a British company.
  • The need to meet market expectations grew as sales became harder, especially after 2008.

• Accounting Tricks and Tensions

  • To maintain attractive figures, Autonomy started blurring the lines between software and hardware revenue and used accounting maneuvers to nurse quarterly results.
  • Auditors (Deloitte) signed off on accounts despite later being fined for their failures.
    "The relationship was just too cozy with the company."
    —Katie Prescott (25:33)
  • Skeptical analysts were banned from meetings—a rare and hostile move (26:13).

5. The HP Acquisition and Aftermath (27:35–37:20)

• HP’s Desperation & Haste

  • HP, seeking to revitalize its image and revenue, rushed to buy Autonomy for $11.1 billion, finishing due diligence in just 18 days—“more akin to squeezing fruit at a market stall than a full-on dissection” (29:40).

• Culture Clash & Whistleblowing

  • Post-acquisition, relations soured. Lynch, unused to oversight, clashed with new HP management.
  • Whistleblower Joel Scott exposed accounting irregularities, sparking HP’s massive public write-down:
    “They were writing down their acquisition of Autonomy...$8 billion of an $11 billion acquisition was worthless.”
    —Katie Prescott (35:52)

6. Litigation and Tragedy (37:20–42:47)

• Legal Battles Across Continents

  • Parallel civil (UK) and criminal (US) cases unfolded. Lynch's associate, CFO Sushovan Hussain, was convicted and imprisoned in the US.
  • Lynch lost the civil case in the UK and was extradited to the US after Hussain’s imprisonment.

• The Jury Acquittal & Sudden Deaths

  • Against expectations, Lynch was acquitted in the criminal trial due to the higher burden of proof; same for VP of Accounting Stephen Chamberlain.
  • Tragedy struck immediately after: Chamberlain was fatally injured by a car, and Lynch, along with close colleagues and family, perished in a freak yachting accident during a celebratory trip.
    “Lynch and his daughter...all drowned.”
    —Katie Prescott (42:13)
  • Conspiracy theories abounded, but Prescott found no evidence beyond “tragic accidents.”

---

Notable Quotes & Moments

• On Company Culture:
  "He could be brutal, he could be very aggressive...deliberate cruelty. I think he enjoyed the power."
  —Katie Prescott (13:58)

• On HP’s Due Diligence:
  "You describe Hewlett Packard’s due diligence as much more akin to squeezing fruit at a market stall than a full-on dissection."
  —Tim Harford (29:40)

• Bayesian Humor:
  "He was born with no fingerprints. He slipped that one in."
  —Tim Harford and Katie Prescott (18:47)

• On the Real Lessons:
  "The one that jumps out for me overall is about pride…especially in the era that we’re in now of AI hype, which reminds me so much of the dot com boom and bust."
  —Katie Prescott (43:09)

---

Important Timestamps

• Autonomy’s Founding and Culture: 11:03–14:29
• Bayesian Thinking and Improbable Success: 17:02–20:13
• Accounting Tricks Exposed: 23:41–27:35
• HP Acquisition: 28:09–30:09
• Civil & Criminal Trials: 37:20–40:07
• Dramatic Ending – Deaths and Aftermath: 41:15–42:47
• Lessons and Takeaways: 43:09–44:11

---

Lessons & Reflections

• Pride drove many of Lynch’s questionable decisions and eventual downfall.
• Investor hype, lax due diligence, and tech startup culture are repeating patterns, both in the dotcom and AI eras.
• The tragic ending underscores life’s unpredictability—and cautions against hubris at the highest levels of business.

---

For further reading:
Katie Prescott's book, The Curious Case of Mike Lynch, and her works in The Times illuminate the detailed saga behind this cautionary tale.

Transcript

[Katie Prescott]

This is an iHeart podcast. Guaranteed Human Being A small business owner

[iHeart Advertising Voice]

isn't just a career, it's a calling.

[Tim Harford]

Chase for Business knows how much heart

[iHeart Advertising Voice]

and effort go into building something of your own.

[Katie Prescott]

Manage all your business finances, from banking to payments to credit cards, all in

[iHeart Advertising Voice]

one place with our digital tools.

[Katie Prescott]

Plus access online resources designed to help your business thrive.

[iHeart Advertising Voice]

Learn [e-mail] business chase for business make

[Katie Prescott]

more of what's yours the Chase Mobile app is available for select mobile devices. Message and data rates may apply JP Morgan Chase Bank NA Member FDIC Copyright 2026 JP Morgan Chase Co. Running for

[Tim Harford]

office means having something important to say. Radio is the most personal medium out there. Voters hear the real you exactly the way you want to be heard. No filters, no AI. Just your voice, your message. And it's 1/10 the time and cost of video. Don't just campaign. Connect with millions all over the country, even thousands in the smallest communities. With Rad be on the air in just 48 hours. Visit winwithiheart.com that's winwithiheart.com Save on Family Essentials at Safeway and Albertsons this week at Safeway and Albertsons, fresh cut cantaloupe, watermelon, pineapple or Melon Medley Bowls 24 ounces are $5 each and Wild Caught Lobster Tails are $4.99 each. Limit 8 member price, plus selected sizes and varieties of Doritos, Lays, Cheetos, SunChips and Kettle Cook Chips are $1.99 each. Limit for member price.

