Justice Department Investigating Alleged Fraud at Autonomy

HP says it discovered accounting improprieties at the software company it purchased last year.
Posted December 28, 2012
By

Cynthia Harvey


After purchasing U.K.-based software firm Autonomy in 2011, HP said that it later discovered accounting improprieties at the company. Earlier this year, HP took a $8 billion write-down as a result. Now HP has revealed that the U.S. Department of Justice (DOJ) is looking into the matter.

Bloomberg's Adam Satariano reported, "The U.S. Justice Department opened an investigation relating to Autonomy Corp. after Hewlett- Packard Co. (HPQ) accused the software company of misrepresenting its performance before being bought last year. Justice Department representatives informed the company on Nov. 21 of the probe, Hewlett-Packard said yesterday in its annual 10-K regulatory filing. The computer maker booked an $8.8 billion writedown related to Autonomy last month after finding that some revenue had been recorded prematurely or improperly."

Chris O'Brien with the Los Angeles Times explained, "HP acquired Autonomy in 2011 for $11 billion, a move it hoped would turn it away from its dependence on sales of computer hardware with its low profit margins, and into the more profitable business of software. However, the price HP paid was widely criticized for being too high, and in part led to the subsequent ouster of Chief Executive Leo Apotheker. He was replaced by Meg Whitman. Within a few months of taking the helm, Whitman has said Autonomy's business began to perform under expectations and last May she fired Lynch. A short time later, HP has said, an Autonomy executive came forward and told HP executives that the company had been engaged in various accounting schemes to inflate revenues. After several months of investigation, HP disclosed the allegations in November, and announced it was taking an $8-billion write-down on Autonomy."

Richard Saintvilus with Forbes noted, "This news follows other claims which suggest that Hewlett-Packard actually tried to back out of the Autonomy deal prior to the agreement being finalized. On the heels of the announced $8.8 billion writedown investors cried foul and demanded to learn what HP knew with regards to Autonomy. Meanwhile, HP alleges fraud, which Autonomy’s former CEO Mike Lynch denies. It does not help that HP’s payment of $11.1 billion for Autonomy was considered by many as 'excessive,' including Oracle’s CEO Larry Ellison who once backed out of the same deal."

All Things D's Kara Swisher added, "Autonomy founder Mike Lynch is still not backing down in his ongoing battle with Hewlett-Packard. 'Simply put, these allegations are false, and in the absence of further detail we cannot understand what HP believes to be the basis for them,' he said in a statement, as well as aiming at $5 billion in writedowns the company has taken related to the controversial deal. 'We continue to reject these allegations in the strongest possible terms.'"




Tags: software, HP, Autonomy, fraud, Justice Department, merger and acquistion activity


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