Autonomy's Mike Lynch loses battle against extradition to the US on fraud charges UK tech tycoon Mike Lynch is running out of options in his efforts to avoid extradition to the US to face wire and securities fraud, conspiracy, and similar charges in connection with the $11 billion sale in 2011 of his software company Autonomy to Hewlett-Packard. In a ruling today, the High Court of England and Wales in …
Seems to me this is like malware authors vs anti-malware-scanner authors. In this case, it was Autonomy's executives and/or accountants vs HP's accountants. In both cases, a crime was committed (launch of malware, cooking the books).
A lack of due dilligence (did HP's accountants even look at Autonomy's books? I don't know), or simple less-competence-than-the-opponents doesn't erase the crime.
did HP's accountants even look at Autonomy's books? I don't know
All of this was covered in gruesome detail (I'd say "excruciating", but it was actually all pretty entertaining) in previous Reg coverage. HP chose KPMG to perform their due-diligence review of Autonomy's accounts; KPMG started and issued a preliminary report, but warned that they were unsatisfied with the information they had access to; HP's CFO raised objections to the deal but was overruled; Apotheker went ahead but later admitted he didn't even read the preliminary report.
In short, HP – under Apotheker's direction – just made a show of due diligence, rushed into the deal, and overpaid hugely.
Lynch and Hussain and others may well have committed fraud, based on the legal findings to date, but I agree that HP and Apotheker in particular bear most of the blame here. And also with the general sentiment that the extradition relationship between the US and UK has not been exercised in an equitable manner, or for the promotion of justice. I would not have minded the UK telling the US to take a hike in this case.
I lost $100K in employee stock options in this fiasco so I have, or at least did have, some skin in the game, and you're absolutely correct: HP's senior management team (including the CFO who should have resigned) and board (including Meg but primarily Ray Lane) bear 100% for the responsibility for this. They are the ones who owed HP shareholders a duty of care (Lynch didn't) and were collectively totally derelict in their duty. They should go to jail not Lynch. What's the point of due diligence when the CEO can't be bothered to read the due diligence report!?! What was the point of the CEO? Or even the CFO?
... and you're absolutely correct ...
Indeed ...
Just carefully reading all that was written/reported about this scam (for it is a scam, just not Mike Lynch's one) in reputable news sources such as this one can only get you to the same conclusion.
Just need to have the modicum of common sense that Priti Patel and the courts evidently do not to have although I have the distinct feeling that they also have skin in the game.
I'm sorry you lost your stock options, but ...
Being the US a country where you can sue anyone for almost anything, why isn't there a class action against all those involved?
And where are the $11.7 bn?
.
So ... The UK government finally gave in and accepted to extradite Lynch.
Unexpected? Not really, after all business is business, the UK is under Tory rule and 11.7 billion of anything is a lot of anything.
Absurd? Absolutely.
The bean counters working on behalf of/for HP on the purchase were fined £15m for not properly scrutinising Autonomy's books and giving the green light for the deal to go through.
It was reported that more than 15 well known firms advised HP on the Autonomy deal: UBS, Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America and others with Slaughter & May and Morgan Lewis serving as the company's legal advisers.
All of these business/legal heavyweights count with hundreds of (very) highly paid professionals within their ranks yet not one of them objected to the deal.
Are we to believe that all these firms are staffed by idiots? That not one of the many lawyers, accountants, etc. working there had anything to say?
8.8 billion dollars is a number you do not play the fool with, be it yours or not. (unless you are Elon Musk).
You can manage to write off (maybe) up to 10% on a deal like this one because ... ... whatever. Seems it happens very often.
But 8.8/11.7 is a 75% write off. And the only person responsible for this is Lynch? <- 8^D !!!
I think that this was a carefully orchestrated scam, the workings of which will probably remain in the dark for decades.
Make no mistake. Lynch is nothing less than a pirate (due respect for pirates, of course) but in the Autonomy case, he gets to play the fall guy.
And the question remains: just where is all the moolah?
Years from now, the truth of all this will (as it inevitably does) float to the surface.
But justice will not have been served.
.
With you on this - i think it's absurd that I can't sell a service to HP without exposing everything including my grandma's underwear to them for scruitiny but somehow Lynch sold them a dud for 8billion more than it's worth, despite oversight by a due dilligence 'conglomerate' worth more than 8billion itself!
ABSURD
the UK is under Tory rule and 11.7 billion of anything is a lot of anything.
A pity that the US can't find something to extradite the very same Tory government members - that some pales in comparison to the sums envolved in the PPE write-off and the Truss/Kwartang not-budget blow-out. Any US entities got burned due to the latter stupidity and incompetance?
Yeah, a whole year of negotiations between the two companies before the deal was signed and not one of the people advising HP who had access to documents said Autonomy was overvalued?