[Katie Prescott]

Hurry in.

[Tim Harford]

These deals won't last. Visit safewayoralbertsons.com for more deals and ways to save. Pushkin as always, London's Heathrow Airport is heaving Security queues shuffle forward. Exasperated parents trundle suitcases to the terminal with toddlers in tow. Excited friends gather in bars to toast the trip they're about to take. Through it all walks a heavy set, balding man in his late 50s. He's wearing a smart suit and open shirt. But this man is not on a business trip. The people walking politely alongside him, they're not colleagues. They're police officers. They guide him through the corridors of Britain's busiest airport and deliver him to their American counterparts. Here, civility ends. The US Guards promptly cuff his wrists, wrap chains around his waist and march the man who's more accustomed to champagne and private jets to the very back of the United Airlines plane. It's the 11 May 2023, and Britain's answer to Bill Gates is about to be extradited to the US on charges of fraud. Once the darling of the UK tech world, a member of the BBC's executive board and a government advisor, Mike lynch settles in for the 11 hour flight. As London disappears beneath him, he knows it will be a very long time before he sees Britain again. I'm Tim Harford and you're listening to Cautionary Tales. Mike lynch was the co founder and CEO of the UK's biggest software company, Autonomy, which he sold to the American hardware giant hewlett Packard for $11 billion in 2011. But Hewlett Packard quickly began to suspect something was awry at Autonomy. Soon legal battles raged on both sides of the Atlantic. Revealing shocking truths and incredible oversights. This story of a tech tycoon is a rags to riches tale, a business thriller and ultimately a tragedy. Here to tell us all about it is Katie Prescott. She's technology business editor at the Times and the author of the book the Curious Case of Mike Lynch. Katie, welcome to Cautionary Tales.

[Katie Prescott]

Hello. Good to talk to you.

[Tim Harford]

So we should talk about Mike Lynch's background first. Fabulously wealthy. At the time we pictured him walking through Heathrow Airport. But he, he didn't start wealthy.

[Katie Prescott]

No, quite the opposite. And actually, you know, in a, in a Britain which is still riven by class, Mike lynch was the outlier. So born to an Irish immigrant mother who was a nurse and a father who was a fireman, but also of Irish parentage, they moved to Essex when he was quite young and very early on they spotted that he was a super bright little boy and his mother put him forward for a scholarship at a private school when he was 11.

[Tim Harford]

Yeah, so he's, he's studying with a bunch of rich or at least upper middle class kids whose parents are paying, you know, large sums of money to send their kids to this school. But he's in on merit because he is incredibly sharp.

[Katie Prescott]

Yeah.

[Tim Harford]

And academically, where did his interest really shine? What was he doing at school?

[Katie Prescott]

He loved computing and he loved engineering. And I think unusually for a tech entrepreneur, he wasn't a lonely geek at all actually, far from it. He had lots and lots of friends and he led societies. So he started an electronic society, for example. He also started a jazz band. We like that because he loved playing the clarinet.

[Tim Harford]

And this would have been what, the late 70s, early 80s that he was starting these societies. So just as the personal computer revolution is beginning and people are getting their ZX81s or whatever, he's a teenager.

[Katie Prescott]

That's right. He said that there was the Place local to school that he used to go so he could gaze at a Commodore 64. It was an era where the kind of computing revolution was taking off and he was really enjoying that as a young boy.

[Tim Harford]

Yes, there was this sort of sense that you. Computers were things you could take apart and put back together again. You could use them, for example, to play music.

[Katie Prescott]

And that was his early business, actually, with a mate from school making synthesisers. So you could kind of muck about with music in a way that you couldn't before. That's really how he got into the business of tech.

[Tim Harford]

And then he goes to Cambridge. So this is presumably 1982. 1983.

[Katie Prescott]

1983. Yeah, that's right.

[Tim Harford]

So tell us about Cambridge and in the early 1980s and the connection to the tech industry. So I think a lot of people will picture these amazing Gothic chapels and these magnificent buildings and this is where Isaac Newton held court. But there was something else going on in Cambridge by the time Mike lynch showed up.

[Katie Prescott]

Yeah, it's an incredibly exciting time, I think, to be in Cambridge, if you loved computing. And the picture, you painter of tradition is absolutely right. Mike lynch went to Christ College, which is Charles Darwin's former establishment, and it's picture perfect with absolutely pristine lawns and that very famous sandstone coloured brickwork. But also there was the famous Cambridge Computing lab where people were putting together computers and experimenting in this new age, a bit like people are today with AI. Actually, I find the parallels really similar. And Mike lynch was really interested in something called signal processing. So this is kind of audio video technology. And he had a professor who really took him under his wing and convinced him to stay on and do a

[Tim Harford]

PhD and he was working on noise canceling headphones and.

