Alleged Autonomy accounting hijinks to cost HP billions


— 4:36 PM on November 20, 2012

Looks like HP is still suffering the after-effects of Leo Apotheker's brief stewardship. Earlier today, the company said it's going to write off a staggering $8.8 billion related to the Autonomy buyout this quarter. (HP purchased Autonomy for $10.3 billion in October 2011.) According to HP, the enterprise software firm was "substantially overvalued" at the time of the deal due to bad accounting—and, allegedly, the accounting errors were deliberate:

HP is extremely disappointed to find that some former members of 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.

HP attributes $5 billion of the $8.8-billion charge to those "accounting improprieties." The remainder of the charge is "linked to the recent trading value of HP stock and headwinds against anticipated synergies and marketplace performance."

Not everyone is on the same page about this. The Wall Street Journal spoke to Autonomy founder Mike Lynch, who denies HP's allegations and says he wasn't even notified prior to today's announcement. Lynch adds that Autonomy was "destroyed in less than a year by the petty infighting at H-P," and he questions the plausibility of a $5-billion accounting discrepancy going unnoticed. "You are being asked to believe that an elephant that big was missed by all these firms and 300 people and it only came to light a year later," he tells the Journal.

In its statement, HP claims it was tipped off about the accounting issues by a "senior member of Autonomy's leadership team" who "came forward" after Lynch's departure from HP in April. This unnamed executive purportedly "provided numerous details about which HP previously had no knowledge or visibility," prompting an internal investigation that led to the write-off.

Whatever the truth may be, HP says it's notified the U.S. Securities and Exchange Commission and the British Serious Fraud Office, and it also intends to take the matter to civil court in order to "recoup what it can for shareholders."

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