ER bosses at British software giant Autonomy were yesterday accused of “serious accounting improprieties, disclosure failures and outright misrepresentation” by the chief executive of Hewlett-Packard (HP), after the US firm wrote off $8.8bn (£5.5bn) over last year’s purchase of Autonomy.
Meg Whitman, who took the reins at HP shortly before the $11bn deal was completed in October last year, accused Autonomy’s management – most of whom have left since the deal was completed – of “a willful effort on behalf of certain former employees to inflate the underlying financial metrics...in order to mislead investors and potential buyers”.
She said the matter had been referred to the Serious Fraud Office and the US Securities and Exchange Commission’s Enforcement Division for civil and criminal investigations, and that HP would “aggressively pursue various parties” to recoup as much of the money as possible for shareholders.
Mike Lynch, the former chief executive of Autonomy, denied the claims, saying he was “shocked to see this statement, and flatly rejects these allegations, which are false”. He said he had not heard the claims until HP’s statement, or been contacted by anyone at HP.
Lynch, who founded Autonomy in 1996 and pocketed around £500m from its sale, was forced out of the software firm in May. After his departure, an internal whistleblower flagged up the alleged accounting irregularities to HP management, who then investigated Autonomy’s accounts in tandem with accountancy firm PwC.
The investigation led HP to believe that Autonomy was “substantially overvalued”, that hardware sales were reported as higher-margin software sales, the cost of that hardware was booked as a marketing expense, and that long-term deals were recorded as short-term ones. These supposed irregularities were responsible for more than $5bn of the writedown. HP said Autonomy’s accounts exaggerated revenues by 10 to 15 per cent.
Whitman yesterday denied that HP had been careless in conducting due diligence on Autonomy’s books, which had been audited by Deloitte.
“If the financials are fraudulent and it is not caught by a company like Deloitte... Deloitte is not exactly ‘Brand X’ accounting firm, it is a big accounting firm with worldwide operations. It’s a little challenging to go in and assume: ‘Hey we’ve got to double-check Deloitte’,” she said.
Deloitte said in a statement yesterday: “We cannot comment further on this matter due to client confidentiality. We will cooperate with the relevant authorities with any investigations into these allegations.”
The news pushed HP shares down 12 per cent to their lowest price in a decade.