That being Autonomy
It makes sense that the thing has a life of its own.
Mike Lynch, former CEO of Autonomy, today told a court, “I was not involved in the vast majority of transactions,” that HP claims added up to a $5bn fraud it uncovered after buying the company from Lynch and then-CFO Sushovan Hussain. Right at the very end of Wednesday's opening of Lynch's cross-examination in London’s High …
For some reason, I'm picturing Lynch's appearance as the Captain Sternn scene from Heavy Metal. The question is who plays the role of Hanover Fist, although my money right now is on ex-CFO Hussain:
"Mr. Lynch would never do anything immoral (UNLESS YOU COUNT GROSSLY EXAGGERATING OUR PROFITS) or illegal (EXCEPT FOR BILKING INVESTORS OUT OF BILLIONS OF DOLLARS). LYYYYYNCH . . . HE'S A GRIIIIINCH. HANGING'S TOO GOOD FOR HIM. SHOOTING'S TOO GOOD FOR HIM! HE SHOULD BE CUT UP INTO ITSY-BITSY PIECES AND BURIED ALIVE!"
Cue rampant destruction to distract the law from Lynch's timely escape.
"The UK Serious Fraud Office investigated, but no charges were made. Which makes one very cynical about the US process."
The UK SFO investigation concluded that there was no evidence to justify a UK prosecution.
"The SFO conducted a criminal investigation into the sale of Autonomy to Hewlett Packard. The investigation was announced as closed in January 2015. Some aspects of the investigation have been ceded to the US authorities whose investigation is ongoing.
Page published on 4 Nov 2014 | Page modified on 29 Mar 2017"
It's worth noting that while US prosecutors work for the state (Federal or one of the several States) and officially represent "the people", it's the choice of the prosecutor and his or her office, not "the US" or "the courts", to pursue the criminal trial. I suspect the overwhelming majority of government officials in the US, at all levels, don't give two shits about Lynch, Autonomy, and HP(E).
The various prosecutorial offices in the US have become highly politicized over the past few decades,1 and prosecutions big enough to make the media are generally driven by the ambitions of prosecutors more than anything else. Favors to the wealthy (e.g. HP's board members) also play a role.
1See The Chickenshit Club and some of Ken White's posts on Popehat for details and supporting arguments. White used to be a Federal prosecutor.
> And leo the loon like the worlds biggest moron. And these are the type of people who are the movers n shakers.
Don't forget Ms Whitman. She replaced Leo, but continued his strategy. Why? Because she did not have one of her own. Didn't she explain in a video that HP's website was powered by two technologies no one had? - the Moonshot ARM-based servers, running on 60 W total; and the big data from Autonomy to extract pertinent information. That was around 2014. Funny to see what happened since.
It's also the Leo Apotheker one - "hey, I was too busy to sign checks to myself and looking at how to spend them - I really had no time to run the company I was the CEO of - of course all faults are underlings ones!".
Not a good start at all, even if it could be useful to build the foundations to try to shift the blame on some underlings, and play the role of the "poor deceived CEO" if things turn bad.
Chalk and cheese. This is really only about the principle of caveat emptor. So far it looks very much like HP failed in its own due diligence. Autonomy may have been playing fast and loose with some numbers, but as this pretty much par for the course for publicly traded companies nowadays: look at the "financial engineering" that has gone on at Dell and Tesla for just two examples, industry is rife with the practices. Basically, if you can get shareholders to approve your actions then the bar for burden of proof for misdemeanor (criminal actions excepted) is pretry high.
Murdoch as CEO was ultimately respsonsible for the behaviour of his employees, some of whom did commit criminal offences. This would be akin to Lynch instructing salespeople to defraud customers (as happened at Wells Fargo, for example). Even then he could expect to walk away without a trial and quite possibly with a sizeable pay off: I think the clawback at Wells Fargo was unusual.
“I did not know”... well played Sir with the James Murdoch defence.
That's not what he said though. So far the only evidence El Reg have reported on was one US deal that was about $5m. I don't think you'd expect the CEO of a company with a $1bn+ turnover to have detailed knowledge of that kind of deal. Decisions on that, and how to book the revenue would be down to the sales manager, the salesman in question and someone at mid-level in the finance department. Unless there was a specific policy question.
