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Hewlett-Packard reports Justice Department fraud probe at Autonomy

December 27, 2012|By Chris O'Brien | This post was updated at 3:40 p.m.
  • Michael "Mike" Lynch, chief executive officer of Autonomy Corp.
Michael "Mike" Lynch, chief executive officer of Autonomy… (Chris Ratcliffe / Bloomberg )

The U.S. Department of Justice has officially opened an investigation into allegations made by Hewlett-Packard that the company had uncovered widespread accounting fraud at Autonomy, the British software maker it acquired for $11 billion last year.

HP confirmed the investigation in its annual report filed Thursday with the U.S. Securities and Exchange Commission. While the disclosure marks the first official confirmation of an investigation, the report does not contain any further details regarding the accounting fraud.

Mike Lynch, the former CEO and founder of Autonomy who was fired by HP last May, has waged a public campaign against HP, denying the allegations and calling on HP to release more details so he could address them. In a recent blog post, Lynch wrote that he hoped the annual report, known as a 10-K filing, would provide greater disclosure on the matter. 

"We are looking now to HP’s 10-K filing that is due before the end of the year," Lynch wrote. "This document should contain information about finances and management that all American businesses are required to lodge each year with the U.S. Securities and Exchange Commission. We look forward to HP providing in it a comprehensive disclosure and explanation of its position and calculations."

Lynch has not yet responded to a request for comment Thursday.

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HP acquired Autonomy in 2011 for $11 billion, a move it hoped would turn it away from its dependence on sales of computer hardware with its low profit margins, and into the more profitable business of software. However, the price HP paid was widely criticized for being too high, and in part led to the subsequent ouster of Chief Executive Leo Apotheker. 

He was replaced by Meg Whitman. Within a few months of taking the helm, Whitman has said Autonomy's business began to perform under expectations and last May she fired Lynch. 

A short time later, HP has said, an Autonomy executive came forward and told HP executives that the company had been engaged in various accounting schemes to inflate revenues. After several months of investigation, HP disclosed the allegations in November, and announced it was taking an $8-billion write-down on Autonomy. 

Lynch has denied the allegations, and also said the amount of fraud HP claims took place at Autonomy couldn't account for such a big loss. HP has said the write-down was due to both the accounting issues and the lowered expectations for Autonomy's business, but also because of the general decline of HP's stock. 

In the securities filing, HP provides extensive detail on how it calculated the overall write-down due to the decline in its stock. But it doesn't provide much additional details regarding the accounting issues, except to confirm the investigation. 

"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," the filing says. "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."

The filing also offers a picture of the legal fallout that HP itself is facing from the Autonomy acquisition and the subsequent allegations of accounting fraud. The HP filing lists at least nine shareholder lawsuits that have been filed related to the Autonomy acquisition since the company announced the write-down last month. 

HP has not responded to a request for comment regarding the filing. The filing was made after stock markets closed for the day. HP's stock closed at $14.04, down 0.57% for the day.

ALSO: 

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Autonomy founder Mike Lynch still wants details on HP allegations

Follow me on Twitter @obrien.

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