HP has confirmed in its annual report that the U.S. Department of Justice has launched an investigation stemming from the Palo Alto company’s allegations that it uncovered widespread accounting fraud at Autonomy, the British software maker it acquired for $11 billion last year. HP confirmed the investigation in its Thursday filing with the U.S. Securities and Exchange Commission, though it offered no further details about the alleged fraud:
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. On November 21, 2012, representatives of the U.S. Department of Justice advised HP that they had opened an investigation relating to Autonomy. HP is cooperating with the three investigating agencies.
Autonomy’s founder and former CEO Mike Lynch had written a week ago in a blog post that he hoped HP’s 10-K filing would detail how HP added up the write-down of $5 billion it says it was forced to take because of “serious accounting improprieties, misrepresntation and disclosure failures” by Autonomy. Today Lynch lashed out at the lack of detail in the HP filing:
“It is extremely disappointing that HP has again failed to provide a detailed calculation of its $5 billion write down of Autonomy, or publish any explanation of the serious allegations it has made against the former management team, in its annual report filing today.
Furthermore, it is now less clear how much of the $5 billion write down is in fact being attributed to the alleged accounting issues, and how much to other changes in business performance and earnings projections. This appears to be a material change in HP’s allegations.
Simply put, these allegations are false, and in the absence of further detail we cannot understand what HP believes to be the basis for them.
We also do not understand why HP is raising these issues now given that Autonomy reported into the HP Finance team from the day the acquisition completed in October 2011, there was an extensive due diligence process and Autonomy was audited as a public company for many years.
HP alleged in November that Autonomy executives used accounting tricks to make the the British company appear more profitable than it actually was, forcing HP to take a massive write-down for the acquisition, the worst strike in what was already a difficult quarter. HP bought Autonomy, its largest acquisition to date, in October 2011.