Former Autonomy CFO Files To Halt HP Settlement Deal

The conflict surrounding HP’s disastrous $11.1 billion (£6.5bn) acquisition of British analytics giant Autonomy in 2011 continues to get worse.

The new developement comes after the former Autonomy CFO filed court documents in the United States, attempting to halt HP’s proposed settlement of three shareholder lawsuits over its troubled purchase.

‘Collusive’ Settlement?

Last month it was reported that HP was in “serious discussions” to settle the shareholder litigation. The shareholders were disgruntled with HP’s decision to take a $8.8 billion (£5.3bn) non-cash impairment charge because of “accounting improprieties” relating to its takeover of Autonomy.

The lawsuit was filed against HP in 2013, alleging that CEO Meg Whitman and the HP board had ignored warnings that Autonomy’s financial numbers had been exaggerated.

But now HP is said to be close to settling this litigation with the disgruntled shareholders, the terms of which would see those shareholders dropping their three lawsuits against HP, including all claims against HP’s current management team. The settlement would also see the shareholders help HP pursue claims against former Autonomy officials, including former CEO Michael Lynch. Their lawyers meanwhile will collect $18 million (£10.5m) in legal fees.

Lynch for his part has always denied HP’s charges, and Autonomy’s former management team have previously claimed that HP was aware of its sales and accounting practices. One of their spokespeople has also said that HP’s settlement was designed to avoid embarrassing court appearances by Whitman and other HP executives.

Court Filing

But now the Autonomy side have gone one step further, as the former CFO of the British software firm is seeking to halt this settlement in its entirety.

In documents filed in a court in San Francisco, Sushovan Hussain said that HP’s “collusive and unfair” settlement was meant to disguise the real reason for its 2012 write-down of Autonomy, namely HP’s own destruction of Autonomy’s success after the acquisition.

“Mr. Hussain has an interest in challenging this collusive settlement because it would shield from adversarial examination the claims of wrongdoing by HP officials – claims suddenly now deemed to be ‘without merit’ – and further shield that wrongdoing from any future claims by Mr. Hussain when a suit is brought seeking to blame him instead,” said the court document. “Indeed, by this settlement, HP seeks to forever bury from disclosure the real reason for its 2012 write-down of Autonomy: HP’s own destruction of Autonomy’s success after the acquisition. And by the broad bar order it seeks, HP seeks to absolve itself of its own responsibility for its losses.”

“Mr. Hussain’s opposition to the settlement is baseless,” HP spokesman Howard Clabo was quoted as saying by Reuters. “We strongly believe that at the end of the process, the jury will conclude that Mr. Hussain engaged in a multi-billion dollar fraud.”

Holy Vapourware?

Meanwhile a further wrinkle has been added after Reuters reported last week that the Vatican in Rome had become enmeshed in the struggle between HP and Michael Lynch.

HP has long alleged that Autonomy would often add deals to its books that had not been officially signed off or paid for, in order to inflate its growth. Reuters cited a deal to help digitise the Vatican’s library as one example of this.

It said that the case documents it had seen alleged that Autonomy had requested one of its resellers, US-based MicroTech, to buy software from it, and to act as a middle man for a deal it had struck with the Vatican for the library digitisation project, worth $11.6m (£6.80m).

In the end the Vatican did not pursue the deal, but according to “sources familiar with HP’s investigation,” Autonomy went ahead and booked $11.55 million in revenue based on the sale to MicroTech of software that was earmarked for the proposed Vatican deal.

According to those sources, Autonomy’s booking of revenue tied to a Vatican deal that didn’t happen illustrates how the company gave a distorted impression of how rapidly it was growing.

But Reuters also then quoted a source familiar with Autonomy’s business at the time. That source counters that Autonomy’s approach to booking revenue in such transactions with resellers was permissible under UK accounting standards and blessed by its auditor Deloitte.

HP remains unconvinced. “The evidence shows that former senior Autonomy management used numerous tactics to misrepresent the reported financial metrics of the company,” the company in a statement to TechWeekEurope.

“Among other things, they caused Autonomy to recognise revenue on transactions that never closed, engaged in roundtrip transactions with resellers and other vendors that falsely inflated Autonomy’s revenues, used end-of-quarter negative-margin sales of hardware to meet or exceed market expectations, and misidentified categories of revenue to falsely create the illusion of a high-growth company,” said HP. “This had the effect of misleading investors and HP.”

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