Autonomy Trial London's High Court has seen emails from ex-Autonomy CEO Mike Lynch in which he berated company salespeople for "a massive f***-up" after they bungled a major deal.
As well as being probed over the raging emails, Lynch continued to be closely questioned about Autonomy's deals with one of its resellers, Filetek, as barrister Laurence Rabinowitz QC continued arguing HPE's $5bn case against the one-time chief exec.
In an internal audit committee report for fiscal year 2009, Autonomy was recorded as having made a $7.4m purchase from Filetek and "separately purchased $10.4m of software and associated services from Filetek" in the same quarter. Autonomy management were said to have "confirmed and concluded that there are no links between the contracts that would impact the accounting".
HPE alleges both deals were part of a revenue-pumping fraud carried out by Autonomy to meet analysts' expectations and enhance its market position. Previously the court heard that top US salesman Christopher "Stouffer" Egan had made a handshake deal with Gary Szukalski, a former Autonomy veep who became CMO of Filetek, allegedly guaranteeing that Autonomy sales would come his way.
Rabinowitz showed Lynch an internal Filetek accounting memo dated 31 December 2009, covering both Autonomy's OEM purchase of Filetek Storhouse and Filetek's purchase of an Autonomy Idol licence. In the memo was a line valuing the Storhouse software at $2.1m, rather than the $7.4m Autonomy paid. The memo also stated "the contract prices are clearly not fair value" and mentioned that Filetek "might not have entered into the contract to purchase the Autonomy licences without the Storhouse licence being executed."
"I suggest to you, Dr Lynch, that that was clear to FileTek's management and would equally have been clear to you at the time,” said Rabinowitz. His line of questioning was clear: if one side of the deal thought the price was artificially high, surely Lynch, as the other side of it, must have had the same thoughts?
"I think that's incorrect," replied Lynch, referring to American accounting standards – something he has consistently maintained that he has no training in or detailed knowledge of. "I think it is some sort of US GAAP technical exercise and I think it's a mischaracterisation to say that this is giving you the fair value of the software, but you would have to talk to an expert about that."
Rabinowitz then showed Lynch a letter from Autonomy to Deloitte, the company auditors, which was signed by CFO Sushovan Hussain (who is Lynch's co-defendant) on behalf of all of Autonomy's directors. The letter stated that Autonomy’s directors were "satisfied that the purchase of software from FileTek was an arm's length transaction".
Lynch denied that he, in Rabinowitz's words, "knew that the purchase was a means of putting Filetek in funds to buy a licence for Autonomy's software".
Rage against the sales machine
The court was also shown some colourful emails from Lynch to his top sales managers. In a group-reply to one who had tried blaming Autonomy’s tech team for causing a deal to stall, Lynch wrote: "Jack you ever send me an email like this again and you are f***ing [sic] toast", before going on to rant in block capitals:
YOUR HIGHLY PAID SALES MANAGEMENT COLLEAGUES WERE SITTING IN THE BACK AS THEY SAY ABOUT DIM PILOTS IN AVIATION CIRCUMSTANCES 'FAT DUMB AND HAPPY' AS THE PLANE FLEW INTO THE MOUNTAIN… FOLKS I AM NOT PUTTING UP WITH THIS SHIT, KNOW THE DEALS, MONITOR THE TECH, CHECK THE PROPOSALS, BEING ASLEEP AND THEN AFTER THE FACT THROWING SOMEONE ELSE UNDER BUS IS TOTALLY UNACCEPTABLE.
Rabinowitz asked whether Lynch agreed the emails were "hectoring", "unpleasant" and "bullying". Lynch said "no", adding "it's actually valid" and claiming one of the recipients had replied saying they were initially upset but then "thought about it" and concluded "you were right". Later, Lynch did concede that it was "regrettable" and "there may have been better ways of doing it".
Rabinowitz also tried suggesting to Lynch that he had invented his earlier courtroom allegations of blackmail against accounts whistleblower Brent Hogenson, taking Lynch through a series of emails where Hogenson promptly forwarded to Hussain emails that were sent to one of his own underlings by an analyst trying to obtain financial data.
Lynch replied: "Why haven't you shown the email where he forwards the information on [to] Mr Khan to his private email address so that he can continue to correspond there? That's in the corpus. And obviously that would break all of our rules..."
Mr Justice Hildyard, the trial judge, ended yesterday's proceedings by warning Rabinowitz to stick to his 20.5 day estimate for cross-examination of Lynch, who has been in the witness box for 12 days and counting. The judge said: "I had it in mind that there might also, especially as Dr Lynch has referred to other documentation which he thinks may not have been brought out in your cross-examination - that there might be re-examination."
This is where a barrister asks more questions from a courtroom witness after cross-examination by the other side. In this case, Lynch would be re-examined by his own barrister Robert Miles QC to shed fresh light on his replies to Rabinowitz during his month in the witness box. Given the number of emails Lynch refers to, the judge evidently fears this could be a long process that eats into the timetabled summer holidays.
The Autonomy trial continues until Thursday 1 August, at which point the court will down tools for a month. The case will resume in September. ®