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PaperclipPerfector  1mo ago (text post)   29046 thread views

Culture War Roundup for the week of August 19, 2024

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Mike Lynch and Stephen Chamberlain were co-defendents in a high-profile fraud case in the US. They were acquitted in June. Chamberlain has died, and Lynch is missing presumed dead, after two separate incidents on the same weekend. So understandably, this has raised some suspicion.

Brief background on the fraud case. Mike Lynch founded Autonomy. Later sold it to HP for $11bn in 2011. Was accused of fraud to inflate the value of the company before it's sale. In a civil trial in the UK, damages were set to be awarded to HP. But he also faced extradition to the US for criminal fraud charges. Eventually in May 2023, after much wrangling about whether he could be extradited, he was sent to the US to face trial alongside Chamberlain. Trial began in March. Acquitted on all charges in June.

Stephen Chamberlain died after being hit by a car while out for a walk in Cambridgeshire on the morning of the 17th. Then, Lynch's ship capsized in Sicily on the morning of the 19th. One dead, six missing including Lynch.

I think there is only one point in favor for the ship being sunk intentionally:

If it was true, we could refer to the incident as The Bayesian Conspiracy.

I know a few people pretty high up in HPE, despite their job's being selling AI servers they weren't aware of what TSMC even was let alone that it was a bottle neck in their supply chain. The idea that this group is doing well targeted assassinations is uncredible.

It seems the chairman of Morgan Stanley International is also missing, almost certainly dead. I sincerely doubt HP whacked him - if you want to blame someone, God's sense of humour never fails.

The sinking appears to have been the result of the decision to anchor the ship during a very heavy storm and water spout, which somehow caused the mast to snap and the ship to capsize (I presume the physics here check out). Im no mariner, but that seems like a tough way to pull off an assassination, especially given that the majority of passengers on the ship (including Lynch’s wife, who was apparently sleeping in the same cabin as him) survived.

That said, maybe the long arm of Meg Whitman is truly this cunning.

especially given that the majority of passengers on the ship (including Lynch’s wife, who was apparently sleeping in the same cabin as him) survived.

That smells like an emergency muster at designated points with those that are unaccounted for being the unlucky ones who caught a wave breaking and were swept off the deck.

Disclaimer: Totally off the top of my head. I have zero knowledge of any of the specifics.

The future of personal computing: Death Notebooks.

I'll take a wi-fi chip, and eat it!

tough way to pull off an assassination

My first thought for obvious-but-probably-wrong conspiracy theory is that your missing billionaire disappeared himself intentionally to spend the rest of his days at large. Something like the Carlos Ghosn escape from Japan story.

I was wondering something similar when that Billionaire got splatted in the submersible last year.

Given that this mode of death leaves no body behind to identify, its a decent way to fake a death if you can pull off a switcheroo.

Clown world when every department at HP has been thoroughly gutted except their wet work team, and every corporate maneuver they've attempted has failed except their assassination plots.

wet work team

Heh.

<tinfoil hat> Maybe someone at one of the AI labs discovered how to communicate with dolphins, then conspired with the Gibraltar Pod to take out The Bayesian (oh yeah, the name of the yacht is The Bayesian. Total coincidence right?).

Cui bono? Who would benefit from orchestrating two assassinations in this case? I’m inclined to believe it’s coincidence without that.

people are going to be honest when dealing with HP in the future

For that to work, the fact that an assassination happened would have to be common knowledge. I may not be an expert on HPE corporate culture, but I seriously doubt that they start negotiations by letting the other party glimpse some undeniable evidence of murders they have committed.

I may not be an expert on HPE corporate culture, but I seriously doubt that they start negotiations by letting the other party glimpse some undeniable evidence of murders they have committed.

If flairs could be this long, this should be your flair.

I understand acquittal as a legal concept but were they narrowly acquitted or was it a slam-dunk acquittal? And did that acquittal turn on factual or legal matters?

Also, what came of the motor vehicle accident? Did the car and driver just disappear into the ether (suspicious) or is there a legal docket somewhere in Cambridge where some old lady is gonna be tried for grossly negligent driving resulting in grave injury (or whatever the equivalent English charge is).

I feel otherwise you're handing us a tiny sliver of half-baked facts and just wanting people to run with it.

Apart from the minutia of the search and rescue efforts for the capsized ship, there's not much additional detail in any English Language reporting I could find. Apart from that, there's a lot of conspiratorial speculation about the timings of both deaths, but again without adding any more information. The added stuff about the legal background below helps.