[Katie Prescott]

And yes, exactly, all sorts of things like that. And they had project going on to digitize audio as well and sort of try and smooth out some of the crackles from old gramophone records.

[Tim Harford]

Yeah, he doesn't become an academic, he's more of a business person. Tell us about that.

[Katie Prescott]

He then started a company called Cambridge Neurodynamics.

[Tim Harford]

Must be clever because I got no idea what that means.

[Katie Prescott]

Well, that's exactly why they picked the name. It sounded clever and it sort of picked up on keywords at the time that were hot in the tech world.

[Tim Harford]

So this is the early 90s, before Google. But one of the products he works on for a while is the sort of thing that Google turned into a trillion dollar business.

[Katie Prescott]

People were trying to work out the best way of sifting through vast amounts of digital information. Mike lynch emerged with a company called Autonomy. And the business sifted through information rather than in a clunky keyword search kind of way by, as Mike lynch described it in marketing material, looking for concepts. When you're talking about corporations, which is where this software ended up being sold to, who've just got huge amounts of information, it seemed like a real magic bullet.

[Tim Harford]

It was a huge thing. I mean those of us who are old enough to remember the world before Google, but after the World Wide Web. So these few years of there's a lot of stuff on any computer with an Internet connection, but there's no way to find it. And so we used to swap notes about, well, how do you, how do you search for a thing? And so. Oh well. So one idea is if there's something, there's a particular expert in the field, you might search for that expert's name. And then web pages which have that expert's name, which is going to be unusual, those web pages will probably be relevant to what you're looking for. That's that sort of kind of hack. Rather than just as we would do today to go to Google or to go to an AI and just say, oh, I'm just looking for this sort of stuff and it will just find you. We take it for granted that this stuff will be found. But it is an incredibly difficult problem and a problem that Google turned into a trillion dollar business. But lynch was on it before Google even existed.

[Katie Prescott]

It's very hard in today's age to understand quite how novel this was. Lynch always said he regretted not selling it to the consumer market and not turning it into Google.

[Tim Harford]

But instead, so Autonomy, so it's not Google, it's not doing consumer directed web search. So what sort of search and what sort of information retrieval is it doing and who is paying for it?

[Katie Prescott]

All sorts of enormous corporations in the end, as well as organizations within governments around the world. So rather than finding information in neat databases, it would look through your emails, voicemails, things like Word documents, this kind of enormous trove of information that corporations create. Yeah, and that's who he was selling it to. Which made sense as a market at the time because it seemed incredible.

[Tim Harford]

They've got the money, right?

[Katie Prescott]

Very lucrative and a more obvious place to sell something to than the consumer market.

[Tim Harford]

So Autonomy, Mike Lynch's company in the late 1990s is jumping into this space where there's this opportunity because corporations have started generating enormous amounts of digital information that is unstructured. There's no way to make any sense of the stuff, and Autonomy does that, and it's a very successful company. So what was it like to work at Autonomy?

[Katie Prescott]

I think what sums up the atmosphere was the piranha tank in reception, not something you. Not something you often see in the round L of the Autonomy logo. And lynch used to joke that that was the tank that he would throw failing salespeople into.

[Tim Harford]

Charming.

[Katie Prescott]

It was a very, very difficult place to work. Mike lynch was a very hard taskmaster. He could be brutal, he could be very aggressive. And I'm afraid I heard very early on from researching the book some real horror stories about how people were treated within Autonomy and think, because the tech world in Britain is very small, much, much smaller at that time, leaked out very quickly and it got Mike Lynch a certain reputation.

[Tim Harford]

When you say a certain reputation, I mean, all kinds of things go on in companies that we could describe as horrible. But what was he actually doing?

[Katie Prescott]

There was one woman who worked in the marketing team who he thought wasn't working hard enough, and he would yell at her repeatedly. And after an incident when he saw her and some colleagues mocking him for his James Bond obsession, because he loved James Bond and he named all of the meeting rooms after James Bond villains, He put her desk first inside his office and then just outside so he could look over her shoulder the whole time and see what she was doing. There were tons and tons of examples of people being fired at will. Yeah, People were very scared of him.

[Tim Harford]

Yeah. So very demanding, cruel, mean, angry, bullying.

[Katie Prescott]

And I think, I'm afraid it was deliberate cruelty. Yeah, I think he enjoyed the power. He had a tiny team around him and I got the impression they were like his henchmen.

[Tim Harford]

Yeah.

[Katie Prescott]

And that's how the company was run.

[Tim Harford]

Right. So how does it do financially? Because it grew very fast and it was floated on the London stock market and became a FTSE 100 company. So this is one of the hundred biggest companies listed on the London Stock Exchange. So that sounds good.

[Katie Prescott]

It does. I mean, I think we have to be very careful here. It certainly benefited from the dot com boom. It actually had a very innovative software product. However, at the time that it went into the FTSE 100, that's because its valuation, so what shareholders, investors thought it was worth was way above the money that it was actually making.

