back to article Autonomy paid its own customers to pump up revenues, claims HPE

Mike Lynch's Autonomy Corporation pumped up its value by paying its own customers to buy its products so Autonomy could inflate its accounts, London's High Court was told this morning. Laurence Rabinowitz QC, counsel for HPE, told Mr Justice Hildyard that under Lynch and former CFO Sushovan Hussain, Autonomy "engaged in a …

  1. 2+2=5 Silver badge

    Thin blue line

    If that chart turns out to be correct then that blue line looks pretty damming. It's almost as if Lynch and Hussain rang up the analysts, asked what figures they'd like to see for that month and hey presto.

    1. Marketing Hack Silver badge

      Re: Thin blue line

      You don't need to ring up the analysts, of course. They publish their by-quarter revenue expectations for the companies they cover, usually a year in advance.

    2. SuccessCase

      Re: Thin blue line

      Don't forget all the accounts were previously analysed by HP's auditors as part of a due diligence process. It's fine to offer inducements to make sales as long as the costs of doing so are entered properly somewhere legally acceptable. Now, being clever about where you enter that cost, such that others might not immediately realise it is related to sale x, is called painting yourself in the best possible light rather than fraud. HP only launched a complaint about Autonomy "fraudulent" accounting, when Meg Whitman had to go before Wall Street analysts with completely declining revenues and missed targets way beyond what could be explained by the figures they gave in relation to the Autonomy purchase. It seemed to me she would have been sacked there and then but she suddenly pointed at Mike Lynch and shouted "Squirrel!".

      I'm sure Lynch has been "guilty" of painting a piece of crap gold. But if you haven't anywhere said it is solid gold, and that the centre isn't crap, you haven't necessarily done anything illegal. In fact, your shareholders are likely to think you have just been a good salesman. Caveat Emptor and all that.

      Anyway, this will all be looked at in detail by the judges and I'm happy to accept they will have a better view of this than us here and their judgement is far more likely to be the right call than mine. It will be interesting to see the outcome.

  2. Anonymous Coward
    Anonymous Coward

    Is the chart compiled by the same accountants who did due diligence on Autonomy, if so then treat with a pinch of salt.

    On a side note I wonder if Laurence Rabinowitz QC is any relation to the famous South African born composer and conductor, Harry Rabinowitz.

    1. Anonymous Coward
      Anonymous Coward

      I think he's actually Rabbi Binky Rabinowitz's nephew.

  3. reubs007

    I've lost the thread of this case. Did HP successfully sue its accountants/lawyers who did the due diligence on Autonomy and/or Autonomy's own auditors?

    1. Jellied Eel Silver badge

      That may come later. First establish that there was a problem, then attempt to go after the people who should have spotted those problems.

      1. overunder Bronze badge

        How could you prove any of that though? If I say this is all of the data how do you know otherwise without property seizures of the already accused? I guess you could assume all auditors are of corrupt cohort and.... sue them all...?

        1. Jellied Eel Silver badge

          I guess you could assume all auditors are of corrupt cohort and.... sue them all...?

          Reasonable assumption, and you could try. But most of this type of advisors are adept in disclaiming any responsibility, or especially liability.

          Otherwise it can be a case of experience, and a sniff test. "These numbers don't look right, or justify the valuation.. Can you explain this?" Which is where the litigation comes in. If HP was told they'd been given all material information to do their due diligence, and critical information was witheld, or altered, then there's a problem. Again I think the issue was the diligence didn't reflect the difference between Autonomy's book value, and HP's offer.

  4. Anonymous Coward
    Anonymous Coward

    I am trying to understand what is being alleged as wrong. Paying a VAR a 10% markup to incentivise sales does not seem a problem unless the payments were not shown as an expense which does not seem to be happening.

    1. mj.jam

      Basically that they were selling stuff at less than they could buy it for. So whilst impacting their profit and loss in a bad way, making their revenue apparently be growing.

      Probably based on the reasoning that a startup isn't supposed to be making any profit in the early days, and is trying to gain market share.

    2. Jellied Eel Silver badge

      I don't get that either. Or this bit-

      "the practice of buying and selling hardware at a loss with a view to revenue pumping, to reflect revenue which in fact is obtained by selling hardware at a loss which wasn’t disclosed".

      That's also something I'd have thought easy to spot in the accounts, so revenue from hardware sales vs cost of buying that hardware.. Especially as it would seem to have needed a LOT of tin. And some financial engineering, because part of Autonomy's attraction was very high margin claims. Selling a lot of tin at a loss would (or should) obviously impact that.

      I also don't necessarily see anything wrong with reselling naked tin. Waay back, I worked for a company that sold Internet appliances. Appliances we sold direct were obviously bundled, but we also supplied seperate hardware and licences so our resellers/VAR's could build their own systems. We had confidence the licences would work on the tin we supplied, and also increased our volume so we got better prices on that tin. Difference I guess is we were very much focused on margin rather than revenues, so didn't want too much volume reselling the tin.

