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HPE accuses Mike Lynch of using reciprocal transactions with customers to drive revenue growth

While revenues increased, Autonomy suggested that lower than expected profit margins were due to investment in new products, HPE claims in court

Mike Lynch has been accused of involvement in "widespread and systematic false accounting" at Autonomy, the software company he founded in 1996 and sold to Hewlett-Packard for $11 billion in November 2011.

The claims were made in the High Court in London on Monday, in the opening day of a civil case in which HPE - as HP is now known - is claiming $5.1 billion in damages.

HPE claims that Lynch and his chief financial officer Sushovan Hussain inflated the company's revenues by engaging in "revenue pumping" by buying goods it did not need from customers in order to persuade them to buy its software; restructuring deals in order to bring forward software licence payments; and, even selling hardware never destined to run its software at a loss.

The company blamed the impact these activities had on revenues on the costs of developing new technology, HPE added.

"This is not a business dispute about how to apply accounting procedures," said HPE lawyer Laurence Rabinowicz QC, "this is a fraud case."

In particular, Rabinowicz highlighted six deals between 2009 and 2011 that the company struck with Capax Discovery, VMS, FileTek, Vidient Systems, EMC, and MicroTech. These added a further $20 million to Autonomy's revenues.

Rabinowicz argued that it could not just be a pure coincidence that these companies just so happened to have something that Autonomy needed at the same time that Autonomy was selling its software to them. "The purchases were made, and only made, in order to persuade a counterparty to acquire goods from Autonomy in return," Rabinowicz told the court.

HPE's opening arguments will continue today and end on Wednesday, after which Lynch and co-defendant Hussain will present their defence. Both deny any wrongdoing.

The case was investigate by the UK's Serious Fraud Office, which closed its investigation in January 2015 claiming that there was insufficient evidence to secure a conviction.

HPE accuses Mike Lynch of using reciprocal transactions with customers to drive revenue growth

While revenues increased, Autonomy suggested that lower than expected profit margins were due to investment in new products, HPE claims in court

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