Thats Lynch f*cked then. In many senses of the word.

It could mean the judge will award a few hundred million or anything up to the full £3 billion+. Lynch, I suspect, probably needs to get his bags packed.

To me,

Substantially is in the range 70-90% sure

So, i expect 70-90% of the damages are payable

From reading the Reg's coverage, I put it at more like 10%.

IANAL though.

Swap him for the woman that that hit and killed the guy on the bike

I believe she has already agreed to come back to face a trial.

First it was rumoured that she would appear by Zoom or equivalent. Then her lawyers said that there was no such agreement.

Given that what's described is effectively large scale alleged fraud, Mike Lynch and his execs belong in prison.

The HPE execs all deserve to be fired for gross incompetence and sued by HPE shareholders for abusing their position and misusing company funds.

Neither side comes out look great

I’ve said this on here before and got inexplicably downvoted for it… but this Grade A-hole has potentially cost me and my current outfit a lot of money. I hope he rots.

Unfortunately this verdict will be used as a fig leaf to cover the HPE execs of the time I guarantee they will get no comeback.

Deloitte should have been in the dock with him on this. Lucky for them they just had to pay £15m in fines for a series of botched audits.

As for Deloitte, the judge has basically said that Autonomy deliberately hid information from them which is, itself, fraud. The reseller ring around is also fraud.

Yes, Autonomy people & Lynch should be in prison.

But HPE people and Deloitte people, esp. management should be sacked for gross incompetence.

Something we can all agree on!

And a clear signal that doing your own research and paying attention to due diligence isn't worth the paper its printed on.

Well done to the judge. Brilliant way to demonstrate that whining is a better strategy than paying attention.

I don't think it's an either/or to be honest.

I agree that HPE _should_ have paid more attention and applied a more common sense, but that doesn't and shouldn't let Lynch off the hook.

Take this as an example

> there was a carousel of cash flowing back and forth to generate a fake impression of real sales and real revenues

That's not the action of a company acting in good faith.

We're not talking about a bloke who was simply offered an unbelievable sum and went "Oh, all right then", the allegation is that he went out of his way to artificially inflate the perceived value.

If you apply caveat empor and let him off the hook, then you're saying it's OK for others to do similar with all the fallout that potentially entails.

Essentially, HPE's auditors failed to do their jobs properly, and in doing so, failed to pick up on stuff that Autonomy should not have been doing in the first place. They're both in the wrong.

Whether it should be extraditable is a whole other matter, of course.

... doing your own research and paying attention to due diligence isn't worth the paper its printed on.

Indeed.

Screw up as you pay US$ 11 billion while ignoring your advisor's warnings then blow 8.8 billion from the books because they just happened to be right and then ...

Get a DH judge to agree with your claim that you were misled .

I think this sets a very bad precedent.

O.

Well, you have also the Theranos example, or Enron (with Arthur Andersen in the role of Deloitte...) - that's how fraudsters work, they have to convince a few people everything's alright (especially, exploiting their greed), and make them not listening to those telling them something isn't as shiny as it looks.

Still fraud is a crime even if gullible people fall for it, and it would be a very bad precedent to assert that if a fraud works very well is not a crime. Don't complain then if your shares of pension fund suddenly has no value because of it. Or you bank fails, hoping it would be bailed out or you may lose part of your money.

And why not a Masterchef run dedicated to those who cook the books better? Make them a celebrity?

The problem with Due Dilligence in this case is that it was relying on a tainted source. The fraud was deeper, in the business practices. So even if HP had read the documents, it may well have not made that much difference. After all, Deloitte were deceived / allowed themselves to be deceived, and they (should have) had a closer handle on the Autonomy business than would be in the due dilligence documents alone.

We 'll see what the Judge thinks when he announces the amount of damages. I'm guessing he will give some discount for HP's carelessness, but maybe not that much. But even if he discounts by say only 10%, that is a larger sum of money than I can imagine, lost for lack of reading the paperwork.

