back to article US, UK probe HP claims of accounting mischief at Autonomy

The US Department of Justice is investigating Hewlett Packard's allegations that British software company Autonomy cooked its books before it was bought up by HP. Hewlett Packard claimed accounting irregularities and financial misrepresentation at Autonomy led to HP's $8.8bn loss in the fourth quarter of 2012. HP paid $11bn for …

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Unhappy

Well...

I have nothing like the complete picture, but I can't help having a nagging feeling that HP are indulging in a bit of mud-flinging to deflect interest from their less-than-sparkling performance.

If Autonomy's alleged shenanigans were a) real and b) on such a massive scale, then surely a little due diligence on the part of HP prior to purchase would at least have raised a suspicion or two.

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jai
Silver badge

Re: Well...

I totally agree, they should have done their homework more thoroughly before signing the cheque.

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Anonymous Coward

Re: Well...

It's like selling a car, you let the buyer do the inspection and decide if all is well. You write "sold as seen" and if there's anything wrong then the buyer has no comeback as they missed it.

It should not be up to the seller to point out any defects since they may not realise they exist. So if Autonomy had some accounting problems which they didn't know about they how on earth can they be held liable?

Of course if they had some accountancy problems they knew about then it's a different story.

But ultimately people who run businesses in this country should build up an industry in the UK and stop selling their businesses as this screws over the UK in the long run. Yes you can be rich as a result of the buyout, but if you're running a business valued so high I'm sure you're comfortably off anyway.

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Anonymous Coward

Re: Well...

Ah but HP DID do due diligence, quite a lot of it by all accounts. And apparently nothing untoward was found.

So, either the accounting problems with Autonomy were so well hidden that due diligence didn't catch them, or the firm(s) (there were several involved) didn't do due diligence properly.

HP are maintaining radio silence over this and Mike Lynch is desperately trying to keep it in the public eye.

Whatever happens will take years to play out and nothing good will come of it, unless you are one of the lawyers involved in the litigation in which case you will be glad of the fees.

HP should just accept that it screwed up and move on.

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Anonymous Coward

Re: Well...

The analogy of the car purchase is interesting. HP hired the equivalent of the RAC to do a check on the car ( Auditors and merchant bankers) and they said the car's documentation was OK - log book / MOT OK / no outstanding HP / no write off. If the seller produced fake documents that tricked the advisers into thinking the car was OK then that's fraud and someone will be going to jail. If the advisers didn't do a good job, HP are accountable for hiring them.

I would have thought this investigation would lie with the UK authorities as this was a UK listed company, I'm not sure what the US authorities can do.

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Anonymous Coward

Re: Well...

The US authorities are involved because HP is a US company who is crying foul. And knowing how the DoJ deals with anything that involves US citizens (and a US corporation is just that), this is no surprise. Just think of the NatWest Four... they did deals in the UK, but still got prosecuted in the US by US authorities because it involved Enron.

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Anonymous Coward

Re: Well...

Ah but HP DID do due diligence, quite a lot of it by all accounts. And apparently nothing untoward was found.

So, either the accounting problems with Autonomy were so well hidden that due diligence didn't catch them, or the firm(s) (there were several involved) didn't do due diligence properly.

The latter - definitely the latter. Otherwise due diligence is just "we took their word for it", which would have me dialling my favourite litigator if I was an HP shareholder.

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Anonymous Coward

Re: Well... Nat West Three

They were working for a US Organisation and the illegal acts were deemed to have taken place in the US (wire fraud) - so they were extradited. The SFO said: "Alleged acts performed by the three were conducted in the US, thus their alleged fraud was conducted in the same jurisdiction as was the overall issue surrounding Enron. The place of residence of the three (ie, the UK) was not considered to be an over-riding consideration."

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FAIL

Re: Re: Well...

"....they should have done their homework more thoroughly...." Jai, you and Ted should have done your homework more thoroughly and looked at the due dilligence work done by KPMG for hp, and DeLoittes as Autonomy's accountants. Both KPMG and DeLoittes had a legal obligation to uncover any accounting irregularities. Luckily for you there is no requirement to do even the basic background reading before posting here, just expect the better informed to correct you.

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Silver badge

Re: Well...

In this case I think it's more like:

Wife discovers husband just spent a fortune on an old sportscar

Husband then spent another fortune trying to make the car run.

Husband now claims that mileage was wrong because it didn't account for tire wear changing the radius and that they should get their money back before wife makes them sleep in the shed.

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Anonymous Coward

Re: Well...

Both KPMG and DeLoittes had a legal obligation to uncover any accounting irregularities - If any of the big four accountancy firms started to question irregularities then they will soon be bankrupt. Its the Corporations that pay the accountants to verify the books. If too many questions are asked then companies will simply change auditors. The government needs to change the Law so that if they miss irregularities then fines will be imposed. You will find accounting irregularities in many corporations the world over.

