Everything you need to know about the HPE v Mike Lynch High Court case Judgment Day draws ever closer for ex-Autonomy CEO Mike Lynch. As the promised “end of Q1”* date for judgment in the years-long case draws closer, The Register has collated a handy cut-out-n-keep guide to what the case is all about. All the way back in 2011, the year when Adele’s single "Someone Like You" was top of the charts …
As the promised “end of Q1” date for judgment in the years-long case draws closer ...
I doubt we'll see the end of this for a few years still.
HPE will keep going on and on till there's no air left to breathe, both in the UK and in the US, they have the money to bankroll an endless lawsuit.
Basically because if they lose the case, they are probably done.
For good, left to evanesce into nonexistence like other large IT corporations have.
eg: Sun Microsystems.
What still has me baffled is that while in the in US you can more or less file a lawsuit for just about anything you consider to be a legitimate grievance and actually be accepted in court, no class action has been taken by HPE shareholder's against the company and/or all those involved.
8.8 billion dollars is certainly not a number any corporation can ignore, more so if it is a write off on the puchase of a company they paid 11.7 billion for.
ie: over 75% of the price paid.
Such a lawsuit should put things straight very quickly with the blame clearly set on those responsible.
ie: HP's CEO, CFO and executive board.
Maybe Lynch is a crook, don't know.
But I'm convinced that the HPE executives involved in this monumentally absurd fuck-up are either crooks or dumber than a Brillo pad.
My odds are 10-1 to their being crooks.
@Gareth: thanks for the write up.
I was starting to lose track of how things were going.
O.
Doesn't this just come down to Caveat Emptor.
If I was going to drop 10bn of someone else's money on some magic beans, then I would want to know they were very magic.
I don't think the trades descriptions act exist in publicly traded companies, even ones trading in magic beans.
As most of the value of this purchase was as in the hope of future earnings and growth, they obviously thought this would prop up HP's balance sheet and save their skins.
For HP to then write down the investment so fast is pretty potent evidence that the original assessment must have been less than accurate.
>For HP to then write down the investment so fast is pretty potent evidence that the original assessment must have been less than accurate.
Probably a case of the emperor's new clothes; HP's board were so obsessed they saw what they wanted to see. Having won the prize they desperately desired, it wasn't long before the cold light of day began to shine as reality sunk in...
"What still has me baffled is that while in the in US you can more or less file a lawsuit for just about anything you consider to be a legitimate grievance and actually be accepted in court, no class action has been taken by HPE shareholder's against the company and/or all those involved."
They did, it was settled out of court (in the HP days, before the split)
Source:-
https://www.reuters.com/article/us-hp-classaction-pggm-idUSKBN0OP17O20150609
They did, it was settled out of court (in the HP days, before the split)
Thanks for the heads up.
But I don't get it.
HP flushed 8.8 billion down the toilet and settled the matter with their shareholders for a measly 100M?
100M which, in the end, comes out of who's pockets?
Isn't that just 100M more to be added add to the 8.8 billion write down?
Moot point, it's not my money.
O.
""100M which, in the end, comes out of who's pockets?"
The shareholders' pockets."
Really? Not out of customers and employees pockets, for example?
I mean obviously it couldn't come out of board-level people's pockets, they're paid little enough as it is, without actually having to carry any personal and individual *risk* for the things for which they are supposedly responsible (hence their personal and individual "compensation").
""Moot point, it's not my money."
Check where your pension's invested."
I don't know if I dare look, seeing as a large chunk of it is now with the HP Retirement Benefits Plan (by acquisition).
I don’t get why so many commentators are so vocally anti-HP, pro-Autonomy here. It is obvious that they were cooking the books to some degree - the auditors have already been punished!
Maybe not $8B worth of cooking, but it was fraudulent, and that’s on Autonomy no matter how bad HP’s due diligence was.
I personally hope to be part of at least one more buyout in my career. These crooks have made sure that whoever buys my current outfit will pay less than we might have gotten otherwise. That’s why I want to see Lynch fry.
Two seperate issues.
1. If Autonomy WERE cooking the books (which has not been established) then yes, they should be punished for that
2. I have no sympathy for a company that wants to buy another one, pays to have the due diligence done, ignores both the concerns of their own CFO and any concerns that were in the due diligence (which they admitted to not having thourghly read) and then cries foul.
If I bought a house that a surveyor said was falling down, but I ignored the report and the advice, that's on me, not on the people selling it.
No, that's why you have the neutral third party (at least, the 3rd party is supposed to be neutral but that's another story). I can't speak for other countries but in Scotland it is a legal requirement to have a surveyor-prepared home report on every property sold. If I am buying a house with a mortgage then the mortgage provider sees the report too. If I am buying the house outright then it is all on me if I ignore what is in the report.
