Our sales were to genuine customers, Autonomy ex-CEO Mike Lynch insists in court As his marathon Autonomy-era cross-examination comes to an end, former CEO Mike Lynch has entered detailed denials to every allegation put to him by Hewlett Packard’s legal team – and appears to have the judge on his side. Over the last week, Lynch has been grilled in London's High Court by Laurence Rabinowitz QC about …
All those circular transactions do look strange. Tom has no money, but sells a million worth of something to Dick, who has no money, but Dick sells a million back to Tom and then "pays" Tom with the money he just got from Tom, except Dick didn't actually receive any money - he's using accrual accounting and recognizing revenue when it's "earned" and before it's received. As is Tom. Sounds like a game of pass the parcel. Dunno if it's all legal or not -- that's the judge's job -- but sounds dodgy as hell to me.
IMHO, tricky accounting is mainly a tool of crooks. Now many of those crooks are LEGAL crooks. There are lots of legal crooks, like most all big corporations these days. But just because something is legal doesn't make it right.
Reminds me of the old joke about a company hiring a new accountant. Interview question was "How much is 2 + 2?" First candidate was a mathematician and proved 2 + 2 = 4. Next candidate was a computer expert and proved that 2 + 2 = 3.99999999 (yes, the joke is that old). Third candidate got up, closed the door, pulled his chair next to the interviewer, leaned over and whispered "How much do you want it to be?" He got the job, of course. I'm sure that was the kind of accountants Autonomy had working for them, but so did HP, no doubt.
"All those circular transactions do look strange."
It depends though. In a sense, all transactions are circular. I give you something you want, you give me something I want. In many transactions one side gives the other money, but as long as both sides get something they want that's not a problem (except both sides give it a monetary value for tax purposes). So circular deals should be separated from 'fake circular' deals, where neither side wants what the other is offering but they both do the deal to pad their income (but not profit).
RTFA: There were a minuscule number of transactions in kind rather than cash. “So in $2.2bn of revenue, what we’re actually seeing is something along the lines of $9m where we didn’t get the cash." And come back if you find a few billion rather than a few million in "dodgy" (even if legal) transactions.
Does the Defence really have to say anything at this point? Apart from "Free the CFO one"?
The problem is, we only have the summarised details from the trial reporter, we don't actually have the documents around the deal or the accounting trail to look at...
It sounds dodgy in the summary, but if it was dodgy, why did Deloitte sign it off as correct, when they analysed the books?
And, if he is right, it was a miniscule proportion of total sales.
IMHO, tricky accounting is mainly a tool of crooks. Now many of those crooks are LEGAL crooks. There are lots of legal crooks, like most all big corporations these days. But just because something is legal doesn't make it right.
I think it's more a case that to make sure it's right & legal, you need good lawyers and accountants. It's also why I often hated working via resellers because it just made everything more complex. So figure on a Vatican deal via a reseller. Your HQ is in one country, your sales director in another, your reseller in a third and the end-user is another country all of it's own.. Which I think mostly follows Italy's laws, but I've never been involved in a deal with God. Or his appointed representative on Earth. Which could make asking for a meeting with the customer's CEO... interesting, especially if they said 'OK'.
But basically a bunch of seperate contracts, payments and timings that all have to be reconciled and kept legal. So from the Capax article/discovery...
Once the Autonomy products on a purchase order have been shipped by Autonomy, VAR [value-added reseller] may not cancel or amend the purchase order without the prior written consent of Autonomy.
That I kind of know. So reseller does has a deal close to closing. It may need kit & licences to do demo/POC or just so it can meet delivery schedules once the deal closes. So that may mean supplying a licence, ie a cost.. which may end up not being required. So PO issued by reseller, credit note by supplier to cancel that out. In an accounting sense. I think. But the kind of deal I'd insist went through finance, so my ass at least was covered. I'd also be wary of trusting sales because they may have their own interests, ie commission paid on booked revenue, and not wanting that clawed back if a deal never really completes.
The Vatican definitely doesn't follow Italian tax law. Given the nature of its economy, it doesn't have any particular need for tax. The only private enterprise in the country is one branch of McDonalds, and I believe they just charge a higher rent to get the money out of them rather than set up a tax system just for that one business.
See? It's why I'd run it by finance! :)
(And also be thinking of how I could invite myself along to any meetings there. That deal was interesting because digitising Vatican archives opens the possibility of making them more accessable to researchers.)
