Autonomy CEO Mike Lynch co-operates in HP fraud probe

Former CEO and founder of Autonomy Mike Lynch says he will co-operate with a US investigation into fraud alleged by parent firm HP

Mike Lynch, the former CEO and founder of business intelligence software firm Autonomy, says he will co-operate with an investigation by the US Department of Justice into alleged fraud at the company.

HP acquired Autonomy in 2011 for $11.7bn but, in November 2012, claimed former managers at the UK software firm had used “accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company” to boost its price before the acquisition went through.

As a result, HP wrote down the value of Autonomy by $8.8bn and referred the accused managers to the US Securities and Exchange Commission (SEC) and the UK Serious Fraud Office.

In late December 2012, HP confirmed the US Department of Justice had opened an investigation into the allegations surrounding accounting fraud at Autonomy.

Mike Lynch – who left HP in May 2012 – said he had yet to hear from US authorities, but would co-operate with any investigation, according to reports.

Lynch has reiterated criticisms of HP for accusing the former Autonomy management team in the media without providing any details behind why it wrote down the value of the acquisition.

Lynch insists HP's allegations are false. “We do not understand why HP is raising these issues now, given that Autonomy reported into the HP Finance team from the day the acquisition completed in October 2011, there was an extensive due diligence process and Autonomy was audited as a public company for many years," he said.

“It is now less clear how much of the $5bn write-down is in fact being attributed to the alleged accounting issues, and how much to other changes in business performance and earnings projections.”

Due diligence

After HP’s public announcement of the allegation in November, Lynch wrote an open letter to the board of directors at HP. He said he was shocked that they had not contacted him prior to publishing. He also rejected all allegations of impropriety.

According to Lynch, HP’s CFO Cathie Lesjak and her team – plus a number of outside advisors – had access to all Autonomy accounts and documents from October 2011 onwards and raised no issues.

He also points out that in November 2011, HP and KPMG reviewed Autonomy’s closing balance sheet in detail, with Ernst & Young reviewing Deloitte’s audit work papers. In October 2011, HP studied in detail Autonomy’s tax structure and transfer pricing as well as its revenue recognition practices. An independent, third-party valuation of Autonomy’s assets was carried out in January 2012.

In addition, Lynch said quarterly business reviews were held with Autonomy management, HP CEO Meg Whitman and Cathie Lesjak to discuss Autonomy’s financial performance.

With reference to differences between IFRS and GAAP accounting standards – which appear to have a role in some of the allegations HP has made – Lynch said Autonomy’s accounting policies were made clear in Autonomy’s 2010 annual report.

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