Jonathan Browning (Bloomberg) -- Hewlett Packard Enterprise Co. kicked off its $5.1 billion trial against British software titan Mike Lynch by painting the Autonomy founder as a hard-charging, heavily-involved executive who was well aware of fraud at his company.
The company accuses Lynch, and his chief financial officer, of inflating revenue so that HP massively overpaid when it acquired Autonomy for more than $10 billion in 2011. HP took an $8.8 billion writedown of the business just a year later.
On the first day of a civil trial in London, HP cited an email from Lynch to his senior management team about a contract with the U.S. Department of Veteran Affairs. He said: "If there is any problem I WANT TO KNOW ABOUT IT IN A F---ING MILLISECOND from all of you."
"This is not the stance of a statesman viewing the business from 10,000 feet," Laurence Rabinowitz, HP’s lawyer, said in his court filing. Autonomy’s auditors at Deloitte had no hesitation in concluding that Lynch was the key decision-maker, he said.
The trial, which is scheduled to last nine months and has already encompassed some 100 million pages of documents, will shed light on whether the British software icon bent the rules to beat stock market expectations and, in so doing, dragged in HP. Judge Robert Hildyard will also examine whether HP sufficiently scrutinized Autonomy’s books before the deal, in a period when the computing giant sought to transform itself into a software-focused company only to change course months later.
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Lynch, who made $815 million from his stake in Autonomy, was removed “from nearly all of the transactions in question," his lawyers said. HP needed "a high-profile target to blame for the losses that they suffered."
Lynch opted to prioritize the civil case ahead of a U.S. criminal trial, saying that the dispute belonged in the U.K. The Department of Justice on Friday added fresh charges of wire and securities fraud to its existing November indictment.
The 53-year-old Lynch denies the allegations and says that HP destroyed his company.
"This is a case that distills down to a dispute over differences between U.K. and U.S. accounting systems," he said in a statement.
That was directly contradicted by HP’s lawyer, Rabinowitz. The case was not simply a business dispute "about the application of accounting practices," he said. "It’s a fraud case."
HP alleges that Autonomy sold money-losing hardware contracts to pump its sales figures, a practice investors had no inkling was taking place. At the same time, it was also wrongly booking revenue from services packaged with other resellers.
HP says Lynch was a micro-manager who watched everything -- even the vacation time allotted to his CFO, Sushovan Hussain. In an email to his longtime associate, Lynch told Hussain that if he went ahead with his request to take a long break, "you will see the consequences."
Hussain, who is currently awaiting sentencing in the U.S., is also a defendant in the U.K. case.
The case is Autonomy Corp. v. Lynch & another, HC-2015-001324, High Court of Justice.