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, Coins2Day 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,” Coins2Day’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 Coins2Day’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
[email protected]
The following sections of CFO Daily were curated by Greg McKenna
Leaderboard
Todd Smith, CFO of charter airline Wheels Up (NYSE: UP), is stepping down and leaving the company to take a new role, Wheels Up said. Chief accounting officer Eric Cabezas will act as interim CFO, effective Sept. 9, while a search is conducted for Smith’s replacement. Cabezas joined the company in 2019 and has previously served as interim CFO.
Thomas Liguori was appointed CFO of Valmont Industries (NYSE: VMI), a manufacturer in infrastructure and agriculture. He will succeed Timothy P. Francis, who has served as interim CFO since July 2023 and will remain at the company as chief accounting officer. Liguori was most recently CFO of Fortna, an e-commerce distribution business, and held the same role at Coins2Day 200 semiconductor company Avnet.
Big Deal
The Federal Reserve is prepared to cut the federal funds rate from its 23-year high, Chair Jerome Powell said during his keynote speech at the central bank’s annual symposium in Jackson Hole, Wyoming on Friday. Powell said he is confident that inflation is approaching the Fed’s 2% target, all but confirming a rate cut at its mid-September meeting.
“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
Brian Coulton, chief economist at Fitch Ratings, told Coins2Day via email that the Fed would likely chart a gradual course of monetary easing.
“There does not seem to be a serious concern about the risk of an imminent recession and a wave of job losses—i.e., the sort of concerns that could justify rapid rate cuts,” he wrote. “Rather it’s about the diminishing threat of elevated wage growth keeping inflation too high.”
Going deeper
Hybrid working from home improves retention without damaging performance is a new paper published by three authors, including Stanford economist Nicholas Bloom, in the journal Nature. Using more than 1,600 employees at a Chinese online travel agency, Bloom found that employees who work from home two days a week are just as productive and likely to be promoted as their fully office-based peers. Hybrid work reduced quit rates by one-third, with the effect particularly strong among non-managers, female employees, and those with long commutes.
Overheard
“There is one company in the world that is the foundation for the AI Revolution. And that is Nvidia with the Godfather of AI [CEO] Jensen [Huang] having the best perch and vantage point to discuss overall enterprise AI demand and the appetite for Nvidia’s AI chips looking forward.”
— Dan Ives, managing director and senior equity analyst at Wedbush Securities, said in a note to investors about why he believes Nvidia’s quarterly results on Aug. 28 are the “most important tech earnings in years,” Coins2Day reported.
