Mike Lynch used $50 million in Darktrace shares to secure US bail

Mike Lynch, the billionaire founder of UK software group Autonomy, has used shares worth about $50 million in British cyber security group Darktrace to pay 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 14.6 million shares in Darktrace. The amount, which is roughly half of his holdings, has now been frozen by a US court, according to court documents seen by the Financial Times. He also used approximately $15 million in cash as part of the bail agreement.

Lynch faces a criminal trial in California on more than 17 charges, including conspiracy to commit wire fraud and securities fraud linked to the $11bn acquisition of Autonomy by Hewlett Packard Enterprise in 2011. If convicted on all charges, he faces a maximum of 25 years in prison. Lynch has always denied any wrongdoing and has pleaded not guilty.

Darktrace has struggled for years to disassociate itself from ties with both Lynch and Autonomy, which have weighed on investor sentiment in the British start-up.

Several hedge funds have accused the cybersecurity group of employing sales tactics similar to Autonomy, although Darktrace has denied any irregularities in its accounting practices.

Darktrace chief executive Poppy Gustafsson was previously Autonomy’s corporate controller and helped set up Darktrace using funding in part from Lynch.

The criminal case Lynch claims the software group’s accounts were manipulated to flatter his book prompted HP to pay an additional $5bn when it regained 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 fighting extradition in British courts for nearly four years, Lynch lost his final appeal in April, arriving in California on a commercial flight in early May accompanied by US marshals.

A judge in California ordered Lynch to pay $50 million in cash or a $100 million bail bond secured by shares following a hearing soon after her arrival in San Francisco. Lynch is currently under house arrest under 24-hour surveillance in California.

A DarkTrace spokesperson said: “Dr. Lynch has no operational, advisory or any other role in DarkTrace. His relationship with DarkTrace is limited purely to his stake in the business. These are publicly traded shares.” And the decisions on how to use their shareholding are their own.

The 14.6 million shares that Lynch used as part of his collateral, first reported by The Telegraph, represent nearly half of his 4.5 percent stake in the company, which is worth about $95 million.

Lynch’s wife, Angela Baccares, owns about 6.5 percent of the company’s shares, worth about $136 million, but plans to gradually sell off about half of her holdings through the end of 2021.

The shares will remain with the US court until the court case is over.

A spokesman for Lynch did not respond to a request for comment.