HP Autonomy Lawsuit Details Emerge, As Lynch Hits Back

Details of Hewlett-Packard’s lawsuit against the former management team of Autonomy have been made public.

But former Autonomy CEO Dr Mike Lynch (pictured below) has issued a detailed response and claimed the HP lawsuit comes after three years of Meg Whitman’s stonewalling, and is nothing more than a desperate search for a scapegoat for its own errors and incompetence.

Fired CFO?

HP’s lawsuit was filed in the Chancery Division of London’s High Court last year, and alleged that the former Automony management team engaged in fraudulent activities while executives at Autonomy. HP is seeking damages of about $5.1 billion (£3.5bn).

Last month, Lynch counter-sued HP for loss and damage caused by “false and negligent statements” made against them by HP. He is seeking £100m plus in damages.

The central thrust of the HP allegations is that Autonomy executives artificially inflated revenue and profit figures in order to portray the British software firm as growing rapidly. HP also alleged that Mike Lynch fired US chief financial officer Brent Hogenson, after he raised concerns about the company’s transactions. Specifically, he was concerned at Autonomy’s alleged practice of adding deals to its books that had not been officially signed off or paid for.

But Mike Lynch has hit back in a very detailed response to HP’s allegations.

“HP has waged a three-year smear campaign riddled with half-truths and obfuscation,” said Lynch on his blog. “They have intentionally made the claims as complex and convoluted as possible.”

Lynch pointed out that it is common practice for software firms to book sales to resellers, even if an order from a customer had not been made. Indeed, he pointed out that this practice was cleared by “highly competent, independent professionals” in the form of an auditors team from Deloitte.

Accounting Standards

Lynch also confronted the HP’s allegation regarding Brent Hogenson, saying that the issue he raised was investigated and referred to the Audit Committee as well as Deloitte, and the UK accounting body the Financial Reporting Review Panel.

They decided that Hogenson had failed to understand the differences in the treatment of revenue recognition between International Financial Reporting Standards (IFRS) used by Autonomy, and the Generally Accepted Accounting Principles (GAAP) used by US companies.

And Lynch pointed out that Hogenson had in fact been fired by Autonomy’s chairman, and not by Lynch himself.

“After three years of Meg Whitman’s stonewalling, is this it?,” asked Mike Lynch. “HP’s claim is finally laid bare for what it is – a desperate search for a scapegoat for its own errors and incompetence.”

“The contents of the claim are a simple re-hash of previous leaks and insinuations that add up to one long disagreement over accounting treatments, and have nothing to do with fraud,” he added.

“Meg Whitman has been playing a delaying game, promising a smoking gun that has never materialised, hoping to confuse people by misstating IFRS rules, smearing individuals and avoid being called to account,” said Lynch. “Now that she is forced into being specific, that waiting game is coming to an end and we look forward to hearing her answers in court.”

HP acquired Autonomy in 2011 for $11.1 billion (£7.3bn).

But the deal quickly went sour in 2012 after HP announced an $8.8 billion (£5.8bn) writedown, with Autonomy execs being blamed for creating inflated financials and accounting fraud.

The former Autonomy management team have always denied the fraud allegations and have in turn accused HP of “mismanagement” concerning the takeover.

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