Yes, I may have advised 'some' investors to flog their Autonomy shares, analyst tells High Court

Plus: Other market-watcher 'unaware' of firm's hardware sales

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Autonomy Trial A City analyst was accused of being "seriously unethical" after selectively telling investors in Autonomy to sell their stocks in the firm, London's High Court heard earlier this week.

"I may have told some investors to sell Autonomy while I had a hold recommendation, yes," one-time Peel Hunt analyst Paul Morland testified on Tuesday. He now works for British stockbroker Panmure Gordon.

Agreeing with barrister Sharif Shivji's suggestion that he had offered "tips", "ideas" and "suggestions" to HPE's legal team, Morland also highlighted what he said was a clear instance of Autonomy selling a much greater volume of reseller licences than he would have expected.

"I came across an example, for example, where Autonomy had sold more licences than it would normally to a reseller... enough licences for that reseller to sell for the whole of the next year. Rather than what would be normal, you might sell licences that might be – to sell for the next month or two months or three months, I don't know what it was, but it was many more licences than you would normally sell and so it was a very concrete example of bringing forward revenues which should really have related to the next year."

He was inferring that Autonomy was making bigger sales than normal – something which would support HPE's case that the British software company had fiddled its revenues to make the company look more successful than it truly was, duping HP as-was into buying it for an overinflated price.

Shivji, one of former Autonomy chief exec Mike Lynch's legal team, parried this: "But you didn't know, did you, about the correct accounting position under the IFRS?" Morland had previously testified that, although he is a trained accountant, he was neither practising as one nor had he been trained in the International Financial Reporting Standards.

"No," said Morland, cheerfully adding: "It's irrelevant to the accounting, actually."

"Right," said Shivji. "Let's just move to the next category."

Unfortunately for the barrister, Morland wasn't going to be easily led. Referring to a passage in his witness statement that Shivji insisted wasn't relevant to the case, the analyst declared: "It's very relevant to the proceedings because it's talking about organic growth, which is the main driver of valuation, and this is an example, a very concrete example, of where organic growth was inflated in historic numbers."

"It's not an allegation in these proceedings so I'll move to another one," said Shivji.

Morland had been heavily critical of Autonomy during his time as an analyst covering the firm. He advised his clients to sell its stocks – a move that cost them in the short term when HP bought the company.

I saw that too

Later in the week came another Autonomy critic, Daud Khan, an analyst who had been following the company at the same time as Morland. Under cross-examination from Shivji about his understanding of Autonomy's products, Khan said: "I was unaware of any other hardware being sold other than relating to appliances."

In his witness statement, he had written: "I certainly would not expect a self-described software company, whether 'pure software' or not, to resell third-party computer hardware... except as a medium for the company's software."

Shivji wasn't impressed: "You're putting it a bit high, aren't you, there, because there's nothing wrong in principle, as we've just discussed, with a software company selling some hardware?" He added: "Put the 'pure software' point to one side."

"There's likely to be some hardware within the professional services business," conceded Daud, though he had pre-empted that earlier by saying: "The only route that I understood that hardware could have been sold as was as an appliance."

Later on, Laurence Rabinowitz QC, HPE's barrister, went into depth on that point about hardware sales. "For Q3 2009, 22.8 per cent of Autonomy's total revenues were from non-disclosed pure hardware sales," he said, reading from a document that gave figures for Q2 2010 as 14 per cent and for Q3 as 12 per cent. "Can you say, Mr Khan, whether you were aware that Autonomy was reselling pure hardware in these amounts?"

"No, I was unaware," replied the heavy-set analyst, wearing a dark suit with a pink tie.

"Can you say what this would have indicated to you about the organic growth of the company?" asked Rabinowitz.

Khan responded: "Organic growth would have been significantly lower and, more importantly, what I would describe from my own opinion would be that the company was misrepresenting the revenues."

Like Morland, Khan had been critical of Autonomy during his time covering the firm. Previous questioning focused on the murky world of how analysts get their information, including one note about Autonomy that Mike Lynch, when shown it for comment before publication, had said was "inaccurate".

Khan also clashed with Mike Lynch directly, with the court hearing how Lynch had tried to have him removed from covering Autonomy while he worked for JP Morgan.

The case has now adjourned and restarts on 30 April after the Easter holidays. ®


Mr Justice Hildyard, the judge, is being aided by a "gathering team" of judicial assistants. They currently number three, the latest having been added on Tuesday. The judge joked: "The new entrant is someone I'm most grateful to the parties for arranging. He will be here for the duration; he may look very, very depressed at that!"

Judicial assistants (more info here) sitting in court alongside the judge are not common, and mark the sheer complexity of the Autonomy Trial.


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