Suffolk tech entrepreneur accused in court of using ‘fraudulent devices’ to inflate value of firm
PUBLISHED: 15:00 25 March 2019 | UPDATED: 15:00 25 March 2019
A Suffolk tech entrepreneur was accused in the High Court of engaging in “a programme of widespread and systematic fraudulent” accounting practices ahead of the £8bn sale of the company he founded to computer giant Hewlett Packard (HP).
Autonomy founder Mike Lynch is accused of a £3.8bn fraud by HP, which claims he artifically inflated the value of his software firm prior to its sale in 2011.
HP is seeking damages in excess of £3.3bn, claiming he and former chief financial officer Sushovan Hussain “artificially inflated Autonomy’s reported revenues, revenue growth and gross margins”. Both men deny the claims.
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Dr Lynch is counter-claiming for at least £95m in damages against HP for “a series of false, misleading and unfair public statements” about his alleged responsibility for supposed accounting irregularities and misrepresentations at Autonomy.
Laurence Rabinowitz QC, outlining the case for HP, said Autonomy had been “meeting its revenue and revenue growth targets by simply buying and selling third party hardware, without any connection to Autonomy software”.
The firm also used “a variety of other fraudulent devices” to either accelerate revenue or to invent revenue that never existed in the first place,” he added.
“Once these fraudulent practices are stripped away, it becomes clear that, in truth, the Autonomy group was experiencing little growth and was falling consistently short of market expectations.”
He said there was “no real doubt but that Autonomy engaged in the improper transactions and false accounting alleged”, and there was “no question but that Mr Hussain was one of the architects and chief implementers of the fraud”.
Mr Rabinowitz said the main issue in the trial was the question of Dr Lynch’s “knowledge (of) and involvement in the fraud”.
He described Dr Lynch as “a controlling and demanding individual, who took a close interest in the progress of individual deals and sales generally”, claiming it was “inconceivable” he was unaware of the fraudulent practices.
At the start of a nine-month trial, the High Court heard that HP announced a £6.7bn writedown of Autonomy’s value just over a year after its acquisition of the company, claiming it found “serious accounting improprieties”.
Dr Lynch says the firm was an “innovative technology company and a success story” when HP took it over, but that it “botched” the purchase and “destroyed the company”.
Mr Rabinowitz cited an email sent by Dr Lynch to the senior management team about a proposed transaction which was in jeopardy, in which Dr Lynch stated: “If there is any problem I WANT TO KNOW ABOUT IT IN A F****** MILLISECOND from all of you.”
The barrister said: “This is not the stance of a statesman viewing the business from 10,000ft.”
Mr Rabinowitz also referred to another email sent by Dr Lynch to a sales representative in August 2010, which read: “You ever send me an email like this again AFTER the event and you are f****** toast, I swear if I could squeeze down a telephone line to California you would get to know directly how the f*** I feel about this.”
Robert Miles QC, representing Dr Lynch, said in written submissions that when HP bought Autonomy the company was “highly profitable” and “had a bright future”.
HP “mishandled the acquisition”, he said. “Even the announcement of the bid was poorly managed, as it coincided with the announcement by HP of poor trading results, deteriorating prospects and the closure (or potential disposal) of significant parts of its business.”
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