back to article The tech lawsuit of the year: HPE v Mike Lynch and Sushovan Hussain

Today begins the tech trial of the year: HPE has hauled Mike Lynch into London's High Court, claiming $5bn from the one-time chief exec of ill-fated UK software firm Autonomy. The case is the culmination of years of bitter wrangling between HPE and Lynch over the former's $11bn buyout of Autonomy in 2011. After the buyout, HP …

  1. Aladdin Sane Silver badge

    Popcorn time.

    1. A Non e-mouse Silver badge

      If the case is expected to last until December, you're probably going to need lots of caffeine to keep awake.

      1. Aladdin Sane Silver badge

        Meth's more effective. Plus, only one sleep until Xmas.

  2. Anonymous Coward
    Anonymous Coward

    Lawyer fees

    You missed a zero of this: With each lawyer's fees running to hundreds of pounds per hour, the costs of the case.

    Each silk in a case like this will be at least £1000 per hour in addition the court teams will be support by a range (probably 4-5) solicitors with rates of £400 - £800 per hour.

    Back of a fag packet calculation are £5000 per hour per team. They will probably all be working 12 hour days 6 days a week while in court. So lets call is £120k per day or £720k per week for the in court weeks.

    1. Peter2 Silver badge

      Re: Lawyer fees

      You missed a zero of this: With each lawyer's fees running to hundreds of pounds per hour, the costs of the case.

      Each silk in a case like this will be at least £1000 per hour in addition the court teams will be support by a range (probably 4-5) solicitors with rates of £400 - £800 per hour.

      Back of a fag packet calculation are £5000 per hour per team. They will probably all be working 12 hour days 6 days a week while in court. So lets call is £120k per day or £720k per week for the in court weeks.

      Total bollocks.

      This is what your allowed to charge:-

      https://www.gov.uk/guidance/solicitors-guideline-hourly-rates

      If you charge more than the guideline, then somebody is going to fill this form in (https://www.gov.uk/government/publications/form-n260-statement-of-costs-summary-assessment) and give it to the Judge at the end of the case and you'll end up with your bill trimmed back to the guideline costs unless you can present an exceedingly good reason why costs should be higher. (which in actual practice rarely happens)

      So if you can figure out how to get away with charging 2.5x the rate for an experienced partner for a junior Solicitor and achieve a weekly income that represents ~10% of the average yearly income of a large law firm hovering just under the top hundred legal firms by income then I think I could promise you many interested readers in the legal profession, and a very well paid job in law firm practice management.

      1. Anonymous Coward
        Anonymous Coward

        Re: Lawyer fees

        To a point. These maximums are what you can recover from the other side if you win. In practice for a high profile case like tjis where the stakes mean you must have the best talent at all costs the actual rates paid from client to lawyers will be several times those maxima. The brief fees to take the cases alone will be several million pounds.

        AC because I have been there and paid millions in fees on a relatively trivial case in the Rolls Building of the High Court.

  3. Anonymous Coward
    Anonymous Coward

    Is this going to be a jury trial?

    If so, I sure feel sorry for the jurors

    1. Bonzo_red

      Is this going to be a jury trial?

      No, it is a civil matter so a single judge snoozin in his high chair. If it goes on appeal there will then be three judges.

      1. cpm86

        Re: Is this going to be a jury trial?

        With a case on this scale they will put a sharp judge on it. There are some very good ones - and some others.

        At the Court of Appeal the costs are much lower because you are usually arguing a few very narrow points raised by the judgement in the lower court. Quite interesting to a logical IT mind.

        Those three judges will be very sharp though things are much less formal -Lord Justices sitting casually without ties or wigs, lolling in chairs with tea towels drying on the bookshelves beside them.

        AC because been there, done that, paid the lawyers but certainly a life experience.

  4. colinb

    which songs?

    "playing country music to the meeting [and] instructing the senior executives attending to take the meaning of the country music songs"

    in my imagination here are some possibles

    Stand by your Meg

    D.I.V.O.R.C.E

    Dropkick me Jesus (through the goalposts of life)

    The Gambler

    1. GrapeBunch Bronze badge

      Re: which songs?

      Because to be his wuuu-min. No price is too great to pay.

  5. a_yank_lurker Silver badge

    Differences in Accounting?

    I noticed the comment that issue was differences in accounting systems used in the US vs UK. Not being an accountant, I wonder what differences there would be to cause such a massive difference in valuation as the basic principles and point of accounting seem to be the same world wide (differences in details, defintely yes). Also, any company that does international business bean counters would be very aware these differences. If they were consulted, they should be able to advise what differences could cause confusion. But would these areas be such to cause such a massive difference in the valuation; I tend to doubt it.

    1. eldakka Silver badge

      Re: Differences in Accounting?

      I think it has something to do when you could include in the books ('book' revenue) future sales or some such. That is, in what quarter/year specific income/revenue could be included in the bottom line for the year being reported on. I think, from vague memory, it is something like a contract of sale, even if no actual monies had yet been exchanged, could be booked in the year the contract was signed, as opposed to the year in which the revenue was realised. Therefore if you had a good year in contract signings for future income then it could all be booked 'now', therefore inflating that years revenues. But, if this was done, then that revenue booked in the 'signing year' couldn't be booked in the next year when the revenue was actually received. Or something like this, I'm not an accountant.

      In the US this can't be done, but in the UK it can. So UK earnings for the current year (but not in the long run, over several years once 'averaged out') could be inflated compared to accounting practices in the US. Therefore if HPE assumed that it was being done under US accounting practices, and if HPE used only that one year's books to estimate future earnings, then they could be caught out by the differences in this accounting practice I think the company had more revenue than it had, thus inflating the value of the company in their eyes.

