Fraud Alleged by Hewlett-Packard in Autonomy Acquisition

On Tuesday morning, Hewlett-Packard asserted there were instances of financial fraud involved with its purchase of Autonomy, the software business, in 2011. HP paid over $10 billion for the business.

At the same time, the company released third quarter profits that were slightly better than estimated on Wall Street, but also cautioned that the quarter profits for January would be less than analysts’ estimates.

HP announced over $8.8 billion in charges that were non-cash items and linked to disclosure failures, accounting improprieties and misrepresentations at the software business that took place prior to the HP acquisition of the company, as well as impact of the disclosure failures, improprieties and misrepresentations on future financial performance Autonomy over a long term period. In summary, said HP, the company has had to write down nearly 90% of the transaction’s value.

HP noted it referred the matter to U.S. and UK securities regulators and said it intended to pursue charges against individuals who played a role in the transaction.

HP said an internal investigation was started regarding the situation after one of Autonomy’s senior members of leadership stepped forward following Mike Lynch’s departure. Lynch was the founder of Autonomy. The senior member alleged there were a number of questionable business and accounting practices at Autonomy before HP made the acquisition. HP said the person provided many details that HP had no prior knowledge of or visibility.

HP says that is believes at this point that Autonomy was grossly overvalued when it acquired the company due to the misstatements of the financial performance of Autonomy, including core growth, revenue and gross margins.

 

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