And the reaction from everyone, and I mean everyone in the IT industry when the deal was announced was, "WTF....? How much?"
Perhaps Autonomy did cook the books, but this makes it look like they had a truly excellent accounting chef and HP could only afford the junior staff from their advisory companies. But to be honest, having worked for HP for a few years 30-odd years ago, and then again from around 2009 onwards the complete change in the whole culture and management style had turned a once truly brilliant company into another generic, self-serving, profits at all costs organisation run by idiots who didn't have the slightest interest in the company as a whole or it's workforce. They're just bitter because they were made to look absolutely stupid. Serves them right too.
Sure. No one has ever abrogated a treaty. The US Federal government certainly never has.
Honestly, if Patel had said no to the extradition, what would the consequences have been? Some stern words from the US Department of State, some frowny press conferences from Justice, and in a week it would all be forgotten.
The UK government gave in when Patel approved the extradition. This was just the court saying there were no legal grounds to overturn it.
The real line of defense against the abuse of the extradition arrangement ought to be the Home Secretary. But the party that (some of) the voters put into power decided not to appoint one with any backbone, just one who would parrot the usual "MOAR SURVEILLANCE" bullshit.
Not that the US Federal government has been any better at defending civil rights of late, of course.
The whole episode doesn't look good for either side. Some facts that often don't get stated make the current status more understandable.
Although originally a UK company (Autonomy Corporation PLC) it listed its shared on the US NASDAQ exchange so financial oversight was a US concern as well.
Evidence from the various trials and audit reports appears to show that HP C-level and directors curtailed or ignored due diligence reports and advice from their own financial people regarding value
HP offered a 79% premium on the share price when it made its offer in August 2011 (share price ~ US$23.50, offer US$42.11)
In October 2011 HP bought 87.3% of the shares (~242,222,749) for US$10.2 billion (giving the balance sheet valuation of ~US$11.7 billion)
If HP hadn't offered and paid the premium then the value of the company at time of offer was ~US$6.5 billion
HP C-level and directors must have decided that paying 79% premium was worth it based on projected revenues.
Evidence seems to show that methods, information and supporting data for recognising sales, and projected revenues ,was manipulated within Autonomy senior leadership.
Auditors for Autonomy signed off on the accounts that incorporated the disputed methods and information.
Weak case for sure. Should he be extradited? Maybe, I suppose if HP has enough of a case for trial then they get their trial. There were reported "irregularities" in the company. Whether they were illegal or just not-quite-standard, I don't know.
Should he be found guilty? Probably not! HP vastly overpaid for this company, even taking Autonomy's numbers at face value. They had firms do the due diligence, those firms found that HP's proposed buyout value was too high... HP then ignored the due diligence reports and paid the price they paid anyway.
I recall when HP bought Autonomy -- it was widely discussed at the time that HP was ridiculously overpaying for the company. (Per Wikipedia, HP paid *79%* over the market price for the shares -- who the hell does this?) Then within a year or two they had to hugely write down the purchase -- of course, acting like it was a huge surprise that a company that they paid 79% over market price for was not worth what they paid for it, what a shocking shocking surprise amiright?
"It was reported that more than 15 well known firms advised HP on the Autonomy deal: UBS, Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America and others with Slaughter & May and Morgan Lewis serving as the company's legal advisers.
All of these business/legal heavyweights count with hundreds of (very) highly paid professionals within their ranks yet not one of them objected to the deal."
Oh but they did object -- I recall reading articles at the time (or probably after HP wrote it down) bringing up that these firms found 'irregular' accounting and (even if you took that accounting at face value) HP was vastly overvaluing the company. For some reason HP paid for these reports and apparently didn't read them!
I'll just note that HP's (Apotheker's) foolishness and incompetence does not, from a legal standpoint, excuse any fraud committed by officers of Autonomy. They can both be in the wrong.
So that shouldn't affect whether Lynch is convicted.
That said, I think Lynch should be tried in the UK (on the criminal charges; he already lost the civil case), and if convicted punished there. And I'd be in favor of dropping the whole thing except that seems rather unfair to Hussain, who after all is in prison already and was hardly solely responsible for whatever fraud did occur.
The real pity is that none of this blew back on Apotheker and the HP board that backed him. If I were an HP shareholder I'd be far more angry at them.
Due to the OpenText acquisition I don't have more-recent figures handy, but in the FY2021 Annual Report, the IM&G portfolio, which includes IDOL (the former Autonomy product) claimed around $390M in revenue. It's not broken down by product, though, and there are heavy hitters such as Vertica in that portfolio, so... you probably won't find out from published information.
It'll be interesting to see how it does under OpenText, where there's more of a relationship to their traditional product line, but also possibly more overlap with it.
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