[Tim Harford]

People were very, very excited.

[Katie Prescott]

I think it was making something like £44 million a year and it was valued at £4 billion because people were very excited about its future prospects. And we're seeing that similar valuation difference in AI. Businesses today. So, yes, it was doing well for a startup, but its revenue certainly didn't match up to its valuation and it very quickly actually fell out of the FTSE 100 when the dot com bust happened.

[Tim Harford]

I would love to talk about the bust, but let us do that after the break.

[iHeart Advertising Voice]

Run a business and not thinking about podcasting. Think again. More Americans listen to podcasts than ad supported streaming music from Spotify and Pandora. And as the number one podcaster, iHeart's twice as large as the next two combined. So whatever your customers are into true crime, sports, comedy, culture, they'll hear your message. Plus, only iHeart can extend your message to audiences across broadcast radio. And all this reach means everything. Just think about the universal marketing formula. The number of consumers who hear your message times the response rate equals the results. Now let's get those results growing for you. Think podcasting can help your business. Think iHeart. Streaming radio and podcasting. Let us show you at iHeartAdvertising.com that's iHeartAdvertising.com or call 844-844 iHeart. One more time, call 844-844-IHeart and get podcasting working for you. Run a business and not thinking about podcasting. Think again. More Americans listen to podcasts than ad supported streaming music from Spotify and Pandora. And as the number one podcaster, iHeart's twice as large as the next two combined. So whatever your customers listen to, they'll hear your message. Plus, only iHeart can extend your message to audiences across broadcast radio. Think podcasting can help your business. Think iHeart, streaming radio and podcasting. Let us show [e-mail] that's iheartadvertising.com

[Tim Harford]

we are back and I am talking to Katie Prescott, the author of the Curious Case of Mike Lynch. Katie, we promised to talk about the dot com boom and bust. Before we do, we should probably introduce a new character, and that is the Reverend Thomas Bayes. Lynch was obsessed with him. So what did he do and why was it relevant to Mike Lynch?

[Katie Prescott]

He was an early academic in the field of probability. He came up with this concept that sounds very simple, that what has gone before informs the probability of something happening.

[Tim Harford]

Yeah.

[Katie Prescott]

So if you walked into a room where people had Covid, it is more likely that you would come out of it with COVID and Lynch, like, embrace this both as part of his business, but he also, I would say, mainly used it to inform his philosophy of life.

[Tim Harford]

Right.

[Katie Prescott]

So he was constantly weighing up the odds of things happening and his teams were very used to him saying, I put 20% on that, 80% on that. If he was hiring someone, he'd say, okay, who are they? Like that we know.

[Tim Harford]

Yes.

[Katie Prescott]

Just trying to work out the odds of things happening. And one of the things that struck me in writing this book is that everything about Lynch's life was completely improbable. And the working title of the book was actually Improbable Odds. Yeah, because it's so unlikely that someone from his background would go to private school, would go to Cambridge. He was born with no fingerprints. Most startups fail. I don't know. There are just. There are so many improbable things.

[Tim Harford]

He was born with no fingerprints. He slipped that one in.

[Katie Prescott]

He was born with no fingerprints.

[Tim Harford]

Wow. He really is a Bond villain. Okay.

[Katie Prescott]

Yeah. And that was part of the joke he used to say to analysts in the City, look, I've got no fingerprints. I'd make a brilliant criminal.

[Tim Harford]

So he's this brilliant guy, he's a bully. He has set up this business, he's launched it on the stock market. So tell us then about what happened when Autonomy ran into the dot com bust.

[Katie Prescott]

Lynch was only 30 at this point, running a startup out of a co working space in Cambridge. And it went from FTSE 100 company to. And you can see the share price plummeting. And lynch really wanted to work to get that share price up again. Now, on one level, it was still doing well and still making the sales that it was. And its technology was still valued. Just because it had dropped out of the list of shares, hadn't changed what it was doing.

[Tim Harford]

I mean, it's worth being clear, the reason it was a FTSE 100 company was because it was valued by investors very highly. And the reason it was valued by investors very highly was not because it was making enormous profits, it was because they were very optimistic about its future prospects. So when they become less optimistic about all these tech companies, it drops out of the FTSE 100.

[Katie Prescott]

But it's not because it's doing anything wrong.

[Tim Harford]

Yeah, it's not done anything wrong.

[Katie Prescott]

All the big tech companies did drop at that point, even the likes of Microsoft. This is the first time that lynch faced the reality of running a public business. You've got the glory of being in the FTSE 100 of being the young cool guy in Britain's tech scene during the dot com boom. But then during the bust, actually, you've got the pain of trying to convince the press and trying to convince people in the City who are Scrutinizing your company and telling investors whether they should put their money into it. You've got the pain of really trying to get them on board. And he really hated criticism, especially when it came to Autonomy. He had very, very thin skin.

[Tim Harford]

He is subject to a level of scrutiny that he's not used to. He doesn't like it. And he wants to prove that Autonomy is for real. There's a certain pressure to make the numbers do what Mike lynch wants them to do at this point.

