March 12, 2013 – U.K. fraud prosecutors’ use of Autonomy Corp. software may present a conflict of interest that could stop their investigation of claims by HP that Autonomy managers misrepresented results.
The U.K. Serious Fraud Office, which informed HP last month that it opened an investigation into allegations of wrongdoing against Autonomy managers, is “making inquiries” on whether they can continue the probe because it uses Autonomy’s Introspect e-discovery product, the agency said today.
The SFO is “keen to ensure that there is now no conflict of interest or perception of such a conflict,” it said in an emailed statement. The U.K. probe follows one by the U.S. Justice Department, HP said in a filing yesterday with the U.S. Securities and Exchange Commission.
Hewlett-Packard booked an $8.8 billion writedown last year tied to its $10.3 billion 2011 buyout of Autonomy. It said more than $5 billion of that resulted from the U.K. company’s accounting practices and that about $200 million of Autonomy’s revenue was prematurely or improperly recorded. The faltering performance of Autonomy is complicating efforts by CEO Meg Whitman to revive growth after years of botched deals, management tumult and diminishing demand for personal computers.
Mike Lynch, Autonomy’s founder and former chief executive officer, has rejected allegations of wrongdoing. A spokeswoman for Autonomy’s former management team declined to comment today.
Palo Alto-based HP said it gave the SFO, SEC and the U.S. Department of Justice findings from an internal investigation “related to the accounting improprieties, disclosure failures and misrepresentations at Autonomy that occurred prior to and in connection with HP’s acquisition.”
David Jones, a spokesman for the SFO, confirmed that the agency opened an investigation after HP gave it a file of evidence in November. The formal probe was opened last month, he said. He declined to identify which individuals are under investigation.
The U.S. investigation has likely “spurred them into action,” Neill Blundell, the head of the fraud and investigations group at U.K. law firm Eversheds LLP, said of the SFO’s involvement.
The agency’s director, David Green, who’s been in the role for less than a year, “is keen to get the agency back to doing what it should be doing – investigating serious allegations of fraud,” Blundell said.
The opening of a criminal probe “does not mean that individuals are guilty of a crime or indeed that a crime has been committed,” the SFO said today.
The U.K.’s accounting regulator, the Financial Reporting Council, also opened an investigation last month into Autonomy’s published accounts for the period between January 2009 and June 2011 – the period leading up to the takeover. Deloitte LLC, Autonomy’s auditors, said at the time it would cooperate with the investigation, adding that it wasn’t hired to carry out due diligence on the HP deal.
Former Autonomy executives have retained high-profile defense attorneys amid the allegations.
Lynch hired criminal defense lawyer Reid Weingarten, and Sushovan Hussain, who was Autonomy’s finance chief, retained attorney John Keker, according to a person familiar with the matter.
Weingarten’s past clients include ex-WorldCom Inc. Chairman Bernard Ebbers and Goldman Sachs Group Inc. CEO Lloyd C. Blankfein. Keker is helping McGraw-Hill Cos. and its Standard & Poor’s unit fight U.S. fraud claims.
At least a dozen investor lawsuits have been filed against Hewlett-Packard, its managers and Autonomy executives alleging that shareholders were misled about the acquisition.
Investor-advisory firms have urged shareholders to vote against the re-election of HP Chairman Ray Lane and other directors, saying that they failed to properly vet the purchase. Shareholders should vote against Lane, John Hammergren, and G. Kennedy Thompson, Institutional Shareholder Services said this month in a report released in advance of the company’s annual meeting, set for March 20. Glass Lewis & Co. has urged the removal of Hammergren, Thompson, Marc Andreessen and Rajiv Gupta, the lead independent director.
“Losing some of our directors in an abrupt and disorderly manner could undermine our efforts to stabilize the company,” Gupta wrote in a letter published separately by HP yesterday. “What the company needs now is stability and consistency of leadership.”
The FBI, responding to an inquiry from the SEC, is looking into HP’s allegations, a person familiar with the matter said in November.
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