Autonomy boss Lynch ramped sales ahead of HP deal, court told
(Adds Lynch statement, details on SPE software)
By Georgina Prodhan
LONDON, March 25 (Reuters) - British entrepreneur Mike Lynch
artificially inflated revenue at his Autonomy software company
before selling it to Hewlett Packard for $11 billion,
the U.S. firm's lawyer told a London court on Monday.
HP is suing Autonomy founder Lynch, once hailed as Britain's
answer to Bill Gates, along with his former finance chief
Sushovan Hussain for $5 billion after the 2011 deal went
disastrously wrong for the Silicon Valley group.
Lynch denies any wrongdoing and says HP's mismanagement was
responsible for the failure of the acquisition.
HP had bought big data firm Autonomy with the aim of making
it the centrepiece of a plan to transform HP from a computer and
printer maker into a software-focused enterprise services firm,
a shift that rival IBM had already pulled off.
But a year later HP wrote down the value of Autonomy by $8.8
billion, saying it had uncovered serious accounting
improprieties. These have led it to pursue Britain's
biggest-ever fraud trial against Lynch and Hussain.
Lawyer Laurence Rabinowicz QC, representing HP, told
London's High Court that Lynch and Hussain had knowingly been
involved in "widespread and systematic false accounting" to
create a materially false picture of Autonomy's finances.
Autonomy had engaged in "revenue-pumping" by encouraging
customers to buy its products in exchange for buying goods from
them that it did not need, restructuring deals to produce
upfront licence fees, and covertly selling pure hardware not
even programmed with its software at a loss, he said.
In 2009, when Autonomy's profitability was clearly seen to
be damaged, the company blamed launch costs for a new database
search product called SPE, rather than these activities, in a
call with financial analysts, Rabinowicz said.
A spokeswoman for Lynch said in an emailed statement: "Mike
Lynch is pleased to finally have the opportunity to respond in
court to HP's accusations. There was no fraud at Autonomy."
"The real story is that HP, after a history of failed
acquisitions, botched the purchase of Autonomy and destroyed the
company, seeking to blame others. Mike will not be a scapegoat
for their failures."
Lynch's spokeswoman said the case "distilled down to a
dispute over differences between UK and US accounting systems".
Rabinowicz, however, said in court the issues were not a
matter of complex financial niceties but rather of clear
intention. "This is not a business dispute about how to apply
accounting procedures," he said. "This is a fraud case."
Lynch observed proceedings from a back corner of the
courtroom, occasionally scribbling notes or sending messages on
The 53-year-old, who also faces criminal wire- and
securities-fraud charges in the United States, which carry a
maximum 25-year prison term, is likely to appear before the
London court around July.
Lynch received about $800 million for his stake in Autonomy,
which started to turn sour before it was completed.
Many shareholders baulked at the 79 percent premium, and the
architect of the strategy, then-chief executive Leo Apotheker
Lynch was subsequently fired by Meg Whitman, who took over
as HP CEO in 2012.
Both former CEOs are likely to appear as witnesses in the
trial, which is expected to continue until the end of the year.
(Additional reporting by Paul Sandle
Editing by Alexander Smith)
First Published: 2019-03-25 12:00:00
Updated 2019-03-25 18:57:12
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