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HP requests fraud investigation into Autonomy deal

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Updated: Hewlett Packard(s hpq) CEO Meg Whitman said “outright misrepresentations” about the state of Autonomy’s financial health led to HP overpaying for that company last year and Whitman is recommending civil and criminal investigations into that issue. HP took a loss of $6.85 billion ($3.49 per share) for the year ending Oct. 31, mostly related to a previously announced $8 billion charge related to the company’s Autonomy business.

HP bought Autonomy for $11.1 billion last year. Autonomy CEO Mike Lynch (pictured above) left HP under a cloud last quarter.

According to an HP statement posted today:

“Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP. These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal. We remain 100 percent committed to Autonomy and its industry-leading technology.”

Most of this charge — $5 billion — relates to those improprieties and HP has referred the matter to the U.S. Securities and Exchange Commission’s Enforcement Division as well as the U.K.’s Serious Fraud Office for civil and criminal investigation. “In addition, HP is preparing to seek redress against various parties in the appropriate civil courts to recoup what it can for its shareholders. The company intends to aggressively pursue this matter in the months to come,” according to the statement.

Where was the board?

Update: The biggest question — both on the conference call and beyond — is why HP’s board did not spot these issues before okaying the purchase –which was the brainchild of former HP CEO Leo Apotheker. Whitman said the “two people who should be held accountable” for this situation —  former CEO Leo Apotheker and former chief strategy officer Shane Robison — are now gone. Apotheker was ousted in September, 2011 and Robison left a few weeks later.

She also pointed out that HP used Deloitte to look at the deal and KPMG to look at Deloitte and nothing turned up until “a third party” came to HP to point it in the right direction.

“At the time I joined [as HP CEO], I was surprised that due diligence and M&A reported to strategy and not the CFO. I changed that right away,” Whitman said.

After all this, Whitman said the company remains squarely behind the Autonomy business, which she characterized as a “work in progress.”

The rest of HP’s earnings release is here, although the numbers which show PC and server revenue off, software revenue up, seem anticlimactic after all this drama.

5 Responses to “HP requests fraud investigation into Autonomy deal”

  1. PrincetonAl

    I don’t know about the fraud charges, but everyone thought they overpaid at the time wildly. I thought they were suckers big time for paying this much.

    The crime here is not just the potential accounting proprieties, but also Leo and the board and agreeing to do such a dumb deal at the time at shareholder’s expense.

    • Yep we screwed up let’s blame the “furniner” the fault was it ;puting so much goodwill and intangibles on the blance sheet . HP realy needs a Fred Mulally type to cull the “croak voiced daleks” and get back to HP’s engineering roots

  2. Carlos Spicyweiner

    There are several billion dollar companies there are not household names, so that is not a good argument.

    There are limits to what can be seen by a M&A team going into a company so finding fraud is not an easy task with that level of insight.

    It’s a black eye to say the least, but the HP board hasn’t done anything atrocious here. Just keep in mind that Facebook paid a billion for Instagram.

  3. HP was duped as they wanted to be duped. Did anyone in the US know about Autonomy before the HP purchase? It was hardly a household name, and they supposedly had billions in revenue? It was fishy from the get go.
    If there is any fraud investigation it should be against HP management for continuously making the wrong decisions.