19PHOTO ILLUSTRATION BY 731; PHOTO: GETTY IMAGES. LYNCH: SIMON DAWSON/BLOOMBERG. DATA: COMPILED BY BLOOMBERG
Lynch, 54, is on the cusp of something approach-
ing either redemption or defeat. A ruling is expected
by midyear in HPE’s civil suit, and sometime in
March, another British court will begin considering
whether the U.K. should extradite him to California
to face criminal fraud charges brought by the U.S.
Department of Justice. A civil decision in his favor
could make extradition less likely; defeat would
make it more so. Spokespeople for HPE and Lynch
declined to comment on the civil trial and extra-
dition case, beyond representations each side has
made in court.
Lynch and Hussain deny overseeing any fraud,
arguing that HP simply ran their business into the
ground and that it had rushed into its agreement
to pay a 60% premium for Autonomy, which wasn’t
desperate for a sale. Lynch says the $5 billion fig-
ure was entirely reverse-engineered, barely an esti-
mate calculated on the back of an envelope, and
manufactured to explain away HP’s disastrous man-
agement of the acquisition. He brought emails to
court to show that the day HP alleged fraud, inves-
tors in his fledgling venture capital firm pulled their
money out. Lynch lost a high-profile government
advisory role, too. “The effect was like a bomb-
shell,” he told the court.
The verdict hangs on whether High Court Justice
Robert Hildyard believes Lynch and his subordi-
nates deliberately inflated Autonomy’s value. HPE’s
attorneys characterized Lynch as a controlling and
dishonest CEO with intimate knowledge of his com-
pany’s accounting practices. They’re relying in part
on an admission by Autonomy’s U.S. sales direc-
tor, Christopher Egan, that Egan booked fraudu-
lent transactions to inflate the company’s revenue,
actions Lynch denied knowledge of.
Lynch is counting on Hildyard finding that HPE
failed to produce a smoking gun for the fraud it
alleges. At the moment, Lynch seems to have an
advantage on his home turf. HPE pursued Lynch
through a U.K. civil court after prosecutors at
Britain’s Serious Fraud Office found “insufficient
evidence” to proceed with their own criminal case
against Lynch and Hussain. Robert Miles, Lynch’s
attorney, has used internal company documents to
argue the case was a function of infighting at HP,
where top executives disagreed about the Autonomy
purchase and the board wavered on strategy.
The Autonomy purchase was critical to for-
mer HP CEO Léo Apotheker’s plan to shift the PCs-
and-printers company’s focus toward software.
Apotheker, an outsider who came from Germany’s
SAP AG, encountered internal opposition to the take-
over, according to documents shown in court. Cathie
Lesjak, the company’s then-chief financial officer,registered a surprise vote against the deal at a board
meeting in August 2011, blindsiding Apotheker, he
said in court. In the same meeting, she privately
emailed Ray Lane, HP’s chairman at the time, to
say, “We are reactive and act without good planning.
There is no financial discipline.”
That afternoon, Lesjak sent a second, one-line
email to Lane hinting at Apotheker’s sinking for-
tunes. “One PR person says ... Leo is a dead man
walking ... he had never seen worse press for a
CEO,” it read. Apotheker defended his deal in a
Sept. 4, 2011, email to Lane—two weeks after it
had been publicly announced, alongside a reduc-
tion to sales forecasts and a wider company strat-
egy shift: “If Autonomy and more software isn’t the
solution, what is the alternative?” he asked. Even
Peter Weinberg, HP’s own mergers-and-acquisitions
adviser, called the atmosphere inside HP “poison-
ous” in an email he wrote to Apotheker, the court
heard. On Sept. 22, 2011, Apotheker was fired after
10 months on the job. Whitman, one of the com-
pany’s directors, replaced him and announced the
writedown and fraud allegations in November 2012.
HPE argued that Lynch and Hussain conned
HP into overpaying by presenting financial docu-
ments filled with phony transactions from supposed
resellers. The software was simply “not as good as
Dr. Lynch and no doubt everyone else hoped,” so
Autonomy increasingly cooked its books to keep
revenue on an upward trajectory until the whole
company began to resemble a Ponzi scheme, HPE
attorney Laurence Rabinowitz said.
This side of the story lost some credibility
during testimony by Lesjak, the former HP CFO.
How, the judge wanted to know, did she and her
colleagues assess $5 billion in fraud? Lesjak said
the math was done on a whiteboard and wiped
clean. When pressed by the judge for any written
record of the calculation, she said it was a verbal
conversation and didn’t know if it had been put in
writing. Lynch’s attorney shared an email showing
HP’s executive team knew the figure was shaky.
“We are getting a lot of push back from media that
they cannot understand how the accounting issues
at AU could result in a $5 billion writedown,” HP’s
public-relations chief wrote to Lesjak and corporate
controller Marc Levine in a Nov. 29, 2012, email
entered into evidence. “We’ve never formally
prepared anything to attribute the irregularities to
the amount of the write down,” Levine replied.
In his closing argument, Rabinowitz said the com-
pany got the figure by calculating that Autonomy’s
growth and margins would be lower. “Overstated”
revenue was one of the factors in the drastically cut
valuation, he said. Judge Hildyard’s final exchange○ Lynch$120b600
Q3 ’09 Q3 ’15 HP’s market value
Autonomy
acquisition
announcedHP
announces
writedown TECHNOLOGY Bloomberg Businessweek March 9, 2020