Mike Lynch, the billionaire founder of UK software group Autonomy, has used around $50mn worth of shares in British cyber security group Darktrace to pay for his bail as he awaits trial for fraud in the US.
The British entrepreneur, who was extradited to the US earlier this month, has posted around 14.6mn shares in Darktrace. This amount constitutes around half of his holding and is now frozen by the US court, according to court documents seen by the Financial Times. He also used around $15mn in cash as part of the bail agreement.
Lynch faces a criminal trial in California over 17 charges including conspiracy to commit wire fraud and securities fraud linked to the $11bn takeover of Autonomy by Hewlett Packard Enterprise in 2011. He faces a maximum 25 years in jail if found guilty of all charges. Lynch has always denied any wrongdoing and has entered a not guilty plea.
Darktrace has for years struggled to disentangle itself from ties with both Lynch and Autonomy, which have weighed on investor sentiment in the British start-up.
A number of hedge funds have accused the cyber security group of deploying similar sales tactics to Autonomy, though Darktrace has denied any irregularities in its accounting practices.
Darktrace’s chief executive Poppy Gustafsson was previously Autonomy’s corporate controller and helped set up Darktrace using funds in part from Lynch.
The criminal case Lynch faces centres on claims that the software group’s accounts were manipulated to flatter its book, leading HP to pay an extra $5bn when it acquired Autonomy in 2011. Autonomy’s former chief financial officer Sushovan Hussain was convicted in the US in 2018 and is serving five years in prison.
After almost four years fighting extradition in the British courts, Lynch lost his final appeal in April, arriving in California in early May on a commercial flight accompanied by US marshals.
A judge in California ordered Lynch to pay a $100mn bail bond secured by $50mn in cash or shares following a hearing shortly after his arrival in San Francisco. Lynch is currently under house arrest in California under 24-hour surveillance.
A spokesperson for Darktrace said: “Dr Lynch has no operational, advisory or any other role at Darktrace. His relationship with Darktrace is purely limited to his shareholding in the business. These are publicly traded shares and his decisions on how to use his shareholding remain his own.”
The 14.6mn shares that Lynch used as part of his bail, first reported by The Telegraph, constitute around half of his 4.5 per cent stake in the company, worth around $95mn.
Lynch’s wife, Angela Bacares, owns roughly 6.5 per cent of the company’s shares, worth around $136mn, but has gradually been sold down around half of her holding since late 2021.
The shares will be held by the US court until the court case ends.
Lynch’s spokesman did not respond to a request for comment.
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