Deloitte were the auditors. The problem is, the whole auditing industry is completely broken. They almost universally turn a blind eye. Where are the regulators?
The Wirecard AG scandal was enabled by auditors EY without any blowback whatsoever. A good read - https://www.ft.com/content/745e34a1-0ca7-432c-b062-950c20e41f03 by the FT journalist reporting on Wirecard who had fraud charges brought against him by German authorities, until everything he write turned out to be true.
I'm not sure that analogy works.
We don't know if the house was falling down or if HP abused it to the point were it fell down.
The seller asked his engineers if it was falling down and they said "no" (accountants), the architect checked their work and he said all was rosy too (auditors).
The buyer had enough access to the house to decide if all was well and didn't bother turning the fist page of the report.
Most of the practices mentioned are flat out fraud under US laws. And the defense of "well, you should have caught that we were lying" is almost a joke. Which perhaps explains why they didn't bother to put up anything than a token defense in the US criminal trial.
In a similar vein the "well, our auditors didn't catch that we were lying" argument in the US could actually hurt their case. They are essentially admitting to fraud. The purpose of an audit is to verify that the numbers presented are prepared based upon certain rules and practices (GAAP - Generally Accepted Accounting Principles.) While an audit will make an effort to detect fraud it is no guarantee. By definition the client is lying and trying to cover up the lie. The auditor can't magically know when they are told a lie when the information given is wrong but internally consistent.
A good example is the flip flop scheme. You give me money, I give you the same money back, and we both record it as a sale. It is fraud under US law but if you aren't given the agreement how would you know? Did (on paper) A buy from B? Yes. Did A pay B? Yes. Did (on paper) A sell to B? Yes. - or even better A sell to C, B's subsidiary.) Did B pay A? Mix that in within a lot of other transactions and it can get difficult to catch from the outside.
0. Anyone who was anyone knew HP overpaid. If you look at the comments section of the Reg stories at the time they are either OMFG or PMSL about HP.
1. Funnily enough the UK Fraud authorities declined to prosecute in this this case which suggests that a) at worst there wasn't enough evidence to prove fraud or b) at best everything was above board.
2. Auditors - see above. Plus the value of the deals highlighted is some tiny fraction of Autonomy revenues at the time. From memory it was essentially immaterial in a financial sense, a couple of % of sales but nothing that was justified
3. GAAP <> IFRS. HPE appear to have had very little understanding of the differences.
4. The due diligence wasn't even completed AND the preliminary report never read. HPE had literally no idea wether they were buying a Tesla or a Model T.
Anyone of these points alone puts HPE on dodgy ground, all 4 would make me very surprised if they succeed.
Also some nuance for the USians. This is a civil case - where judgement is made on the balance of probabilities of something alleged being true, the burden of proof is lower than a criminal trial. If this goes against HPE, Lynch will have a mega strong argument against extradition, as it begins to look like Uncle Sam the bully again.
There are two ways of valuing something. One is to add up the sum of the bits,which is the valuation being disputed now, and the other is what a willing buyer is prepared to pay for it which seems to have been the basis on which the deal was done.
The second valuation is essentially what the buyer thinks it's worth to themselves. One view of that would be what it could be made to earn for them when fitted into their wider operation. AFAICR there were arguments bandied about which spoke of "synergy" and the like.
If that were the case then (a) the previous management were wrong in that judgement or (b) the subsequent management are wrong and that if they'd got on with the job they could have realised that value. The realisable value could, of course, have lain in the middle and both HP managements were in error - never something to be discounted in an HP that no longer contains an H or a P.
An alternative view of what it was worth to them was that it was looked on as a trophy in a willy waving contest between HP management and Oracle (whether Oracle regarded themselves as being in such a contest is neither here nor there, it was sufficient that HP did) and they made what they thought was needed to win the bidding.
The fact that the KPMG report was ignored suggests it was the second valuation that was adopted and, for whatever reason HP have now suffered a severe attack of buyer's remorse.
Finally, don't forget that a lot of sentiment here is based on the huge respect in which HP was once held and disgust at successive managements who have brought it so low.
No, but a more accurate analogy is to give the house a makeover ie. new paint everywhere, new doors on the kitchen cabinets, and omit to mention the damp (which the new paint hides), the window frames underneath the paint are rotten, the kitchen cabinets are falling apart. All things a good surveyor would uncover and mention in their report and you would find out about if you could be bothered to actually read the report...
"If Autonomy WERE cooking the books (which has not been established) then yes, they should be punished for that"
I think its fair to conclude that if the authors were fined 15M its highly likely someone thinks the books were indeed fully cooked then reheated and finally deep frat fried. That someone is the body overseeing standards in not cooking books. Probably a safe conclusion (in the 99% range of likelihood).