      At least, that's my understanding of the Autonomy side based on an earlier (like, years ago) half-remembered article on the Reg.

  6. Moosh
    Mushroom

    Fire defence opening

    "The real story is that HP, after a history of failed acquisitions, botched the purchase of Autonomy and destroyed the company, seeking to blame others."

    Absolutely savage.

    1. asdf Silver badge

      Re: Fire defence opening

      The HP way. Hope nobody comes out ahead in end (except lawyers who always do).

      1. BebopWeBop Silver badge

        Re: Fire defence opening

        Actually execs and senior management seem to do well. Can’t think why?

        1. asdf Silver badge

          Re: Fire defence opening

          Well usually so but Mr. Lynch is currently in some legal jeopardy. Mr. Apotheker also won't be leading another Fortune 100 company any time soon. Karma maybe not but lose enough other rich people's money and there can be consequences.

  7. Anonymous Coward
    Anonymous Coward

    kick start software business??

    "HP bought it to kick-start its move from the hardware business to software, a corporate strategy that has not been without its difficulties."

    Not sure where that line came from, but HP bought the company I worked for in 1996, using the same logic. In fact, HP had laid me and thousands of other SOFTWARE DEVELOPERS who were DEVELOPING LINUX SOFTWARE just a year before this acquisition. How do you kickstart your move from hardware to software by laying off software developers IN THE AREAS WHERE YOU NEED TO EXPAND???

    HP haplessly bought companies that they thought would give them a boost in the software space, without any clear ideas how they would incorporate said company, nor any clear plan for the software that they were purchasing. Its like someone on high had a brainstorm ("hey, we could do something with THAT, couldn't we?") and bought the companies without fully fleshing out exactly what they could do with the technology that they were buying. And then it takes them 5 years to digest the technology that they just purchased, at which point said technology was already going stale, so they buy another company.

    1. Anonymous Coward
      Anonymous Coward

      Re: kick start software business??

      ""HP bought it to kick-start its move from the hardware business to software, a corporate strategy that has not been without its difficulties."

      Not sure where that line came from"

      Apotheker and his boards plan at the time was to divest the PC division and acquire Autonomy to make a significant move into software.

      While your points around HP being involved in software acquisitions prior to Autonomy, you're correct, they had a significant number of software acquisitions before this point, however, HP had never tried to be a software company by divesting a significant portion of their hardware business with a stated strategy of further software acquisitions.

      I also have no arguments around HP's ability to integrate acquisitions.

    2. eldakka Silver badge
      Coat

      Re: kick start software business??

      In fact, HP had laid me and thousands of other SOFTWARE DEVELOPERS who were DEVELOPING LINUX SOFTWARE just a year before this acquisition.

      So you were literally fucked over?

  8. SVV Silver badge

    Country music song based management

    Presumably this involves hitting the bottle til your wife leaves you, your dog dies and you're feeling lonesome like you've never felt lonesome before.

    One of the more novel "methods" I've heard of, even in a world awash with bullshit management methodology.

    The case seems to be fundamentally about determining whether there is a legally definable concept of absolute truth in accounting, something which everybody who has even the slightest knowledge of accounting knows is a nonsensical idea.

  9. John Smith 19 Gold badge
    Unhappy

    If the frauds are quite small, how come the $8Bn write down?

    Unless they guild up over a long period of time, or each fake entry is the start of along chain of (equally fake) support payments.

    OTOH...

    What if most of that "perceived" value was in the head of the HP Board?

    How stupid would they look (especially if their audit team already Red flagged stuff along the lines of "There's a lot of stuff here that looks odd. Doesn't quite make sense. Strange quirky accountancy rules" etc) if for buying something that suspicious?

    1. Yougottalaugh

      Re: If the frauds are quite small, how come the $8Bn write down?

      Small changes can make a big difference to valuing a business because the first data point for the acquirer in a trade sale is likely to be the growth curve, based on the past and then the future forecast growth. So the past revenue is a highly sensitive metric, which if tweaked, can be very misleading. Full disclosure, I was part of a UK software startup leadership team looking at a trade sale, and was constantly told by the advisers "keep the growth curve looking good". So you are under huge pressure to keep that revenue growing and the curve consistent. One bad year and your valuation drops from a multiple of potential future annual revenues, to a number much closer to the current year revenue.

  10. Doctor Syntax Silver badge

    "The tech lawsuit of the year"

    So you don't think Schrems vs Facebook is going to come to trial this year?

  11. The Nazz Silver badge

    Soul music - What's going on?

    "Lynch and Hussain," said HPE in its court filings, "caused Autonomy group companies to engage in improper transactions and accounting practices that artificially inflated and accelerated Autonomy's reported revenues, understated its costs of goods sold (thereby artificially inflating its gross margins), misrepresented its rate of organic growth and the nature and quality of its revenues, and overstated its gross and net profits."

    I can understand, just, HPE's claim that Autonomy inflated it's gross margins by way of schemes to buy and sell equipment, and pay resellers to do so. Book the revenue on the top line, and move the costs incurred by Autonomy away from the "cost of goods" ie above the gross margin line, and into "other expenses" below the gross. Even if Autonomy actually did this, booked it's costs lower down the P & L it would still have no net effect whatsoever on Net Profits.

    HPE however claim that Autonomy overstated its Net Profits, which is explicitly stating they didn't book their scheme costs in the P & L at all.

    Even if time shifted, ie revenue in period 1, costs in period 2 etc it only enhances the first period and only then until the most basic of auditing procedures uncovers it.

    Good luck to the Judge sitting through this.

  12. Barry Mahon

    Never mind the details, what are the bookies saying?

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