Autonomy Chief Says Whitman Is Watering Down HP Fraud Claims

McGruber writes "Possibly the wierdest tax-writeoff of the year happened when Meg Whitman claimed that her US-based multinational corporation HP had been defrauded by British-software firm Autonomy; Ms. Whitman and HP claimed an 8.8 billion dollar write-down. As the Los Angeles Times explains, '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.' The wierdness continues — in its annual report filed with the U.S. Securities and Exchange Commission, HP claims that the U.S. Department of Justice has opened an investigation into HP's allegations that HP has uncovered widespread accounting fraud at Autonomy. However, The Guardian points out that former Autonomy CEO Mike Lynch claims that HP 'is watering down the accusations it had levelled against him over the accounts filed by his old software company.' Mr. Lynch also says that he has not been contacted by the U.S. Department of Justice, which HP claims is investigating the alleged fraud. Perhaps Slashdot's users can help make sense of this mess and help explain it to me?"

Comments

Smoke and mirrors

[girlintraining]

Perhaps Slashdot's users can help make sense of this mess and help explain it to me?"

You don't have to delve too deeply into this one, to be honest. The company took a risk. It lost at the gambling table. Badly. And now it's looking for someone, or something, to blame. And the only way to reduce their debt load without screwing someone over a barrel is if some vaguely-defined "fraud" is found in the accounting books, thus saving HP of a lot of tax money and reducing the liability. Everything else is smoke and mirrors.

Re:Smoke and mirrors

[greg1104]

This is a useful overview, but it doesn't cover the details of the confusing part.

My take is that the whole DOJ angle is part of HP looking for a scapegoat to cover both their own mismanagement and lack of ability to due anything useful with Autonomy's IP. It's a fishing expedition to find one, but they have no hard evidence yet of who's to blame. Autonomy itself used aggressive accounting measures to inflate its sale price, as all companies being acquired will try to do. What HP really wants is to ignore the whole thing and write off the loss, since catching any accounting mess should have happened before the purchase. But they can't just do that due to class action lawsuits saying it's HP who is at fault. So they're going through the motions of prosecuting other people to shift the blame, but so far they don't have any hard evidence of that fraud. If they did, they'd be leading with that.

Here's how I sequenced all the events here to sort out what happened:

• August 22, 2012: earnings are terrible, and we're going to blame the Enterprise Services division.
• November 20, 2012: The scapegoat picked for the bad performance of Enterprise Services is the Autonomy aquisition. HP wants to write off a 8.8B loss right now for that. They can't admit "we fucked up", so they blame accounting issues at Autonomy.
• November 21, 2012: The U.S. Department of Justice is called in to help push blame toward Autonomy, along with the U.K. Serious Fraud Office (Autonomy was originally a British company) and the SEC.
• November 26, 2012: a class action lawsuit is filed by HP stockholders. That claims this is all bullshit, and HP itself is the source of fraud here. Similar class action lawsuits are filed against the accounting firms involved.
• December 28, 2012: Former Autonomy head Mike Lynch points out that HP hasn't actually given out any detailed accounting for where that 8.8B figure comes from. And the US Justice department hasn't actually gotten him involved in things yet.

It may be the case that HP's forensic accounting here finds something lawsuit worthy. It's telling that so far, all they've done is contact the DOJ. If they had a smoking gun, they'd have sued the responsible partly directly instead. That's why I suspect this is just fishing without solid evidence so far.

Clown show

[Anonymous Coward]

On the sell side, we have this.

I'll let others comment on the buy side.

HP used to be good

[EmperorOfCanada]

About 15 years ago I was buying an HP printer from Canada's equivalent to Best Buy and they were trying to do the usual crap warranty upsell. I told the guy, "For $10 off I'll take an HP product with no warranty." That was 15 years ago. I recently opened a cheap little HP inkjet and the included black cartridge had zero ink in it. I don't mean it had dried out but it had never contained ink as I cut it open and found no sign of ink. I didn't flip out or was even a tiny bit surprised. This is what I expect from HP products.

The same with HP laptops; I expect a mountain of bloated trialware that will be a huge pain to remove and a variety of other cheapnesses such as the whole split left shift key thing.

I also buy servers and with no experience at all with HP servers would simply not touch them with a bargepole due to my experiences with the rest of their product line. But back to their older products. I know people with older(10 years+) laserjets that just keep going and going; while I know others with newer colour laser jets where the red is fading due to dust buildup on a mirror buried deep inside the machine.

And don't get me going on the prices of toner and ink. So my guess is that HP is a company run by MBA types "proving" all kinds of "facts" using spreadsheets while leaving the basics such as loyal happy customers in the dust as those things don't spreadsheet very well. If you are wondering what I mean by the misuse of spreadsheets think about this scenario: You are HP and you have some new trialware product to add to your latest laptop. The product looks like it will make an average of $16.95 per machine. You expect to sell 300,000 units. Well that works out to 6 million dollars. Then you add another trialware column, and another, and another. Soon those machines are simply printing money. But how do you calculate the number of customers who will never buy another HP after realizing that they basically just bought the electronic equivalent to postal junk flyers? Not so easy to put that into a spreadsheet; you can but it tends to be built on more fuzzy information that can be tainted with optimism. My personal guess is that a goodly portion of high priced Apple's sales are built upon people seeing a machine that didn't come with Norton AV and its bloaty brethren. These technologically unsophisticated people then reason that it is worth double to not get this crap. I like Apple products so I am not casting aspersions and I also know that there are many other reasons people buy them both worthy and shallow but I know many people who have no inclination to waste one second fighting with their machine and value their time accordingly.

So when I hear that HP is squabbling over $11 billion that would potentially be detectable from the proper use of spreadsheets (accounting) I just laugh like a drain.