If your (1) is wrong then your (2) sort of falls. So please have sympathy. And if your surveyor said the house was ok but the builder had convinced the surveyor by producing fake certificate then its not on you or on them. And that's a far better analogy for what happened.
>I think its fair to conclude that if the authors were fined 15M its highly likely someone thinks the books were indeed fully cooked then reheated and finally deep frat fried.
Err no.
The fine was for not performing a proper audit and to set an example: "The fines will cement the idea in the public mind that Deloitte acted without “competence and due care and professional scepticism”
[ https://www.theregister.com/2020/09/17/autonomy_deloitte_auditors_fined_15m/ ]
If the Financial Reporting Council actually thought the books were fully cooked then they were in a position to engage the fraud squad...
I don't know Lynch from Adam (and I don't know Adam that well) so I'm neither pro nor contra either side.
However, it does seem Lynch was told by his accountants that what did was OK and that was then signed off by the auditors. The auditors may have acted wrongly but that's nothing to do with Lynch unless it can be proven that he put undue pressure on them to lie or that he hid things from them in such a way that they couldn't be expected to find them. I don't think that's the case.
On the other side you've got HP who don't seem to have even read the due diligence they did.... and that's just the tip of the iceberg.
It's not so much pro Autonomy but that HP manglement was so bad for years before that many independent observers do not truly believe manglement's claims (aka lies). Leo, some galaxy is missing their idiot, was one of the worst and would have dumb something else equally as idiotic if the Autonomy deal fell through. His own CFO said it was bad deal and not to do it.
Whether Lynch, et. al. violated some arcane bean counter rules is an issue most of us are not knowledgeable enough to comment (nor are any of the courts either). But it is probably not relevant other than it might provide a lifeline for HPE to survive a few more years.
My understanding is you need all of causation, mens rea, and mens actus.
While HP may or may not have proved the mens rea andens actus, due to HPs own incompetence causation looks dubious.
Even if Autonomy did mislead the KPMG auditors, with the intention of misleading HP, HP have, as I understand it, failed to explain how that mislead them, given they didn't wait for the final due diligence report. Further, it is hard to claim the HP board was deceived when one member of that board was strongly opposed to the deal.
Ironically, it is possible that Lynch could indeed be guilty of criminal fraud (i.e. doctoring the books) while still being innocent in this civil case (I.e. that doctoring didn't mislead HP because they didn't read or rely on the doctored books).
A pox on both their houses, I say.
Is that you Leo?
Pro-Autonomy, maybe because the HP board were dicks? If you remember this is the same time Leo also snatched up Palm and then promptly destroyed it. A company who's WebOS was streets ahead of Android or iOS, and a different galaxy to WinCE. <-- Did MS not possess an English dictionary?
In addition, if Lynch and co had done anything wrong there would have been a criminal prosecution over here. BTW this is a civil case.
"if Lynch and co had done anything wrong there would have been a criminal prosecution over here."
Whhat planet have you been on for the last few years?
For starters, try this from 2012:
http://uneasyempires.blogspot.com/2012/11/autonomy-on-trial-what-i-saw-in.html
In the bigger "why hasn't there been a prosecution" picture: it is widely accepted (and documented) by people with clue that the City institutions are a high class global centre for dodgy dealings on a huge scale, quite possibly the world's largest single centre for such dealings. And that's even before accounting for e.g. Tony Blair's interventions with the Serious Fraud Office on behalf of the arms manufacturers and their Middle East dealings.
If large scale dodgy dealings were to realisticaly lead to any kind of prosecution, where would all that hot money from Russia and China and .... end up? The loss of all that hot money to be laundered would mean that London property markets would collapse almost overnight, and the price of housing might start to be more realistic (for ordinary folks) again.
Those prosections can't possibly be allowed to happen. Here's one of the first ones that *might* get close:
https://www.reuters.com/article/natwest-regulator-idUKL1N2LK0EB
LONDON, March 19 (Reuters) - Criminal money laundering charges against British state-backed bank NatWest are linked to a separate case against 13 individuals based in cities across the country, prosecutors have told Reuters.
Britain’s financial regulator, the Financial Conduct Authority (FCA), started a criminal action against NatWest on Tuesday, making it the first bank to be charged under a 2007 money laundering law.
The FCA accused NatWest of failing to monitor suspect activity by a client that deposited about 365 million pounds($500 million) in its accounts over five years, of which 264 million was in cash.
The Crown Prosecution Service (CPS) said in a statement to Reuters on Thursday that the FCA’s proceedings against NatWest involved the same accounts linked to the 13 individuals it has charged separately with money laundering offences.
...
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