Feel Free to Laugh at Hedge Fund, Autonomy’s CEO Told Executive
(Bloomberg) -- Autonomy executives were struggling to deal with probing questions from analysts and hedge funds about the company’s finances when one official had enough.
"These guys are more annoying than gum on your shoe," Harald Collet complained in an email to his embattled boss Mike Lynch about hedge fund Lone Pine Capital.
Lone Pine, founded by Stephen Mandel, was pushing the software firm for more information. In a series of phone calls and emails, the fund demanded more information on how the British company booked sales -- and even brought up that they’d heard that Autonomy was conducting video surveillance on its staff.
"Feel free to laugh at them," Lynch told Collet.
The 2009 episode was a snapshot of the broader conflict that Autonomy’s management had with hedge funds and bearish analysts over the way revenue was reported. It came to light in Lynch’s testimony before a U.K. court where he’s fighting allegations in a $5 billion lawsuit brought by Hewlett-Packard Co. that he oversaw a massive fraud that caused the American company to overpay for his firm.
HP has alleged that Lynch and his longtime deputy Sushovan Hussain sought to artificially inflate revenue to meet or beat stock market expectations, arguing that the executives pulled a number of levers -- selling undisclosed hardware or adding "contrived" reseller transactions to bolster the numbers.
At Lone Pine, one fund executive was so keen to learn more that she separately managed to obtain "inside information" from an Autonomy customer, Lynch said in a civil court filing. A Lone Pine spokesman declined to comment on the allegations.
Hedge fund managers Tim Steer at Artemis Investment Management LLP and Jim Chanos at Kynikos Associates LP were also betting against Autonomy, according to court transcripts.
Autonomy’s accounting practices were repeatedly questioned by a number of skeptical analysts including Paul Morland at broker Peel Hunt and Daud Khan at JPMorgan Chase & Co.’s Cazenove before HP bought the company for more than $10 billion in 2011. Lynch said that one point, a group of analysts, "who don’t act in very good faith," had set up Hussain to force him to miscalculate a figure on an earnings call.
"Mr. Morland had hit him with something, from memory, something like 5 to 20 questions, bang-bang-bang, and he’d made the mistake of trying to calculate something and then got it wrong, on the fly," Lynch said in testimony Thursday. "It was a very sad episode."
Hussain said in an email to Lynch he was spending all his time worrying about answering the questions. "I don’t want to deal with the analysts anymore," he said.
The analysts for their part said they had concerns about Autonomy well before HP wrote down its acquisition by more than $8 billion. Khan told the court earlier that Lynch tried to have him removed and dangled the possibility of a merger advisory role for JPMorgan if the bank agreed.
Khan was temporarily banned from attending management presentations after Autonomy questioned “inappropriate" calls with fund managers.
Lone Pine, which oversaw $25 billion at the end of 2018, had the ability to go both long and short on its investments in Autonomy, Lynch said in his filing. The fund was particularly concerned about Autonomy’s sales commissions, Collet said.
As the questions grew ever more forensic, "I followed his instructions which were stall and duck, and so I was stalling and ducking."
After Autonomy, Collet worked at Bloomberg LP, the parent of Bloomberg News, before joining a startup.
The fund successfully obtained confidential information, Lynch said in the court filing, citing as-yet undisclosed documents before the court.
The exchange between Collet and Lynch took place at the same time as hedge funds started offering current and former employees money for information, Lynch said. It "made us particularly wary."
To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net
To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser, Giles Turner
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