HP’s blockbuster $5.1 billion legal battle against Autonomy’s former CEO Mike Lynch is about to kick off

After nearly eight years of acrimony, HP and Autonomy founder Mike Lynch are finally heading for their $5.1 billion legal showdown on Monday.

In a court battle that could last as long as nine months, and include explosive testimony from key players who have said little or nothing publicly about the case, HP’s 2011 $11 billion acquisition of Lynch’s enterprise software business Autonomy will undergo a forensic examination.

HP has accused Lynch and Autonomy’s former chief financial officer, Sushovan Hussain, of fraud and overstating the company’s value. Lynch and Sushovan deny the claims, with Lynch countersuing for $150 million.

Former HP CEO Leo Apotheker.
Getty

The original Silicon Valley company, HP was a giant of enterprise and computing software. But tech started to change and, by 2011, software was “eating the world,” as venture capitalist Marc Andreessen put it at the time.

SAP executive Leo Apotheker was appointed to run HP in late 2010, and the Autonomy acquisition was the centrepiece of his strategy to turn HP into a software giant. It didn’t pan out, and Apotheker was fired even as the deal closed.

Former eBay CEO Meg Whitman took over the top job in late 2011. A year later, HP’s stock hovered at around $15 and the firm wrote off $8.8 billion worth of the Autonomy acquisition.

In 2015, HP filed a claim in the London’s High Court against Lynch and Hussain. The trial begins on Monday.

HP alleges that Lynch and Hussain conspired to cook Autonomy’s books, resulting in HP overpaying for the firm by $5 billion. It claims the pair were “engaged in fraudulent activities while executives at Autonomy” and were responsible for “serious accounting improprieties, disclosure failures, and outright misrepresentations.”

Lynch and Hussain both deny the allegations, and Lynch is countersuing for $150 million for reputational damage. They say any lost value was purely down to HP’s own poor management of Autonomy after it was acquired.

Complicating the London proceedings is the fact that the US Department of Justice filed a criminal indictment against Mike Lynch in November, charging the entrepreneur with fraud. Lynch has not travelled to the US for the proceedings, and may face extradition.

The US added new criminal charges to its indictment on Friday, which carry a maximum prison term of 25 years. Lynch did not immediately respond to the new charges, but the timing will only intensify the pressure on Monday.

Sushovan Hussain, Autonomy’s former CFO.
Autonomy

The US has also already found Sushovan Hussain guilty of fraud, convicting him on 16 counts of wire and securities fraud. Hussain’s sentencing has been postponed, and his bail conditions prevent him from leaving the US. Although a separate criminal trial, the guilty verdict could bolster HP’s case as it heads to court.

According to court filings from HP seen by Business Insider, Hussain intends to participate in the London trial. It isn’t clear whether he may participate via video link. HP has argued that Hussain should give evidence earlier than planned, in case his sentence, when it comes, results in his imprisonment.

Another complication has been Christopher “Stopher” Egan, the former CEO of Autonomy’s US operations. Egan entered into a “deferred prosecution agreement” with US prosecutors in 2017, which saw him become a cooperating witness and admitting to some wrongdoing.

Egan was to be HP’s star witness in the London trial but, The Register reported, he was not keen to give evidence after his US legal ordeal.

Business Insider now understands, however, that Egan could give evidence at the London trial. Lynch and other key personalities from HP’s history are also expected to be called to give evidence. That includes Leo Apotheker, the former HP CEO who oversaw the deal, and his successor Meg Whitman.

A spokesman for HP said: “HPE does not wish to comment on an ongoing legal matter at this time.”

A spokesman for Mike Lynch said: “Mike Lynch is pleased to finally have the opportunity to respond in court to HP’s accusations. There was no fraud at Autonomy. Rather, this is a case that distils down to a dispute over differences between UK and US accounting systems and will focus on the appropriate exercise of business judgments made in a particular context and time with the full knowledge and approval of numerous financial and technical experts and advisers.

“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. Mike will not be a scapegoat for their failures.”

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