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The HP Claims Autonomy Investigation

14th May 2013 Print

British technology firm, Autonomy, is under fire, after accusations of suspect accounting. The Serious Fraud Office (SFO) and the US department of justice are investigating Autonomy’s records, prior to a 2011 takeover by Hewlett-Packard (more commonly known as technology company, HP).

Both UK and US authorities are sifting through Autonomy’s accounts; but amusingly SFO is a client of Autonomy’s, in the first place. Billionaire former business leader, Mike Lynch, left the company in 2012 and claimed that he’d heard nothing from HP about investigations in March.

Last November, HP was forced to reduce the value of Autonomy to $8.8bn (£5.6bn), even though it bought the business for $10bn. The chief executive in charge of the acquisition, Meg Whitman, is being blamed for inflating company figures, which would clearly affect HP’s choices in purchasing the business.

Lynch blames an outflow of Autonomy staff on unruly management from the HP team. However, HP has alleged that there were serious accounting misrepresentations. Lynch has challenged HP to prove how one of the biggest technology companies in the UK has diddled with its accounts.

HP says it has handed over material to the Serious Fraud Office, the US department of justice, and the Securities and Exchange Commission (SEC). In February 2013, the SFO announced that they were investigating into HP’s claim that it was made to overpay for Autonomy, when it bought the company in 2011. The purchase of this business, as well as poor HP shares, has sparked off calls for the company’s chairman, Ray Lane, to resign.

Leading advisors to US fund managers, ISS and Glass Lewis, have suggested that shareholders should use their influence to prevent the re-election of many of HP’s board members. But others believe that what the company needs now is stability and consistency.

Autonomy’s software orders and searches the huge amount of data through emails and digital communication. Lynch has since expressed shock that HP has made damaging allegations without consulting him first.

A Fierce Legal Battle

Meg Whitman and Ray Lane are now being accused of ignoring the information brought forward by whistleblowers and obfuscating their concerns about the deal. In November 2012, they eventually admitted that HP had overpaid.

After the acquisition, HP was forced to reduce the company’s value by more than $3bn. HP are accusing Lynch of cashing out of Autonomy, before it fell under the wheels of its own fraud.

However, in a damning 101 page report, it came to light that the directors of HP were so tired from civil war within the ranks that they couldn’t give the Autonomy handover the proper attention. There were four whistleblowers in total; three of which came forward before the deal was struck. Even with all these warnings, HP’s checks on Autonomy only lasted three weeks. Like both these companies, you’ll want legal advisors assisting your serious fraud case.

Suspiciously, audit financial documents were held back, so HP could only review public financial statements and sales contracts. Lynch still denies all allegations of impropriety.