Unfortunately, it's not very easy to tell the difference between those two ends from the public record. There's a lot of lawfare about specific testimony, but that... doesn't really mean much, and from a quick glance it doesn't look like any big decisions happened over technicalities from a judge's perspective.

Their CFO, Sushovan Hussain, was convicted of a ton of counts of wire fraud, so it's pretty clear that someone was making something up. It doesn't cover near the full 8bn USD gap, but it's at least sizable enough to explain some sort of otherwise-unreasonable conclusion. Lynch-Chamberlain's defense was that Hussain had handled the money and documents in question, and that neither Chamberlain nor Lynch were (proven to be) aware he was lying, or to the extent Chamberlain futzed some numbers that they were not done to induce HP's deal. The lawfirm for Lynch highlighted the weakness of a major witness for the government, but I'll caveat that this is a very lawyer take on things.

Whether it's scuzzy is a bit easier: yes, absolutely. The indictment looks a lot worse for Lynch than Chamberlain, and not all allegations in an indictment are true -- one charge got tossed as unsupported by the evidence, which takes some fucking up -- but most look like they'd be prone to problems more of the sort "did HP depend on this" or "what this done for potential buyers" rather than "did this show good compliance with financial best-practices". At best, Lynch as CEO and Chamberlain as VP of Finance managed to miss tens of millions of dollars in not-quite-honest claims by their CFO; more likely, they at least futzed with the truth, if not necessarily to the point of it being covered by a law.

Did the car and driver just disappear into the ether (suspicious) or is there a legal docket somewhere in Cambridge where some old lady is gonna be tried for grossly negligent driving resulting in grave injury

Maybe the latter, but apparently 49-year-old?:

Cambridgeshire Police did not name Mr Chamberlain, but were appealing for witnesses after a collision between a pedestrian and a car had taken place in Newmarket Road in Stretham.

Officers said a blue Vauxhall Corsa was travelling between Stretham and Wicken on the A1123 when the collision took place at about 10.10am on Saturday. They added a man in his 50s had been taken to hospital with serious injuries. The driver of the car, a 49-year-old woman from Haddenham, remained at the scene and was assisting officers with their inquiries.

Lynch-Chamberlain's defense was that Hussain had handled the money and documents in question, and that neither Chamberlain nor Lynch were (proven to be) aware he was lying, or to the extent Chamberlain futzed some numbers that they were not done to induce HP's deal.

One of the problems with prosecuting this type of case is that there is no command responsibility under civilian criminal law, so although you can assume the founder-CEO (who will get by far the largest personal payoff and so has the motive) is the actual guilty party, you can't prosecute him unless you can prove (beyond reasonable doubt) that he was personally involved in some specific crime. A good criminal CEO (like a good mafia boss) tells his subordinates "make the numbers work, I understand that you might need to fudge them a bit, I don't need to know the details". Even a mediocre one knows not to write things down when criming. And any criminal CEO can turn up at trial and say they are shocked, shocked to find that their CFO is a crook. RICO mostly stops this defence working in a mafia case, but it doesn't apply to corporate fraud.

And in practice the only way to win a case against the CEO is to flip the CFO (who can't avoid hands-on criming given the nature of their role in the scheme, and so usually gets charged first) on him. The classic example is Enron, where Fastow flipped on Lay and Skilling in exchange for a relatively lenient sentence. Lay and Skilling's defence was indeed "We didn't know what Fastow was doing so we can't be criminally liable for it." I don't know why Hussain didn't take a plea deal (based on the reported appeal, he didn't have much of a defence) but his going to trial probably sunk the case against his boss. Under the civil standard things are easier - HP won their civil case in England against Lynch personally.

Personally I favour a RICO-like law for large-scale corporate crime where a CEO can be convicted of running a systemically criminal company even it isn't proven that they personally knew about specific crimes. CEOs in general, and founder-CEOs in particular, have enough power over their own companies that command responsibility applies morally, and I think the law should align. If you genuinely know so little about your own company that it can be as corrupt as Enron or Autonomy without you being involved, then you should resign (as a non-owner CEO) or sell it (as a founder-CEO).

Thanks for the insight here.

At best, Lynch as CEO and Chamberlain as VP of Finance managed to miss tens of millions of dollars in not-quite-honest claims by their CFO; more likely, they at least futzed with the truth, if not necessarily to the point of it being covered by a law.

That's a nuanced position. And I understand that one can conclude that even if they didn't (quite) break the law, they were less than honest in the commission of their legal obligations.

The driver of the car, a 49-year-old woman from Haddenham, remained at the scene and was assisting officers with their inquiries.

This does not sound like the behavior of a deep state super assassin. If true, this would update against foul play.