>The fraud was deeper, in the business practices.

For that to be the case the fraud would had to been happening within the jurisdiction of UK law...

"For that to be the case the fraud would had to been happening within the jurisdiction of UK law..."

quite so, as this is the verdict from a UK court, the Judge in the civil case must think so too.

I still think the problem was the lack of due diligence. Plus a bit of VAR norms.

So my take is much of the fraud relied on HP thinking it was buying a software business, not an HP reseller. So HP could have some inkling by looking at what they were invoicing for tin. Which should have been pretty simple. Then looking more closely when it came to closing on it's offer.

HP should also have been aware of common challenges with VARs. When that works well, it can reduce SG&A. When it doesn't, it trashes margin instead. So reseller doesn't add any value, but expects discounts to boost it's own margins. The fact that Autonomy supplied tin didn't really suprise me as that's pretty normal, ie ship system installed on certified hardware. The suprise could have been avoided just by looking at the details for a few large deals.

But I'm guessing HP also suffered from target fixation. It announced a pivot away from low margin tin to high margin services. So the market would expect results, especially when HP's strategy was the usual buy revenues. So it really should have been more cautious.

After all, Deloitte were deceived / allowed themselves to be deceived

Precisely - if there is systematic collusion at the senior management level to deceive the auditors deliberately then there is not much the auditors can do about it, unless they get lucky and pick up on inconsistencies and start digging deeper.

Additionally a substantive testing approach (aka ticking and bashing transactions back to invoices/assets etc.) vs. a controls-based approach (i.e. rely on internal controls by testing those internal controls) could give differing results in a case of deliberate collusion to mislead.

Not a lawyer or a judge.

But the application of basic common sense to all that has transpired tells me that this outcome is outrageous.

If HPEs lawyers, 15 banks and the auditors said there were no problems and that the purchase could go through, how is it that Lynch is guilty of anything at all?

He actually managed to con everyone * in a very long list of reputed banks and lawyers as well as the auditors?

Auditors that were eventually fined a hefty sum by regulators for screwing up royally?

If he really managed to pull such a trick, he deserves a prize.

Like I said, absolutely ourageous.

* UBS, Goldman Sachs, Citigroup, JPMorgan Chase, Bank of America, Slaughter & May, Morgan Lewis and Deloitte among them.

O.

From the tech side I've found bi-annual audits to simply be box-ticking with so little value other than satisfying shareholders that you're not a bunch of fly-by-nights chancers playing at IT.

"Says in this document you do backups? Can you give us a few sample logs spanning this date range. Also can you do a sample restore and give us the logs"

"Says in this document you have XYZ batch processes. Can you supply the run logs including some samples of failures and emails showing they were handled by the teams is says should."

One month later...

"Thanks for the info. All done and see you in 6 months!"

Was in one of my first retail jobs and acting as support for a company involved in selling larger pieces of furniture. The woman from the company’s risk management team turned up at the branch i was at and asked to see the stock. Manager was busy with other things so I was thrown in at the deep end and told to assist her. After I said no to three very big items she wanted to see she asked if we sold a lot of stock ex-display? I said “no” again and then item number four was also not in the store. I asked how old her stock list was and it had been printed 2 weeks earlier. I said that explained it, we had had a showroom change since then and her list would have maybe 10% of the items still here. Those would mostly be things like picture frames, plant pots with fake plants in them etc.

She wasn’t in a good mood at this point as her report would look rubbish if it just said she’d located the grey marble effect vase and the fake tulips contained within. I said to just generate a new list but she didn’t know how to. I offered to show her how and take her round with the new list pointing out items. She still wasn’t 100% happy but her mood improved as everything turned out to be there. I knew it would because I’d just finished (that morning) entering it all into the stock management prog and cross checked it. That wasn’t really my job but I was the only one there who understood how to import from a CSV file. That was the CSV file I’d prepared earlier which again was beyond everyone else. That was so much quicker than doing each item individually on the prog.

