Tech lawsuit of the year (so far)

Today begins the tech trial of the year: HPE has hauled Mike Lynch into London's High Court, claiming $5bn from the one-time chief exec of ill-fated UK software firm Autonomy.

The case is the culmination of years of bitter wrangling between HPE and Lynch over the former's $11bn buyout of Autonomy in 2011. After the buyout, HP (as was) wrote down the value of Autonomy by $8.8bn and started pursuing Lynch and his his former chief financial officer, Sushovan Hussain, through the courts.

Autonomy was an enterprise software company founded by Lynch in the UK. HP bought it to kick-start its move from the hardware business to software, a corporate strategy that has not been without its difficulties.

"Lynch and Hussain," said HPE in its court filings, "caused Autonomy group companies to engage in improper transactions and accounting practices that artificially inflated and accelerated Autonomy's reported revenues, understated its costs of goods sold (thereby artificially inflating its gross margins), misrepresented its rate of organic growth and the nature and quality of its revenues, and overstated its gross and net profits."

It continued:

The assumptions in the Valuation Model about Autonomy's future financial performance would have been materially lower if Autonomy's published information had presented a fair and accurate picture of its actual performance.

The Autonomy duo deny all wrongdoing. The former CEO is countersuing HPE for $160m over what he says is the loss and damage caused to him thanks to its allegations that he cooked the books.

HPE reckons Lynch and Hussein ought to stump up $5bn for what it says is their part in overstating Autonomy's value and convincing the American megacorp to buy the company.

"There was no fraud or other actionable conduct at Autonomy," Lynch's legal team will tell judge Mr Justice Hildyard. "Dr Lynch and Autonomy were in full compliance with all applicable laws and accounting standards, including UK company law, the UK Corporate Governance Code, and the governing International Financial Reporting Standards."

In a statement, the former Autonomy CEO told El Reg: "There was no fraud at Autonomy. Rather, this is a case that distils down to a dispute over differences between UK and US accounting systems and will focus on the appropriate exercise of business judgments made in a particular context and time with the full knowledge and approval of numerous financial and technical experts and advisers. 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."

On Friday, US prosecutors slapped three more criminal charges of wire fraud, conspiracy and securities fraud on Lynch – in addition to a formal charge of fraud already levelled in November.

Trial of the year

Neither side has shirked from throwing money at the case. HPE has no fewer than three Queen's Counsels (QCs, or top barristers, also known as "silks") and three junior barristers, while Lynch has two silks and two juniors. With each lawyer's fees running to hundreds of pounds per hour, the costs of the case – aside from the sums each side are claiming from each other – are already astronomical.

Aside from shining a light on the corporate culture inside both companies, the case also represents Britain vs America; there have already been legal wranglings about American citizens living in America giving evidence, while a shadow hangs over Hussain after he was found guilty over his role in the buyout by a US criminal court.

In court filings seen by The Register, Lynch accused HPE chief exec Meg Whitman of responding to concerns he raised in HP management meetings shortly after the Autonomy buyout by "playing country music to the meeting [and] instructing the senior executives attending to take the meaning of the country music songs and apply them to their own management methods".

Lynch also claimed that he was "placed on gardening leave for six months" after telling Whitman that "we are now rapidly losing a lot of good people".

El Reg will be in court for the key parts of the case, which is officially scheduled to last until December.

source theregister

Industry: Information Technology News