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Autonomy founder Lynch was made a scapegoat for HP’s incompetence, the court said

LONDON (Reuters) – Hewlett-Packard’s botched $11.1 billion acquisition of Autonomy, and then tried to cover up its own mismanagement by blaming the British software founder Mike Lynch of fraud, a London court was told on Wednesday.

The british entrepreneur Mike Lynch, leaves the High Court in London, great Britain March 25, 2019. REUTERS/Henry Nicholls

HP sues Lynch, once hailed as Britain’s answer to Bill Gates, together with his former finance chief Sushovan Hussain for more than $5 billion from the 2011 Autonomy deal went miserably wrong for the Silicon Valley group.

Lynch denies any wrongdoing and says HP’s mismanagement was responsible for the failure of the acquisition. Hussain also denies any wrongdoing.

HP wrote down the value of Autonomy by $8.8 billion, saying it had discovered serious accounting errors. HP suing Lynch and Hussain for $5 billion of that amount for making the case-Britain’s largest fraud trial.

HP’s lawyers told the court when the case opened this week that Autonomy had inflated his actual value by means of a series of fraudulent transactions, such as selling hardware at a loss and the so-called round-trip deals – a kind of barter with no real commercial principles – the mastermind behind by Lynch.

In his opening argument for Lynch’s defense, Robert Miles QC said HP had discovered only a small number of historic deals that were said for one or the other illegal function, despite spending several years and huge sums of money to the search.

“All of the deals now attacked were genuine commercial deals with real counterparties. The suggestion that Dr. Lynch was in the business of conning tower HP is unreal,” he told the London High Court.

“HP, on the other hand, was a huge but struggling company.”

Lynch is also facing criminal fraud charges in the United States, which have a maximum maturity of 20 years. Hussain has been convicted of fraud in a US case in connection with the deal.

STRATEGY REVERSAL

A year after acquiring Autonomy, HP threw Chief Executive Leo Apotheker, the architect of the deal that was supposed to transform the computer and printer maker, one of Silicon Valley’s original companies, in a more profitable group focused on business software and services.

Apotheker was replaced by Meg Whitman, who planned to focus the company on its core hardware strengths after a protest by the shareholders of the new strategy, and a strong decrease of the HP-share.

“Autonomy remained as HP unwanted child,” said Miles.

Both the Pharmacist and Whitman are expected to appear as a witness in the London trial.

As the case is opened on Monday, HP’s lawyer, Laurence Rabinowitz, QC, said the AMERICAN company had been led to believe that the purchase of a fast-growing pure software company.

He told the court that Lynch and Hussain had knowingly been involved in “widespread and systematic false accounting” for the making of a materially false picture of Autonomy of the public finances.

Autonomy had engaged in “revenue-pumping” by encouraging customers to buy the products in exchange for the purchase of goods from them that do not need it, restructuring offers to produce prepaid licensing fees, and secretly the sale of pure hardware, not even programmed with the software at a loss, Rabinowitz said.

Lynch’s lawyer told the court that it is absurd to think that the 53-year-old was the detailed day-to-day accounting decisions. No, he used a finance department under the supervision of an audit committee and the board of the company, Miles said.

Miles also said that it was impossible to understand why Lynch would have taken an executive position at HP after the deal, if he really had committed a massive fraud with the AMERICAN company as the victim.

“The thing that we are now hearing that means that Dr. Lynch must be very vague and, as you will see, there is no chance that he is,” said Miles.

Lynch was present at the session, but is not expected to be questioned until around July.

Miles also told the court that the $5 billion figure for that Lynch and Hussain be prosecuted, was not based on HP’s own commissioned audits, which had not found a basis for the write down of Autonomy in the months following the acquisition.

Hewlett-Packard Company in 2015, split into two separate publicly traded companies – HP Inc. and Hewlett Packard Enterprise.

The case is expected to last until the end of the year.

Editing by Jane Merriman

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