An accountant usually visited the store once or twice a year to do something similar and I asked about this duplication of work. She said they didn’t 100% trust the the accountants and hence did spot checks themselves. We took her to the pub after work to drown her sorrows.

Stock-takes are usually given to the junior trainees since it often involves being on a remote, cold

industrial site at an early hour at a weekend or public holiday, up a ladder or in a warehouse trying to find a serial number for a widget or dipping the level in a huge oil storage tank.

Then they take you for a cuppa while they pump whatever was in the tank into the next one so that's full too when you get to it....

Or when counting vehicles, they drive them round for you to tick off the reg numbers, and then drive them round the corner and back past you again after swapping the plates over...

Or Trainee:"what's your stock valuation policy? FIFO/LIFO/Weighted Average". FD "FOFO - F@ck off and find out""

Or (possibly my favourite), a car factory says that there are some cars with luminous paint destined for the Scandinavian market parked amongst all the others (hundreds). The trainee doing the stock-take is given a torch and a blanket to go and find them. After 30 minutes they happen to glance back at the main factory windows to see most of the workforce laughing at them....

But I digress (I was a Coopers & Lybrand audit trainee nearly 30 years ago....)

From the tech side I've found bi-annual audits to simply be box-ticking

I still remember an auditor's request: "You bought a DEC Fortran compiler this year. Show it to me."

From the tech side I've found bi-annual audits to simply be box-ticking

Auditor: Do you use Grandfather - Father - Son backup rotation for your database?

IT Manager (Me): We take log backups hourly, retained for three days, daily backups retained for a week, weekly for a month then monthly for a year. Annual year end backups are retained permanently. All backups are off-sited daily.

Auditor (Putting cross in box): You must use Grandfather - Father - Son in future.

I should have just said yes!

This is probably the classic documentation conundrum: if the policy says "do this", changing that to do something very much better _requires_ updating the documentation, even if that's much harder than improving the system!

@AC, shut the fsck up! You're ruining my career with such gross defamation truth!

On a less serious note, a lot of the auditor's job is expectation management: a client expects that we thouroughly "x-ray" their whole IT infrastructure, down to the last bit. What we actually do is, drinking tea, lots of it, and if we do actual auditing, focus striktly on financially relevant systems and controls. Which is, more often than not, rather disappointing for both the auditee and the auditor. And within this very limited realm, the auditor's question you pointed out might be perfectly valid and sufficient.

Btw, any chance that we've met in the past?

“He was able to con a lot of people” is not really a defense against, you know, the charge that he conned a lot of people…

It’s disappointing when people are duped by fraudsters, but I don’t see anyone on here defending the Indian call center scammers.

As much as I dislike to admit it - its your "common sense" again the experience and expertise of a top tier Judge for which these matters are one of his specialties.

HPE being a gang of clowns and Auditors either not doing their jobs or doing them incompetently doesnt stop there actually being Fraud committed - which is what the Judge has ruled.

>doesnt stop there actually being Fraud committed - which is what the Judge has ruled.

So no need to extradite the man, as that case can and should be heard under UK law, given it would have happened when Autonomy was subject to UK law....

True, but he was conning a US company, so the "victim" is American.

I don't disagree that he _could_ have been prosecuted in the UK. But whether he _should_ have is a much more nuanced question (and if the USA is willing to pay the huge cost of running the prosecution, the CPS is probably going to be on the "knock yourselves out" bench...)

He actually managed to con everyone* in a very long list of reputed banks and lawyers as well as the auditors?

Well, Bernie Madoff did. It is not impossible, and especially when some of those have incentives to believe.

"He actually managed to con everyone* in a very long list of reputed banks and lawyers as well as the auditors?"

Yup. That's how it works. What do you think the auditors and the "very long list of reputed banks and lawyers" look at ???