Acquired on all charges in June.

Acquitted?

Yes. Fixed.

Still there.

Then there's something wrong with the software of the site, because it's fixed for me.

You have another use in the first paragraph.

Mike Lynch and Stephen Chamberlain were co-defendents in a high-profile fraud case in the US. They were acquired in June.

Alright, now it's fixed.

That's what I get for writing this up on my phone at stupid o'clock.

For background, despite the name, Autonomy was a pretty generic business middleware-ish corporation, mostly based around database search. AFAIK, no significant AI focus. HP bought, as Tophattingson says, for 11bn USD in 2011, and it was pretty much scrap by late 2012, eventually getting sold to OpenText (with some handoffs on the way) in 2016.

Matt Levine had some good contemporaneous reporting, though I'll caveat that he's prone to thinking everything's a scam, if in a scam-heavy field. Regardless of whether it was a scam to start with, several billion dollars in losses would pretty easily get enough negative attention to get a few people homicidal, though ten years is a long time to wait for justice if you're willing to just hit someone with a lorry.

"Middleware-ish enterprise software company that does something related to like ... search maybe?"

This partially explains the tendency for overvaluation. Back in this time period, if you were selling SaaS and could point to big enterprise clients with 6-7 figure/yr annual spend, nobody looked under the hood that much more - especially if it was a "backend nobody really "sees" it that much" service.

It does not surprise me at all that some greedy founders probably realized this and started to slap all sorts of very optimistic numbers on everything.

There's definitely some of that going on, and HP certainly seemed primed to buy those optimistic numbers and then some. At one point HP internally valued Autonomy at a 40bn+ USD.

But allegedly the behavior here was Worse than hilarious optimism. From the Hussain (Autonomy CFO) trial appeal:

They used several improper techniques to pad revenue: back-dating contracts; "selling" software to resellers when it never actually expected to be paid back; and re-selling hardware at a loss while representing to auditors, market analysts, and ultimately HP that it never sold hardware separately from software. Autonomy, in other words, was "buying its own revenue."...

In addition to deceiving its auditors, Autonomy also had to square its books with the actual cash on hand. Sometimes, it would collect money on these deals from the ultimate end user instead of the reseller. Sometimes, it would buy worthless software from the reseller to give it the money to pay Autonomy. And sometimes it would simply write off the amounts owed. These write-offs occurred in the "dark period" between Aug. 18 and Oct. 3, 2011—the date when HP announced it would acquire Autonomy, and the date the deal actually closed, respectively.

And there's a really big list of individual screwy behaviors (the Vatican gets involved! Twice!). While a lot of them were 'just' recognizing revenue earlier in sketchy ways, others look like pretty overt efforts to manufacture revenue or 'revenue' while hiding costs. I have absolutely no idea about the legality of this sort of accounting foolery in a public company normally, nor in the context of a sale/audit. Hell, I don't even enough about accounting to know if they're as clearly sketchy as they look at first glance -- as much as 'just write it all off' is rightfully a meme, there are a lot of ways to legally mess with numbers or have a 'pure software' company that's selling hardware at a loss for large portions of its revenue.

But even if HP was willing to make up whatever numbers would make that deal flow, Autonomy was willing to at least bend over backwards to give numbers making the company look like a better buy.

Awesome write up, thanks.

It does provoke some interesting thoughts about the threshold for fraud.

A ton of SaaS deals go south because when someone comes in to actually look at the quality of revenue, they realize it's a lot of handshake deals and one-off breaks that can't scale into a stable business. The term "growth hacker" is thrown around a lot in Silicon Valley and it's both true and too true. A startup, well funded, can "hack" its way to growth in ways that aren't the core of business; sell your shit for more than it cost to produce and satisfy customers. But then there's a point where, if the hack was too hacky, it's actually unrecoverable and it's better to pass on the deal. There's an analogy somewhere in here about when a codebase gets too fucked up to save, so you just throw out the whole damn thing and start from scratch.

A major issue at both the startup and 30 year blue chip S&P 500 component is tax code. Corporate and business taxes, layered with R&D treatment, amortization, and everything else means that companies often don't know how much money (in terms of free cash flow or even gross margin) they've made until a year or two after the transactions have occurred. Restating earnings is common enough, you just want to avoid doing it too often or have the restatement be too large. This is, in part, why so many public companies view success as "stock price go up," and why those intrepid souls who are willing to actually dig through the financial reports of a company (often known as "value investors") can make a nice chunk of change. Complexity is hard on its own, mind-numbing tax code complexity is an active deterrent to basic information analysis.

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