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HPE's civil case against ex-Autonomy CEO Mike Lynch begins in London today

HPE seeks $5.1bn from Lynch over the company's failed acquisition of Autonomy

HPE versus Mike Lynch will begin in the High Court in London today.

The civil court case in which HPE is claiming damages of $5.1 billion - the largest damages claim in English legal history - relates to the November 2011 acquisition of Autonomy by Hewlett-Packard for $11 billion. HPE has accused Lynch of masterminding an accounting fraud, making the company's software sales appear stronger than they really were.

The case is being taken ahead of attempts to press criminal charges in the US against Lynch, after Autonomy chief financial officer Sushovan Hussain was found guilty of accounting fraud in April 2018. He will be sentenced on 13 May 2019. Lynch was charged with fraud in the US in November, based partly on evidence provided by Hussain.

US authorities added three new criminal charges against Lynch on Friday to their indictment. These include a charge of securities fraud - which carries a maximum prison term of 25 years - wire fraud, and conspiracy. The indictment filed on Friday now contains 17 counts in total.

In a statement, Lynch's lawyers described the new charges as "simply preposterous".

It continued: "Something is horribly amiss in San Francisco, where the Wild West ‘shoot first, ask questions later' approach to investigations - originally deployed by HPE in this case - is sadly still alive and well.

"Mike Lynch is vehemently not guilty of these charges. When the true facts are revealed, it will be apparent that the allegations are false and recklessly maintained and that, like HPE's civil claims, the allegations serve only to underscore that this entire dispute is a flawed theory in search of facts."

The statement went on to imply that "the makeweight new charges" had been deliberately timed to coincide with the opening of the civil case in London today.

"These questionable new allegations, like the underlying charges, are predicated on events that occurred predominantly in England. While the US may seek to police the world, this commercial dispute is about to be heard in the UK courts, where it belongs, and Mike Lynch is looking forward to defending his good name in his home country," it concluded.

Autonomy's shares were listed on the Nasdaq stock exchange in the US as well as on the London Stock Exchange.

Hewlett-Packard - now HPE - paid $11 billion for Autonomy in November 2011. That a sum was considered wildly in excess of Autonomy's value at the time and raised more than a few eyebrows.

"Autonomy was shopped to us. We looked at the price and thought it was absurdly high," claimed Oracle CEO Larry Ellison at the time that HPE acquired Autonomy. The price quoted then, Ellison added, was half that paid for by HPE. Lynch denied that Autonomy had been "shopped" to Oracle, although the presentation by Autonomy's investment bank Qatalyst Partners, published online, would appear to back-up Ellison's claim.

HP's Autonomy acquisition fell into difficulties almost as soon as it was completed. Initially, HPE's then new CEO Meg Whitman blamed the post-acquisition pains on Autonomy's own struggle to grow from being a medium-sized software player to a $1 billion company.

"This [is an example of] classic entrepreneurial company scaling challenges," Whitman said in a conference call with analysts just six months after the acquisition.

In order to ‘professionalise' the company, Whitman parachuted in HP's chief strategy officer to take charge "to help improve Autonomy's performance", with Lynch leaving.

Whitman added: "I have seen this movie before. When you try to go from $40m to $400m to $1bn to $2bn, boy, it's a whole different ball game. We need to put in some sales processes.

"We need to put a better interface into HP in terms of how Autonomy interfaces with our services business, as well as our server, storage and networking business, and we need a new organisational structure to support a $1bn-plus company."

Later, HPE accused Lynch and his chief financial officer Sushovan Hussain of perpetrating an accounting fraud by selling hardware alongside the company's software, making it appear as if the company's software was selling more strongly than it really was. A year after the acquisition, HP took a $8.8 billion write-down on the value of Autonomy's software assets - which were subsequently transferred to Micro Focus.

Since leaving Autonomy in 2011, Lynch has helped to finance another billion-dollar valued company called Darktrace, which applies the kind of artificial intelligence software pioneered at Autonomy to security monitoring.

HPE's civil case against ex-Autonomy CEO Mike Lynch begins in London today

HPE seeks $5.1bn from Lynch over the company's failed acquisition of Autonomy

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