      1. Anonymous Coward
        Anonymous Coward

        Nothing wrong with selling tin unless you put the cost of it in the wrong part of the balance sheet... such for example... under 'marketing' becau'se you are claiming that its loaded with S/W you are shipping.

    3. Roland6 Silver badge

      Re: I am trying to understand what is being alleged as wrong.

      > Paying a VAR a 10% markup to incentivise sales does not seem a problem

      I wonder whether part of this revolves around how commission, incentives and cashback were paid and recorded.

      So did Autonomy sell stuff to Resellers/customers at say £x, customer/var wrote cheque for £x, Autonomy recorded this in their accounts and also recorded a payment of £y commission/cashback to reseller/customer. Which is what HMRC expects; HMRC don't like businesses putting one figure on the invoice and a different adjusted figure in the accounts.

      In which case the turnover/revenue figure would be larger than expected, but then this would have been balanced by the increased costs.

      Or are HP alleging there are phantom transactions recorded in the accounts, in which case why isn't HMRC prosecuting.

      Suspect HP got fixated on the revenue figure and didn't read any further.

      1. Anonymous Coward
        Anonymous Coward

        Re: I am trying to understand what is being alleged as wrong.

        If you want the details of what the CFO has already been convicted, read the indicments here: https://www.courtlistener.com/recap/gov.uscourts.cand.305114/gov.uscourts.cand.305114.419.0.pdf

        If you want to know what will happen next? The Dr Lynch will say "I was never involved in any of this... I wasn't involved in the details"

  5. Anonymous Coward
    Anonymous Coward

    Whatever happened to "Buyer Beware" ?

    If I was spending that amount of money I'd make damn sure I knew exactly what I was buying !

    1. asdf Silver badge

      HP's board was something else during this time period. Pretty sure they all rode together to the board meetings in a clown car. When they bothered to show up.

    2. Anonymous Coward
      Thumb Up

      “Buyer beware”?

      You’re not an Apple customer are you?

      I can tell.

  6. Anonymous Coward
    Anonymous Coward

    With any luck both HP and the odious Mike Lynch will be bankrupted as a result of this, I don’t even mind the lawyers getting rich if that ruins them both.

    1. asdf Silver badge

      Yeah there are no good guys here. Pox on all of them.

    2. Delusional

      "odious"?? I have read a lot of negative comments about Dr Lynch. What is your reason for describing him as 'odious'?

  7. Anonymous Coward
    Anonymous Coward

    I read these quotes and transcripts of Barristers and I wonder, how do they get away with it?

    They all seem to be completely inarticulate.

    1. gazthejourno (Written by Reg staff)

      You'd be surprised how many people look like incoherent idiots if you write down every single word they say. Try it - record yourself for 3 minutes having a chat with a friend or a colleague and then transcribe it word for word.

      1. Anonymous Coward
        Anonymous Coward

        No need, I know how inarticulate I am

        I'd never charge anyone 1p for public speaking

  8. Anonymous Coward
    Facepalm

    The Jarndyce and Jarndyce of IT court cases...

    This will run and run until even the lawyers have forgotten what it was about.

    1. Delusional

      Re: The Jarndyce and Jarndyce of IT court cases...

      Normally yes... but you forget that the CFO has already been convicted. Its hard to forget the facts:

      https://www.courtlistener.com/recap/gov.uscourts.cand.305114/gov.uscourts.cand.305114.419.0.pdf

      1. Roland6 Silver badge

        Re: The Jarndyce and Jarndyce of IT court cases...

        >but you forget that the CFO has already been convicted. Its hard to forget the facts:

        Interesting read, however, I do get the feeling that the 'facts' aren't necessarily the real facts. As was pointed out in the court document, there was no expert accountancy witness called by either side. So I get the distinct impression the standard of 'facts' is much lower than you would have expected, because if the 'facts' really are what the prosecution say then you have to ask why has there been no criminal case brought in the UK...

  9. John Smith 19 Gold badge
    WTF?

    $11Bn --> $3Bn. How do you not see *some* of that "value" was bogus?

    How is that possible?

    I don't see the HP Board being in the "Helpless little old lady" category that got flim-flammed by some fast talking cold calling telesaleman.

    Do you?

    1. BuckeyeB
      Pint

      Re: $11Bn --> $3Bn. How do you not see *some* of that "value" was bogus?

      If they were "cooking the books" to meet all their expectations, then the stock price didn't suffer a hit for not meeting them. Since HP had to presumably purchase x million shares to acquire the company, having a fraudulently inflated share price means that they overpaid due to fraud. There is a multiplier affect going on. Say the stock price is 40/share too high and HP had to purchase 70M shares to acquire it. That would result in an overpayment of 2.8B. These are just sample numbers, but you can see how it could get out of hand quite easily due to the multiplying affect.

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