It may be April Fool’s Day, but I’m sure former Autonomy CEO Mike Lynch and HP execs aren’t laughing. HP filed suit in London this week against Lynch and former Autonomy CFO Sushovan Hussain over alleged accounting improprieties to the tune of $5.1B. Lynch and company’s response? Counter-sue, as a war that’s been going on for almost four years, continues unabated.
Lynch has denied the allegations of wrong-doing vehemently from the start, suggesting that what HP saw as improprieties were simply differences in U.S. and British accounting practices. He has kept a blog called AutonomyAccounts.org for a couple of years expressly for the purpose of answering HP’s charges and his latest entry from yesterday indicated former Autonomy execs are counter-suing HP for £100 million ($148,267,500 USD).
The claim according to the blog post is for “damage caused by false and negligent statements made against them by HP on 20 November 2012 and in HP’s subsequent smear campaign.”
As for HP, it filed suit in London’s Chancery Division High Court this week, and sent me this statement by email yesterday (unsolicited I might add):
“Here’s the quote you can use on the record regarding yesterday’s filing in London’s Chancery Division High Court. Please let me know if you need anything else or have questions.
“HP can confirm that, on March 30, a Claim Form was filed against Michael Lynch and Sushovan Hussain alleging they engaged in fraudulent activities while executives at Autonomy. The lawsuit seeks damages from them of approximately $5.1 billion. HP will not comment further until the proceedings have been served on the defendants.” – HP Spokesperson”
Deal Gone Bad
Shortly after HP finalized an agreement to buy Autonomy for over $10B back in 2011, the deal began to go sideways. A year later, HP alleged that it had been bamboozled by Autonomy and that it had played fast and loose with its accounting practices.
From the beginning I’ve been left to wonder why HP never picked up these alleged accounting issues during the due diligence phase prior to the sale. It wasn’t until the papers had passed, and Lynch had been paid, that the questions really began to surface.
Alan Pelz-Sharpe, an analyst with 451 Research, who has been following this deal from the start says HP likely did a poor job of reviewing the particulars of this deal.
“From what has already been discussed for a deal of this size quite limited information relating to Autonomy deals and accounting procedures was released to those involved in the work – they did not have full access nor is it clear that they requested it or had a mandate to gain it,” Pelz-Sharpe said in an email.
By the time HP figured things out (or claimed to), it made allegations about Autonomy’s bookkeeping practices and took an $8.8B write down. It has been gunning for Lynch and company ever since. First it tried legal channels. British authorities dropped the case, and the US Justice Department has never taken action.
Pelz-Sharpe says that doesn’t mean it won’t at some point. “Criminal charges could well still be coming – the Serious Fraud Office may have closed their investigation but what evidence they did collect was passed to the US authorities and from what I understand that investigation is alive and ongoing,” he said.
Perhaps HP felt that a civil suit, with a lower barrier for proof, might be the best route to recoup some of its money for shareholders (who were none too pleased with HP about this). Some folks thought HP overspent even before the allegations started — and the longer this goes on with suits and counter-suits, the more expensive it becomes.
Pelz-Sharpe says the counter-suit by Autonomy is par for the course. “Yes – to be expected – essentially counter claiming it’s all HP’s fault. The hope here is that Silicon Valley as a whole may learn a few lessons from this debacle,” Pelz-Sharpe said.
Unfortunately for HP, it should have done its homework up front, but if in fact there was fraud, then it doesn’t matter what it should have done. Autonomy executives will have to answer for it one way or another.
After four years it’s still not clear what happened and the war rages between the two parties with no signs of a peace accord any time soon — and that’s no joke.