[Katie Prescott]

So every quarter, Autonomy would publish their results publicly.

[Tim Harford]

This is what we sold. This is what it cost.

[Katie Prescott]

Exactly right.

[Tim Harford]

This is how much money we made.

[Katie Prescott]

And kind of unusual for a British company because reporting every six months here is more normal. But Autonomy had been listed on the Nasdaq and Lynch always wanted to make parallels with his company and the very successful tech businesses in the U.S. so he was forced every three months, or he had chosen every three months to

[Tim Harford]

publish their results as a condition of NASDAQ listing.

[Katie Prescott]

So he had to not only keep up with the forecasts or the predictions that Autonomy made about their expectations for their sales, but, but also the predictions that would be made by City analysts in London who were making their own predictions. And really that set a target every three months to hit. And when Autonomy didn't hit that target, its share price would fall.

[Tim Harford]

Yeah, he didn't want that to happen

[Katie Prescott]

and he didn't want that to happen. If you fast forward towards the financial crisis of 2008, companies stopped buying software in the way they had done because budgets were squeezed, understandably. But to continue hitting those targets, Autonomy, which had always prided itself and boasted about being a pure software company, started selling hardware and reselling other people's hardware from companies like Dell. So things like keyboards and laptops, Very basic things. Yeah, mice.

[Tim Harford]

That doesn't sound like a high margin business.

[Katie Prescott]

Well, no, and that's the problem, because analysts in the City and investors liked Autonomy's pure software model because it had an enormous margin, because you're not paying to manufacture something physical. When you're selling software, it's the dream. You create some IP and then you can just ping it around. And so your margins are massive. But clearly when you're reselling hardware that you've bought from somebody else, that's very different. And Autonomy bundled all these sales into one set of numbers and still told investors that they were a pure software business. But actually a chunk of those sales in one quarter, the biggest time that this happened, 20% of those sales came from reselling hardware.

[Tim Harford]

Yeah. Just explain to me, in a nutshell, what were Mike lynch and his team doing to make Autonomy's numbers look better?

[Katie Prescott]

So they were essentially wrapping the sales of more expensive hardware into their software sales and. And putting expenses that came from that in the marketing budget.

[Tim Harford]

Yeah.

[Katie Prescott]

So moving numbers around, around the accounts. They were clocking sales on their books before they'd actually happened by using resellers, which are very common in the software industry, but they should really have had a deal signed before they passed it on to the reseller. And so that created holes in the accounts every quarter that they struggled to fill.

[Tim Harford]

Yeah.

[Katie Prescott]

And then also they were writing down sales as sales to original equipment manufacturers, or OEMs. So they'd say, we're putting Autonomy software in Dell, but they were calling all sorts of companies OEMs, including Tottenham Hotspur football club.

[Tim Harford]

Yes.

[Katie Prescott]

Lynch used to describe it as the pina colada model. He'd sell to an oem and then you could sit back on the beach with your cocktail while someone else sold it for you.

[Tim Harford]

And I'm curious, Autonomy had auditors, professional accountants, independent, coming and looking at their accounts. What were the auditors doing?

[Katie Prescott]

The auditors were signing off the accounts behind the scenes. There were often questions about how things were being registered as sales. The auditors, Deloitte, were later fined over the Autonomy accounts. There was an extraordinary investigation by the accounting watchdog into how they handled them, which essentially found that Deloitte Cambridge, which was a branch of the main Deloitte office in London, bear in mind, they're one of the top four accountants, wanted to keep its relationship with Autonomy. It was its only FTSE 100 customer.

[Tim Harford]

Keep the customer satisfied.

[Katie Prescott]

They wanted to keep the customer satisfied. And the relationship was just too cozy with the company.

[Tim Harford]

And so people looking at these numbers are just going to fundamentally misunderstand what is actually going on inside the company.

[Katie Prescott]

Yes. And there was one particular analyst in the City, a chap called Daud Khan, who wrote a rather negative note about lynch and this sparked a very bizarre reaction. He ended up banning Daud Khan from Autonomy's meetings, from their results meetings. So normally they'd announce their results, they'd invite everybody in and analysts would be able to ask questions. And he said, you're not. You're not allowed to come.

[Tim Harford]

This is the equivalent of the White House saying, we don't want a reporter showing up to the presidential briefings because we don't like the way you write your news, that it's a similar sort of energy.

[Katie Prescott]

Yes, it was. It was very Strange. And a little group formed, of course, quite maverick analysts in the city who started to question Autonomy's numbers and be quite vociferous about it.

[Tim Harford]

So they're cutting various corners in terms of their accounts. Did they need to do this? Was it existential that basically they were. They were just going to run out of money or run out of funding if they hadn't stepped across the line occasionally? Or was this entirely Mike Lynch's vanity?

[Katie Prescott]

I think there were definitely problems with the technology. They weren't investing enough in research and development. And there were very serious competitors. Google had created a version of the technology that was much, much cheaper, but they were still selling it. And actually, there are some bar charts in the book which show how much they inflated the revenue each quarter. And you're not talking about enormous sums. They probably could have kept going and actually probably pivoted to other sorts of technology. So lynch was very, very early to the cloud. Yeah, but he was so very proud.