Tax is something I'm more familiar with, ie tax exempt status is common with public sector contracts, UN agencies, some charities etc etc, but still worth checking. For the Vatican, I was thinking more along the lines of general contracting, and in Autonomy's case, making sure deals get reported for US and UK entities in accordance with those standards. So if HP's arguing that treatment wasn't correct per US, it doesn't seem very relevant if the parent's UK accounts were treated correctly.
Actually I think that's astonishingly low.
Britain is 2nd in the European league of slow paying businesses. Only Italian companies are slower (yes accountants do keep track of such things).
Not only would that 9m have to be circulate back and forth but it would have to multiply doing so to turn $9m into $2Bn of business.
Or is he going with the "This is just a specimen transaction, we have dozens (hundreds?) more that follow the same pattern" ?
Autonomy didn't sound like much of a business but HP's case sounds very weak. How is that possible? They wrote off $8Bn of its price (or put another way wiped $8Bn off shareholders assets). They don't seem to be putting up much evidence to explain why (and then proceed to who caused those transactions, which would be who they should prosecute).
It might be that they don't have any. It's just that HP is miffed that the golden goose turned out to be a turkey, and they want a scapegoat.
The fact that HP upper management didn't pay attention to the people they had who were saying that it was a bad deal is not pertinent to HP.
It is to everyone else, though.
Every Reg commentard said they were overpaying at the time. We could see it at the time, with no suggestion of fraud, just that it was a mature business in a saturated market.
The directors of Autonomy, like any other company, are required to act in the best interests of their shareholders. If HP comes along and offers to pay over the odds for the company, then the shareholders' bests interest are served by accepting that offer.
I think one of the issues is that a large purchase is good press - sort of an "oh, that company MUST be doing well, look how much they just paid for that other company - very big acquisition what what" - HPE were probably happy to pay that much not only because of some misplaced belief in Autonomy's actual value, but for press coverage.
Obviously in this instance it was hampered by the fact that it was such a poor purchase decision that it backfired and called their sanity into question.
It seems as though the possibility of Lynch being exported to the land of the free[sic] is getting slimmer every day. Although with Patel now in the Home Office, it is anyone's guess. But given all the publicity that the civil case is bringing, and given the difference in interpretation (reasonable doubt vs. balance of probabilities) Lynch might be seeing the light at the end of the tunnel, and for once it is not that of an express train coming the other way.
I'm not sure if you'd heard or not, but the courts have been independent of the government for about the last six hundred years.
The Sovereign is ultimately the last point of appeal in the UK and the home secretary can recommend to the Sovereign that they grant a pardon or request to a court that a sentence be reviewed, but they certainly can't make court rulings of their own.
and appears to have the judge on his side.
Obviously I speak from ignorance here: all I know is what I've seen reported, mostly in El Reg.
But is it not said that judges may appear to favour those they anticipate coming down hard on? Something about being very clear that they're being fair to an eventual victim, and limiting the scope for appeal.
If the judge finds for Lynch, then is it not likely that having appeared to favour him could support an appeal by HP?
Cross examination that is widely off point, wasting court time. Making statements in cross examination rather than asking questions. All of which the counsel for HPE has been warned about. That is not apparent favour, based on previous articles, it is the judge applying judicial law.
Using judicial bias as the basis for appeal is a VERY dangerous tacit. Highly subjective, that scenario causes a shit storm in law circles that drags on for years. Which means if HPE tries to force that issue, I'll need to buy options in popcorn manufacturers.
The only thing HPE have proven is their incompetence. Lynch and co might be guilty as sin, I have no idea. If it was 'him who dun it' and after all these years this is all HPE can show up with in court then either Lynch is innocent or incredibly smart and HPE are unlucky or incredibly dumb.
"It's not about what I think, it's about what I can prove."
I might think that Lynch looks a bit shifty and probably would cook the books of any company he was involved with, especially if someone like HPE was sniffing around to buy. That's my opinion and as such carries f**k all weight in any court of law.
But
It's HPE who bought the company and are unhappy with the results and it's up to their (no doubt very expensive) legal team to prove actual illegality.
Given HPE's internal finance people were twitchy on the deal I'd say Lynch was quite smart and HPE were quite dumb, or just arrogant. It's there shareholders who got it in the neck when that value was wiped off their stock price.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
