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Feds Investigating Autonomy Accounting Issues

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Hewlett-Packard Co. acknowledged yesterday the U.S. Department of Justice is investigating fraud allegations related to the alleged accounting irregularities that led to the $8.8 billion write-off of the Autonomy acquisition.

HP referenced the investigation in its annual 10K filing yesterday, in which it stated the investigation began in late November, shortly after the company announced the massive write-off. At the time, HP said it would inform the U.S. and U.K. governments of the situation and invite the review.

So far, three agencies appear to be investigating the potential fraud, including the U.S. Federal Bureau of Investigation (FBI) and Securities and Exchange Commission (SEC), as well as the U.K. Serious Fraud Office. Until the HP acquisition in August 2011, Autonomy was a British company with U.S. presence.

“As a result of the findings of an ongoing investigation, HP has provided information to the U.K. Serious Fraud Office, the U.S. Department of Justice and the SEC related to the accounting improprieties, disclosure failures and misrepresentations at Autonomy that occurred prior to and in connection with HP’s acquisition of Autonomy,” HP wrote in a statement to the SEC.

The investigation acknowledgement did not go unnoticed by Mike Lynch, co-founder of Autonomy, who has denied any accounting malfeasance. Lynch is a public thorn in HP’s side, as he challenges every allegation lobbed by CEO Meg Whitman and her management team. Following yesterday’s disclosure, Lynch expressed disappointment HP did not provide more details on how it calculated the Autonomy write-down or provide specifics on the suspected accounting irregularities.

“We continue to reject these allegations in the strongest possible terms. Autonomy’s financial accounts were properly maintained in accordance with applicable regulations, fully audited by Deloitte, and available to HP during the due diligence process,” Lynch wrote on his rebuttal site, AutonomyAccounts.org. “We remain deeply concerned about how this process has been conducted, and believe it is in everyone’s interests for it to be resolved as soon as possible.”

Additionally, HP is facing several shareholder lawsuits related to the Autonomy deal. Investors accuse HP management of bungling the acquisition and misleading Wall Street, which led to a severe loss in the company’s equity value. In the past year, HP has written off more than $20 billion related to the Autonomy, EDS and 3Com acquisitions.

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One Response to “Feds Investigating Autonomy Accounting Issues”

  • craig kensek:

    There’s an accounting joke where someone asks the accountant, “What is one plus one equal?” and the accountant replies, “What do you want it to equal?” Revenue recognition, valuing a firm, and calculating a write down is similar. However, for all, there are guidelines. With publicly held companies, two continent’s different regulations, and litigious lawyers, this will get ugly. And then, the IRS will probably step in at some point and question whether they are being shortchanged.

    The due diligence performed by the accounting firms appears to have been pretty cursory looking only at numbers they were provided and digging no deeper than that.

    Las Vegas may start laying odds on whether Ms. Whitman will be at HP at the end of 2013.

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