[Tim Harford]

Well, he had a lot to be proud about. So he'd created this very successful company. He's a pillar of society. He's being celebrated as a tech genius. He has an OBE kind of medal given to him by the Queen. He's a fellow of the Royal Society of Engineering. He's on the executive board of the BBC. He's an advisor to the British government. Government, all of these great things. Then he is approached by Hewlett Packard, who want to buy his company Autonomy. What were they hoping to gain?

[Katie Prescott]

It's probably worth turning and having a look at the state that Hewlett Packard was in at the time, which was not brilliant. They'd cycled through a number of chief executives, they'd made a number of acquisitions for many billions of dollars which had failed.

[Tim Harford]

And they're famous for making hardware, so most. Most famously printers, but you know, they make computers.

[Katie Prescott]

Exactly. And at a time when the new cohort of tech companies were coming through, Hewlett Packard felt like a dinosaur in Silicon Valley.

[Tim Harford]

Yeah.

[Katie Prescott]

And they got a new boss, a guy called Leo Apotica from the software industry. So his big vision was, okay, we're going to find a really interesting, innovative software business to bolt on to Hewlett Packard's massive customer base, and it'll be a winner. And then came across Autonomy.

[Tim Harford]

Leo Apotheca is convinced that this is a brilliant idea. Did everyone at Hewlett Packard think that Autonomy is a steal of $11 billion?

[Katie Prescott]

Whatever it was, certainly his advisors, the various banks and consultants that he was talking to were very positive. In fact, they even encouraged him to.

[Tim Harford]

They're on a percentage, Right. They're on commission. If they, if they.

[Katie Prescott]

Of course they are.

[Tim Harford]

Shepherd this deal through.

[Katie Prescott]

They encouraged him to do the deal quickly.

[Tim Harford]

Because someone else might buy it.

[Katie Prescott]

Because somebody else might buy it. Yeah, that's right. And that ended up being a massive problem for everyone.

[Tim Harford]

Yes, there's. You have a beautiful description of this in your book. You describe Hewlett Packard's due diligence as much as more akin to squeezing fruit at a market stall than a full on dissection. I love this idea of them just saying. Yeah, seems about right.

[Katie Prescott]

Felt like the obvious analogy because they only spent 18 days on their due diligence.

[Tim Harford]

Yeah. And they're spending $11 billion.

[Katie Prescott]

You would spend far more time than that buying a house or, I don't know, probably buying lots of money, making lots of major purchases.

[Tim Harford]

Should Hewlett Packard have been a little bit more wary? We will find out after the break.

[iHeart Advertising Voice]

Run a business and not thinking about radio. Think again. Because more people are listening to the radio on iHeart today than they were 20 years ago. And only iHeart broadcast radio connects with more Americans than TV, TV, digital, social, any other media, even twice as many teens than TikTok. And that reach means everything. Just think about the universal marketing formula. The number of consumers who hear your message times the response rate equals the results. Now let's get those results growing for your business. Radio's here now more than ever. And iheart's leading the way. Think radio can help your business. Think iheard, streaming, podcasting and radio where the reach is real. Let us show [e-mail] that's iheartadvertising.com or call 844-844 iheart one more time. Just call 844-844, iheart and get radio working for you. Run a business and not thinking about podcasting, Think again. More Americans listen to podcasts than ad supported streaming music from Spotify and Pandora. And as the one, iheart's twice as large as the next two combined. So whatever your customers listen to, they'll hear your message. Plus, only iHeart can extend your message to audiences across broadcast radio. Think podcasting can help your business? Think iHeart streaming radio and podcasting. Call 844-844-iHeart to get started. That's 844-844-iheart.

[Katie Prescott]

If the world were like a sleep number mattress, everything would adapt for your comfort. Because as your life changes and your body changes, sleep number mattresses adapt and Shift to give you personalized comfort night after night. And now everything's on sale during our Memorial Day event. Save up to $1,200 on mattresses for a limited time. To experience a whole new world of comfort, visit a Sleep Number store or go to sleepnumber.com sleep number to a good life Sleep.

[Tim Harford]

We're back, and I'm speaking to Katie Prescott, the author of the Curious Case of Mike Lynch. So, Katie, the computer giant Hewlett Packard has just agreed to buy autonomy for $11.1 billion. After giving it a quick squeeze and saying, it seems about right. That did not last very long. The honeymoon was pretty brief.

[Katie Prescott]

It blew up so quickly. So the CEO who'd been in charge of the acquisition was fired almost immediately after it happened.

[Tim Harford]

Yeah. So. So lynch is still working for Hewlett Packard now, right?

