Claims fly between HP and Autonomy

FILE PHOTO: Michael "Mike" Lynch, chief executive officer of Autonomy Corp., poses for a photograph following an interview in London, U.K., on Wednesday, Feb. 3, 2010. Hewlett-Packard Co., which bought Lynch�s company last year for $10.3 billion, yesterday took an $8.8 billion writedown and said some former members of Cambridge, England-based Autonomy�s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the company�s value prior to the deal. Photographer: Chris Ratcliffe/Bloomberg *** Local Caption *** Michael Lynch

FILE PHOTO: Michael "Mike" Lynch, chief executive officer of Autonomy Corp., poses for a photograph following an interview in London, U.K., on Wednesday, Feb. 3, 2010. Hewlett-Packard Co., which bought Lynch�s company last year for $10.3 billion, yesterday took an $8.8 billion writedown and said some former members of Cambridge, England-based Autonomy�s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the company�s value prior to the deal. Photographer: Chris Ratcliffe/Bloomberg *** Local Caption *** Michael Lynch

Published Nov 22, 2012

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Amy Thomson San Francisco

Autonomy Corporation founder Mike Lynch was planning to use his reputation as one of the most successful European entrepreneurs to help start-ups get off the ground. Now, he is fighting allegations of accounting improprieties that threaten his status as the pin-up of British technology.

Hewlett Packard (HP), which bought Lynch’s company last year for $10.3 billion (R91.2bn), on Tuesday took an $8.8bn write-down and said some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the company’s value prior to the deal. Lynch refutes the allegations.

“Lynch was the poster child in the sense that he was considered the Bill Gates of the UK and the allegations damage his reputation,” said Espirito Santo Investment Bank analyst Vijay Anand.

“His experience in the software industry would be beneficial to many budding entrepreneurs, not just his reputation but his contacts.”

Lynch, 47, founded Autonomy as a spin-off from the University of Cambridge in 1996 and built it into the UK’s second-largest software company with customers including Coca-Cola and the US Securities and Exchange Commission (SEC). His technology, enabling the search of a broad range of information, known as unstructured data, including e-mails, music, video and social networks such as Facebook, became a hit with organisations seeking to organise increasing amounts of data and information.

When HP bought Autonomy, it praised Lynch for his “highly profitable and globally respected software company, with a well-regarded management team”, and a “team of brilliant scientists”.

Now, HP is threatening civil litigation and has referred the accounting irregularities to US and UK regulators. More than $5bn of the total charge was due to accounting practices, which were disclosed by a senior executive at Autonomy after Lynch departed in May.

The FBI, responding to an inquiry by the US SEC, is looking into HP’s allegations, according to a person familiar with the matter, who asked not to be identified because the matter was not public.

Lynch planned to set up a technology investment fund that would back young firms, people with knowledge of his plans said in July. He aimed to tap the expertise of other former Autonomy executives for the London-based fund, the people said, asking not to be identified as the plans were private.

Fighting for his reputation, Lynch is blaming HP for mismanaging the company he started. Autonomy’s former top management team said allegations by HP were “false”, according to Vanessa Colomar, a spokeswoman for Lynch.

“It took 10 years to build Autonomy’s industry-leading technology and it is sad to see how it has been mismanaged since its acquisition by HP,” the statement said.

To start Autonomy, Lynch abandoned an academic career as a research fellow at Cambridge University after obtaining a PhD in mathematical computing. He had focused his early research on the mathematical theories of the 18th-century theologian and mathematician Thomas Bayes, who sought to refine the study of probability. – Bloomberg

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