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FAIL

Angling to get another Brit into a US Court?

If there was fraud, it sure must have been sophisticated with all those bean counters crawling over the books for Due Diligence.

Let's face it, since Messrs H and P departed this earth, the company has been through a series of totally inept executives currently the hot seat is occupied by a failed would-be politician.

What happened to so many acquisitions? Discarded! Now Meg the Frump needs to save her fat a*se, so she dreams up this 'investment mistake'.

The fact is HP sells junk, it's former wide array of top end products is gone. It is a shell of it's former self. I always advise people to avoid anything with H and P written on it, even laptops and particularly printers. They are history, an elephant that has some very sharp mice running around it.

What a shame that the hard life work of it's founders has been squandered. And we shouldn't forget to include the Board of Directors, either, they are responsible for hiring pneumatic bird-brains as CEO's whilst pulling down massive cheques.

Cameron should tell the US that if there was a crime it was done on British soil, allegedly by a British citizen and that any criminal charges will be dealt with under British law, in a British court.

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Anonymous Coward

Re: Angling to get another Brit into a US Court?

Some of this is a bit harsh. I agree that HP has not been run well over the past few years and that the leadership has made some bad decisions.

However, I think Meg is actually trying to do some of the right things. She's been honest (possibly a bit TOO honest) about HP's current position and the plans for the next couple of years. It remains to be seen whether she can make it work, but for her it isn't about saving her derriere; she doesn't need to, at least not financially - she's rich anyway.

You say HP 'sells junk' but it still sells an awful lot of what it makes both to business and to consumers. HP has a lot of very big customers who are at least content with their products and services.

Bill and Dave's life's work has not been squandered; HP may be going through tough times at present but it will survive.

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Bronze badge

Shit happens

Every monolithic company loses its way eventually. Most of the electrical producers lost it when computers took over the world. The music industry has lost it Microsoft is on the way and it looks like it is going to be followed by Apple.

I remember walking up the north end of Manchester looking at all the cotton factories sans roofs a few years after the city lost its shirts. Sirt happens in Asia these days so does all the computing. Terry Pratchet wrote something about it in his book Making Money.

Forget your Adam Smiths and all the empty headed philosphies about the labour market. When someone else can do it better/cheaper, all it comes down to is shipping. No rich bastard gives a sod about anyone losing their job when the beans get counted.

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Re: Angling to get another Brit into a US Court?

> You say HP 'sells junk' but it still sells an awful lot of what it makes both to business and to consumers.

> HP has a lot of very big customers who are at least content with their products and services.

> Bill and Dave's life's work has not been squandered;

> HP may be going through tough times at present but it will survive.

You mean people haven't stopped buying new printers when their cartridges run out -and gone to play elsewhere?

That is all I know about the way that company does business. It's not even as sound a prospect as asset stripping. Well, is it?

I'm surprised it lasted as long as it has

(Not that I find it hard to believe people are so bloody stupid.)

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Anonymous Coward

Re: Angling to get another Brit into a US Court?

> You mean people haven't stopped buying new printers when their cartridges run out -and gone to play elsewhere?

Some people have certainly done that, but it's probably not as big a number as you might think.

There's a much bigger picture here. HP is still a tech behemoth with revenues above $100bn a year with a lot of big customers who are more or less content with what HP provides. I do have big concerns about the recent acquisitions and the continuing lack of innovation but I believe HP will ultimately survive.

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Re: Angling to get another Brit into a US Court?

HP hasn't been the business that Bill & Dave started for decades. The remnants of that is Agilent, which still has a respectable rep in the instruments business. It's all very sad - I remember reading HP Journal back in the day in our company library and being amazed & fascinated by the techniques & equipment described therein. I dunno why, but it seemed to be de rigeur to be a backpacker to work at HP. Virtually all the author bios seemed to feature backpacking as their leisure time activity. It became something of a joke at our place.

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Meh

Re: Angling to get another Brit into a US Court?

@AC 14:57

"Bill and Dave's life's work has not been squandered; HP may be going through tough times at present but it will survive."

Much of Bill and Dave's life's work was split of into Agilent Technologies in 1999, which seems to be doing OK. Maybe the Board thought that they would screw up the newer computing stuff?

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Anonymous Coward

Re: Angling to get another Brit into a US Court?

"However, I think Meg is actually trying to do some of the right things. She's been honest (possibly a bit TOO honest) about HP's current position "

That is what you do if you are executive. You set the expectations ultra-low, so even poor performance looks like a triumph. Meg has set it up so that anything north of collapse will be considered a turnaround.

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Re: Angling to get another Brit into a US Court?

Not to be a shrill, but their wireless printer/scanner has excellent Linux support as well as fairly good quality and ongoing costs- check the review on El Reg earlier in the year.

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ACx

Right, I know very little about this in any detail. However......