They're all looking at the same tainted accounts. The auditors should be closest to the business and should be most able to spot the problems. The others are looking at the audited accounts, and are subject to a huge dose of confirmation bias: if there were huge problems, then Deloitte would have caught them, so there were not huge problems!

[That just leaves the possibility of minor issues... and those are the sorts of things that people protect against by devaluing the numbers slightly e.g. "reduce the balance-sheet figures by 10%, does this deal still make sense??"].

The problem was that the balance-sheet was deliberately and fraudulently constructed to be massively inaccurate, and the audits didn't spot it. This is quite likely because Lynch was actively structuring things in a way that he knew the auditors wouldn't catch... and that's why the United States Department of Justice wants to put him on trial.

http://uneasyempires.blogspot.com/2012/11/autonomy-on-trial-what-i-saw-in.html

Published in 2012. How does it look ten years after?

It's the only way to be sure.

HPE, which saw its corporate reputation dragged through the mud

Didn't HPE manage to do that totally independent of the Autonomy case?

Para 101 in the [1]Summary (very end of PDF) makes interesting reading in relation to the quality of evidence potentially used in the US criminal case.

[1] https://www.judiciary.uk/wp-content/uploads/2022/01/Autonomy-v-Lynch-summary-280122.pdf#page=22

Quoted just to save people the effort, the link above is the Judge setting out the findings of the case.

This has been an unusually complex trial, 93 days long. Dr Lynch was cross-examined for 20 days. There was a database of many millions of documents from which there was extracted a trial bundle containing more than 28,000 documents. These documents have been the most reliable source of evidence. But there were also hundreds of pages of hearsay evidence, largely comprised of transcripts from previous proceedings in the United States, both civil and criminal.

The determination of this matter in its plainly natural forum has been made the more difficult by the concerns I have had about the reliability of some of the Claimants’ witness and hearsay evidence, which bore signs of having been fashioned, rehearsed and repeated in the course of multiple previous proceedings in the US and the preparatory stages for them, and in some cases, of the constraints (such as the terms of promised immunity) under which it had been given.

The level of concern recorded as to the reliability of HP's witnesses is pretty damming to HP.

But enough so that it might actually provide sufficient grounds to prevent extradition? Not sure on that. I'm pretty sure that Lynch's legal team will be mentioning it though, it's not as if they have much to lose.

Also, this is of interest:-

I have however provisionally determined that even if adjusted to take account of the fraud, HP would still have considered Autonomy, with its signature product, IDOL, a suitable acquisition whereby to effect transformational change. I would expect the quantum to be substantially less than is claimed.

For "quantum", read "damages".

My first thoughts are that HP doesn't really have a great basis from which to celebrate.

Mr Lynch's current venture, Darktrace, seems to be equally interesting.

https://www.theguardian.com/business/2022/jan/25/snake-oil-doubts-loom-over-tech-firm-darktraces-high-octane-sales-strategy

> ... misled not only auditors Deloitte but also their own company's audit committee

Having worked as an auditor in a previous millenium, in effect that means that the audits were not competently performed.

I worked for these clowns back in the day (circa 2005). Serious culture problem, really grim atmosphere inside those shiny offices in Cambridge. Was very glad to escape, as just another sysadmin from the "burn them out like matches" disposable team. Lynch may be reaping what he sowed...

It appears I, and most commentards were wrong about this story.

However, it raises an awful lot of questions and issues for the future. I know the auditors have had several very public slappings, but the Judge being so critical of the hardware sales when the auditors ignored them as "standard inductry practice" opens a few cans of worms to say the least.

HP(E) and their former board will no doubt engage in a round of back slapping and "we told you so" to try and rehabilitate their reputations, but they just look like idiots for all being taken in and not bothering to properly do their due-diligence (even if that was tainted, as now appears to be the case). Cathie Lesjak was the only one on the board to be against the purchase and Apotheker wanted to fire her for it.

I remember Meg saying what a wonderful purchase Autonomy was and that it would works wonders for HP.