It's unreasonable for anyone to expect him to have been on top of all of this. The difference is that the CEO of HP hadn't read the due dilligence report on an $11bn purchase. Do you see the difference in importance of these two things? Now you could argue it was only an interim report, except they bought the company before finishing the due dilligence. Which makes reading it even more important.
HP have to prove that Lynch specifically instructed people to commit the alleged fraud. If they want to get his money by suing him for committing one.
There's a lower burden of proof for negligence. Where you can argue that sales people will often inflate deals, given half a chance, and so as CEO it's your job to make sure there are processes in place to check that each deal is legit, and complies with company policy. But that doesn't require you to personally check every sale, or even to have much knowledge of them.
HP do not seem to have identified any significant fraud or misrepresentation at all. The one case they have identified was relatively small scale, in the US and against company policy. Even if accepted it is in teh context of the HP purchase of Autonomy irrelevant. At the same time it has been clearly demonstrated that HP were utterly negligent in the decision making for the purchase. It is deeply disturbing that this level of evidence was sufficient to convict Hussein in court paticularily as most of what evidenc etehre is comes from the person who broke company policy and committed the fraud who has done a deal with prosecutors. You get the impression that his main crime was refusing to give false evidence about Lynch. You have to question if we should extradite anyone to the US charged with this sort of crime.
CEOs don't like the "captain ship" ethics, i.e. being the last to abandon the ship, and without a golden parachute (or lifeboat) too. They prefer to get out early, like rats.
They got used to the idea they should be paid a lot just because they are clever, not because they bear responsibilities also.
I don't know how the English Law is in this regard - but usually you are required to sign off required reports, and if you didn't check before they are accurate, and you let your underlings deceive you, it's your fault - especially if you don't take any actions against those people when you become aware odf the situation.
Look at what's happening about the BT Italy scandal....
The thing to take into consideration, is that often consolidation of accounting information into the published accounts mean that fraud can be present in an entity without necessarily being reflected in the documents you sign.
i.e. if you are signing off accounts rounded to the nearest million, fraud of less than that value is unlikely to appear in the documents you are signing off. Or more relevant to this case, if you have revenue recognised in the wrong financial period when the difference is likely to have been a few days.
In this particular case, as long as the revenue was received (I believe it was), but only the timing was adjusted in a group company, that may not clearly reflect in the summary accounts provided to KPMG/HP (i.e. those that Lynch can be held accountable for) but are in the underlying accounting information (the details HP check following the acquisition).
Weren't Autonomy reports audited and certified?
You may still have a direct responsibility if you weren't able to keep the company you're running under control, ensuring the proper checks were in place.
The line of defense looks to be looking forward for something bad in the books, and deflect responsibilities.
If the line had been "Autonomy books were OK, as I signed them, and HP misread them", it would have put him in a better light.
Well, so far, HP's allegations of fraud amount to the company was selling hardware and not software. And the one example mentioned was only a few million dollar sale. Which is a small amount of the turnover and would be an even smaller amount of the profits. The allegation being that they padded their figures with hardware sales. But as Lynch said on the stand, that would be very difficult, as hardware has a much lower profit margin. We were a profitable company, as proved by our cashflow - we had £1bn in cash and £300m came in that year. That's too high a profit margin for there to be much padding with hardware sales, as the margins on commodity hardware are tiny - unless there was actual fraud going on. which both Lynch and the auditors should have picked up on - but so far HP haven't shown any evidence for that. Admittedly we've not seen the court papers, I've just read El Reg's summary of the trial.
The British executive and tech investor, who was wearing a white shirt, navy suit and dark blue tie with a tight white horizontal stripe pattern, replied: “To do what they should do, yes.”
Essential reporting - although the US would prefer him to be in an orange jumpsuit with cuffed hands and ankles.
Today’s opening saw Rabinowitz dive straight into heavy financial detail, taking Lynch through a succession of public Autonomy financial and earnings statements ..
What a great shame that HPE didn't do that in the first place. They might have been able to avoid all of this.
Under further cross-examination by Rabinowitz, Lynch clashed a few times with the barrister to the point where trial judge Mr Justice Hildyard had to intervene and warn Lynch to wait for questions before answering them instead of jumping ahead and making statements.
I trust that intervention fell on deaf ears.
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