The vibe I get is that HP are some how trying to push the edges of those US laws, that see businessmen go to jail for improper behaviour, in order to mitigate their financial losses and mistakes. And from what I can detect about these financial cases, there is little fairness or understanding because tax and financial laws are so damn complicated. In the end, it looks like a toss of a coin or mere opinion as to what is and isn't some sort of fraud or malpractice. You only have to look at how the public are led to believe that tax allowances given by government to encourage specific type of investment are evil tax loop holes. Yes, sometimes it wrong, but something its right. But, how can any one really make a fair judgement, unless some this really clear cut.

But I do think HP are trying to spin the law to make others responsible for their mistake(s). Which I think is corporate bullying and fraud, supported by the US "justice" system. This seems to be a US tactic of sorts. It kinda reminds me of Apple and Samsung.

And, sorry, but I cant help thinking that this may never have come up had it been a US company HP bought. I also wonder if the fact its a UK company is relevant too. We do tend to sh!t on our people and send them to the US with out much concern.

Look, I don't know. But over all, as a system, something here seems horrible off kilter. Clearly I'm not 100% sure how to express it, but really, something smells off here in general. Its like law is now some sort of wheel to spin in Vegas, rather than something to do with justice.

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Black Helicopters

Please remember that HP now is not HP at all (not the original greatly caring and outstanding company that it was many years ago) but a mishmash of all the other companies that have been sucked into the corporate soup and stirred around into an unidetifiable sludge.

However great a company, dilution will kill the original ethos.

Equally, a software company is mainly the ethos and the current staff - their ability to perform in their chosen environment.

There are many excellent Dilbert cartoons covering the fate of innovative smaller companies subsumed by mega companies.

All the reasons that the original company was a success are almost immediately destroyed by the bland culture of the subsumer.

So a company with a realistic stellar valuation can have most of that value destroyed almost immediately merely by being taken over by the wrong kind of company.

Which in turn leads to the new owner trying vainly to understand where all the value has gone and then deciding it must have been the victim of a hoax because nothing else fits in with current corporate thinking.

This may be the truth in this particular case - but once lawyers are involved then truth generally takes a serious battering down a dark alley.

Oh, and yes I did work for a while for a company that was Borged by HP.

The only good thing was the redundancy :-)

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Choose from:

(a) HP were incompetent in doing due diligence

(b) Autonomy lied about the real potential of their vapourware

(c) both.

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Anonymous Coward

Re: Choose from:

(d) Neither... this could just be that HP understood what they were buying, had unrealistic expectations for Autonomy, realized that they paid way too much after the fact, didn't want to admit that they just paid $6-8 billion more than a fair price so they came up with the accounting excuses.

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Anonymous Coward

Re: Choose from:

e) KPMG screwed up the 'due diligence' big time and HP are looking to sue them for $<many> Billions.

f) Meg is doing a lot of NIH(in the 'Meg'asphere) in HP senior Management. Anyone even remotely involved with the purchase will get their marching orders

As someone who will become an HP Pensioner in 4 years I can only hope that they will last long enough for me to get what remains of it once the vultures come in and dissect the bits that are left after Meg departs on her merry way with many $M in her pocket like most recent CEO's.

anon for that reason

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Anonymous Coward

Re: Choose from:

I suspect this will turn out to be a real mixture of a lot of factors, some of which are listed here.

A couple of things to add; on due diligence my understanding is that due diligence reports carry a disclaimer limiting the liability of the report's authors. Also, Apotheker was apparently fairly desperate to make an acquisition in 'big data' and saw Autonomy as one of the few remaining companies he could buy to gain a foothold.

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Doesn't this and the olympus scandal cause some concern over the effectiveness of auditing? I'm not suggesting the auditors were lax or made a mistake (although it is possible) but if it is possible for companies to cook the books to such a degree that they can hide huge losses or overvalue the company and the professional book checkers cannot spot it? Doesn't that render the audit process and\or due diligence less useful? If you were going to buy a company or invest in it, after these two problems would you not now have less confidence in the audited results?

Fair enough right now we can't be sure if the issue was with HP, Autonomy or the auditors but at least we know with Olympus the company cooked the books and managed to hide it.

I've no particular stake in this beyond owning shares in a variety of companies.

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Anonymous Coward

Although there are supposed to be Chinese walls, the same companies that do auditing also provide services to large companies. They tell us there isn't a conflict of interest...I'd like to see a world in which accountancy was organised like UK law, so that when you become an auditor you are no longer employed by anybody who might conceivably be influenced by the offer or withholding of a large services contract.

It's also worth noting that many modern companies deal in such intangibles that their status could change in days. Suppose, for instance, that Apple ceased to become "cool" next Monday and its sales fell off the side of a cliff. How much would it be worth? A spares supplier for shiny bits for four or five years wouldn't be worth much. Suppose RR stopped selling stuff next Monday? It would still be selling spares and repairs in 50 years time. A bit of a difference. How are auditors supposed to allow for that?

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Caveat emptor

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