The company says it discovered evidence of bookkeeping manipulation at Autonomy prior to HP's multi-billion dollar acquisition of the software company.
Hewlett Packard says it has discovered "extensive evidence" that an unspecified number of former employees of Autonomy had cooked the books prior to HP's $11.1 billion acquisition of the software company.
In its fourth quarter earnings report last week, HP announced it was taking an $8.8 billion charge related to its purchase of Autonomy. At the time, HP said that it bought the company based on pumped-up and fraudulent accounting. Since then, HP and Autonomy founder and former CEO Mike Lynch have engaged in a public war of words about who was really to blame for Autonomy's disappointing performance and whether there was fraud.
Here's HP's official statement:
For his part, Lynch offered a decidedly different narrative in a letter to HP's board that he released publicly on Tuesday.
HP has initiated an intense internal investigation into a series of accounting improprieties, disclosure failures and outright misrepresentations that occurred prior to HP's acquisition of Autonomy. We believe we have uncovered extensive evidence of a willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers.
The matter is in the hands of the authorities, including the UK Serious Fraud Office, the US Securities and Exchange Commission's Enforcement Division and the US Department of Justice, and we will defer to them as to how they wish to engage with Dr. Lynch. In addition, HP will take legal action against the parties involved at the appropriate time.
While Dr. Lynch is eager for a debate, we believe the legal process is the correct method in which to bring out the facts and take action on behalf of our shareholders. In that setting, we look forward to hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury.
27 November 2012
To: The Board of Directors of Hewlett-Packard Company's="" former="" management="" team="" serious="" financial="" impropriety.="" it="" was="" shocking="" that="" hp="" put="" non-specific="" but="" highly="" damaging="" allegations="" into="" the="" public="" domain="" without="" prior="" notification="" or="" contact="" with="" me,="" as="" ceo="" autonomy.="" <="" p="">
I utterly reject all allegations of impropriety.
Autonomy's finances, during its years as a public company and including the time period in question, were handled in accordance with applicable regulations and accounting practices. Autonomy's accounts were overseen by independent auditors Deloitte LLC, who have confirmed the application of all appropriate procedures including those dictated by the International Financial Reporting Standards used in the UK.
Having no details beyond the limited public information provided last week, and still with no further contact from you, I am writing today to ask you, the board of HP, for immediate and specific explanations for the allegations HP is making. HP should provide me with the interim report and any other documents which you say you have provided to the SEC and the SFO so that I can answer whatever is alleged, instead of the selective disclosure of non-material information via background discussions with the media.
I believe it is in the interest of all stakeholders, and the public record, for HP to respond to a number of questions:
1: The alleged "mischaracterization" of hardware that HP did not realize Autonomy sold, as I understand this would have no effect on annual top or bottom lines and a minor effect on gross margin within normal fluctuations and no impact on growth, assuming a steady state over the period;
2: The alleged "inappropriate acceleration of revenue recognition with value-added resellers" and the "[creation of] revenue where no end-user customer existed at the time of sale", given their normal treatment under IFRS; and
3: The allegations of incorrect revenue recognition of long-term arrangements of hosted deals, again given the normal treatment under IFRS.
I am placing this letter in the public domain in the interests of complete transparency.
Dr Mike Lynch