Here’s Why HP’s Autonomy Fraud Allegations Are Unraveling
In the fourth-quarter of 2012, Hewlett-Packard’s (NYSE:HPQ) financial results showed the personal computer company had taken an $8.8 billion accounting writedown for the three-month period, attributing more than $5 billion to the enterprise software division Autonomy, which had been purchased for $11.1 million in 2011. Soon after the revelation was made, experts opined that HP had most likely been far too accepting of Autonomy’s published and audited accounts detailing its sales figures, while the company alleged it had been misled about the true state of Autonomy’s financial position; the writedown was only made after a whistle blower alerted the company to the accounting improprieties. In the wake of HP’s accusations of accounting fraud, Autonomy’s former Chief Executive Officer Mike Lynch said that HP had mismanaged Autonomy, a maker of enterprise software, after its acquisition.
Until now, the truth behind HP’s $5-billion Autonomy writedown was clothed in the allegations. But through a collection of audit papers, accounting documents, internal emails, and interviews with people familiar with the deal, the Financial Times gained some insight into the web of claims and counterclaims surrounding the Autonomy acquisition, and from these sources, it seems that HP was aware of that Autonomy was selling hardware at a loss before the acquisition was made.
It has come to light that Autonomy — whose main business was enterprise software — had sold hardware at a loss to compensate for shortfalls in the company’s revenues, and Automony’s loss-making hardware sales were a main focus of the dispute with HP. The problem is that these loss-making sales — made to institutions ranging from the Vatican to Morgan Stanley (NYSE:MS) to the Veterans Administration — were transactions considered not to be commercially valid.