[Katie Prescott]

Exactly. So he is working for Hewlett Packard, along with many of the Autonomy team. And his new boss is a lady called Meg Whitman, the latest in a long line of HP CEOs and was presented with Autonomy as, you know, one of various headaches to deal with. And I don't think she'd been a massive supporter of the deal. And various others also on the board got cold feet almost as soon as it had happened. So it was a difficult situation for lynch to be in. But I also think he was not a man who was used to having a boss. He'd been his own boss from the very start.

[Tim Harford]

Yeah.

[Katie Prescott]

He said that Autonomy was treated like an unwanted stepchild within Hewlett Packard.

[Tim Harford]

Yeah.

[Katie Prescott]

That they weren't welcomed. They were setting him up to fail. Yeah, was his argument. On the flip side, I think HP not only regretted buying Autonomy after a series of previous failed acquisitions, but also was starting to realize that the company had some quite serious problems. And they became quite alarmed by some of the stories that they heard about how it was running.

[Tim Harford]

And are these stories about the accounting irregularities or are these stories about Mike lynch the bully?

[Katie Prescott]

Started off about Mike lynch the bully, and then there was a showdown between Meg Whitman and Mike lynch when Autonomy failed spectacularly to meet its sales numbers. And he didn't tell her about it in advance. And Whitman said, this is completely unacceptable. This isn't how you run a company.

[Tim Harford]

So she said, it's unacceptable and you need to shape up or it's unacceptable and you're out.

[Katie Prescott]

You're out.

[Tim Harford]

Right.

[Katie Prescott]

She fired him.

[Tim Harford]

But that is not the end of the. Of the saga with Hewlett Packard. And Mike Lynch.

[Katie Prescott]

A whistleblower stepped forward from within Autonomy. So you've got the Autonomy team that's been absorbed by hp. And one of them, a chap called Joel Scott, went to speak to Hewlett Packard's chief lawyer about the accounting and that sparked an investigation.

[Tim Harford]

And then what?

[Katie Prescott]

As the company becomes more deeply absorbed into HP, it became obvious that things weren't right. But in November 2012, Hewlett Packard came out and said that they were writing down their acquisition of Autonomy. So they were saying that a whole chunk of money, $8 billion of an $11 billion acquisition, was worthless. Essentially.

[Tim Harford]

Basically, we bought this company for 11 billion. We should have paid 3 billion.

[Katie Prescott]

Oops.

[Tim Harford]

Yeah, oops.

[Katie Prescott]

And they then said that they were accusing Mike lynch and his team of fraud. It was such a big deal at the time that they actually called number 10. They called the Prime Minister's office in Britain before they told Mike lynch, because they knew it would cause such a spectacular transatlantic shock to accuse one of Britain's biggest companies of fraud.

[Tim Harford]

So it was a shock. How did the fraud case proceed?

[Katie Prescott]

Mr. Justice Hildyard, the judge in the British case, who I think has more extensively than anyone on this planet gone through Autonomy's accounts and what happened at Hewlett Packard actually said that HP brought the claim almost before they had all the information. They decided that there was fraud at Autonomy. They were hearing that from various quarters. They'd found some anomalies in the accounts, but they went hell for leather after lynch without any proper analysis to support it. Yeah, which is fascinating, but their shareholders actually sued Hewlett Packard over the acquisition and I suspect that was one impetus for them to really go after Mike lynch and as well his cfo, Sir Shivan Hussain, who they accused of conning them, essentially, that you made your numbers look brilliant, much better than they were to make yourself look more attractive, so we would buy you.

[Tim Harford]

We heard he gets extradited to the us. Is he first facing trial in the uk?

[Katie Prescott]

Yes, it's a real tangle of litigation here. So there was an enormous, incredibly complex trial in the UK, which started properly in 2015. So that's when the civil case was brought in London, when HP sued Mike lynch and his CFO Susan Hussain. While that was going on, Susbahn Hussain faced trial in the us, accused of fraud by the Department of Justice. So sitting in front of a jury in California, and he was found guilty and then he was sent to prison with a five year sentence.

[Tim Harford]

Yeah. Right.

[Katie Prescott]

So you've got these two massive, massive cases kind of going on almost simultaneously.

[Tim Harford]

At what point does lynch start to be facing down the risk of prison.

[Katie Prescott]

When Sushivan Hussain, who is his number two, was sent to prison, he started to take the whole thing very seriously and started to worry about his future. He resisted extradition and there was a lot of anticipation about the verdict in the civil case. Once that came and the judge categorically found for Hewlett Packard, Priti Patel, who was the Home Secretary in the UK and responsible for the extradition, signed the warrant to say that he could be sent to America to face trial there.

[Tim Harford]

Right, so you've had his number two sent to prison, he's lost the civil case, and then we're at Heathrow Airport and he's having cuffs put on him and a chain wrapped around him and he's flying at the back of the plane, which is not where he's used to flying to the States. But then what?

[Katie Prescott]

He landed in San Francisco, actually expecting to spend most of the time preparing for his trial in New York with his lawyers. The judge said, I think you're a flight risk, you're not allowed to leave San Francisco. So in a rush, his lawyers had to find him somewhere to live and some armed security guards who would be willing to shoot him if he ran away. So the two are actually quite incompatible. It's quite hard to find someone to rent you a house, as it turns out, if you're happy to have men with guns there as well.

[Tim Harford]

Very in line with the Bond movie, though.

[Katie Prescott]

Yes, absolutely. And then his trial eventually started in early 2024 and it felt like the

[Tim Harford]

outcome was very obvious, given everything that we'd heard. The Bayesian in us would say he hasn't got a chance. So why did he walk free?

[Katie Prescott]

Well, it's another probability question. I think in a criminal jury trial you need to find someone guilty beyond reasonable doubt, whereas in a civil trial it's on the balance of probabilities.

[Tim Harford]

Right. So implicitly, he probably committed fraud, but we are not sufficiently confident to deprive him of his liberty. At the same time that lynch walked free, another senior Autonomy executive was also exonerated.

[Katie Prescott]

Yes. So Stephen Chamberlain was Vice President of Accounting at Autonomy in Cambridge, and he was a very popular guy amongst his team and in his local community. He'd also been staying in San Francisco for the duration of the trial. But unlike lynch, who'd been under house arrest in an enormous mansion, Chamberlain had rented a one bedroom Airbnb.

[Tim Harford]

Can you hire the security guard on Airbnb as well?

[Katie Prescott]

He didn't need one because he didn't fight extradition so he was never seen as a flight risk. So the two men were in extremely different positions and their lives got. Got tied together by this trial.

[Tim Harford]

Yeah. And at this point, if this was a conventional Hollywood movie, Lynch and Chamberlain would, would sail off into the sunset to enjoy their freedom. But that is not what happened.

[Katie Prescott]

Mike lynch took his family and Chris Mavillo, actually his lead lawyer, and Jonathan Bloomer, who'd been the chair of his audit committee at Autonomy, on holiday, along with a number of other lawyers to celebrate that acquittal, to celebrate winning the case. And it was the last day of their holiday when they heard that Stephen Chamberlain, his co defendant, had been hit by a car while he was out running in Cambridgeshire and was on a life support machine in hospital.

[Tim Harford]

And he did not survive.

[Katie Prescott]

He didn't survive. And later that night, Lynch's yacht, which was called the Bajan, was hit by a freak storm and knocked over in 15 seconds. And lynch and his daughter, Chris Mavillo and his wife and Jonathan Bloomer and Judy Blumer and the chef on board as well, Ricardo Thomas, all drowned.

[Tim Harford]

It's really incredible. Immediately after this dramatic victory, all of these people are killed. The conspiracy theorists, of course, have had a field day.

[Katie Prescott]

They have, and I'm sorry to say I haven't found anything that stands up any idea that the U.S. department of justice or that Hewlett Packard or any of the other big players in this story are responsible for this at all. It seems these were both just tragic accidents. It's extraordinary and it's certainly not the ending of the book that I thought I was going to write on Cautionary

[Tim Harford]

Tales, we, we try to learn lessons from what's happened. And some of what you've told us, Katie, is so extraordinary, so unique that I think there are no lessons to be learned. But some of it is, is strangely familiar. So if you were drawing lessons, what, what lessons would you draw?

[Katie Prescott]

I'm glad you said that because I agree with you. I think it's very hard to generalize about this story because it's so absolutely extraordinary. But the one that jumps out for me overall is about pride. You know, the judge in the civil case. And I think this goes back to your point about why there was ever any need to inflate the sales figures. The pride that caused Mike Lynch, I think, to fight with people and to trample over relationships which caused so many problems, so many unnecessary problems. And especially in the era that we're in now of AI hype, which reminds me so much of the dot com boom and bust. I think there are lessons for this new cohort of startup entrepreneurs coming through about how to navigate this wild world.

[Tim Harford]

Katie, thank you so much for talking to Cautionary Tales. You can get Katie's book, the Curious Case of Mike lynch, wherever you buy books. And of course, you can also read Katie Prescott's work in the Times newspaper where she is the technology business editor. Thank you, Katie.

[Katie Prescott]

Thanks for having me.

[Tim Harford]

Cautionary Tales is written by me, Tim Harford with Andrew Wright, Alice Fiennes and Ryan Dilley. It's produced by Georgia Mills and Marilyn Rust. The sound design and original music are the work of Pascal Wise, additional sound design by Carlos San Juan at Brainaudio and Dan Jackson. Ben Nadaff Hafrid edited the scripts. The show also wouldn't have been possible without the work of Jacob Weisberg, Greta Cohn, Eric Sandler, Carrie Brodie, Christina Sullivan, Keira Posey and Owen Miller. Cautionary Tales is a production of Pushkin Industries. If you like the show, please remember to share, rate and review. It really does make a difference to us. And if you want to hear it ad free and receive a bonus audio episode, video episode and members only newsletter every month, why not join the Cautionary Club? To sign up, head to patreon.com cautionaryclub that's patreon P-A-T-R-E-O-N.com cautionaryclub.

[Katie Prescott]

This is an iHeart podcast. Guaranteed Human.