HP has produced an email in court that it believes shows executives at Autonomy, a British software company, knew they were representing their revenues fraudulently when HP acquired their business for $US11 billion.
The email, which comes from federal court documents filed by HP, was sent to Autonomy CEO Mike Lynch as the acquisition was going down. It appears to state the company “covered up” a revenue shortfall as its books were being examined by Bank of America, and that Autonomy’s sales reps were chasing “imaginary deals.”
The backstory stems from HP’s purchase Autonomy for $US11 billion in 2011. A year later, HP wrote off $US8.8 billion and alleged Autonomy had improperly inflated its revenues and margins by $US5 billion. HP called it fraud.
Autonomy execs deny HP’s accusations, arguing that HP’s mismanagement caused the revenue shortfall and the subsequent write-down. They say the email is being deliberately taken out of context. What the email doesn’t say, Autonomy says, is that even though the exec who wrote it was complaining that revenue was coming in behind target, that revenue was nonetheless greater than the company’s projections.
Here is the email, which was written by Autonomy CFO Sushovan Hussain:
HP CEO Meg Whitman was new to the company’s board of directors when the acquisition took place and the write-down occurred shortly after she took over as CEO.
The former management team of Autonomy rebutted the email on their blog:
What we see here is one email taken out of context. The emails around it, which HP has decided not to disclose, show that, although Mr Hussain was extremely frustrated with the unreliability of forecasting of certain sections of the sales force, the company’s forecast for the quarter, even taking out these deals, was still ahead of target. And indeed, the quarter was successfully delivered three weeks later. It is not hard, when going through hundreds of thousand of emails to pick a misleading example if you are prepared not to release other emails around it. The radical action referred to, was the termination of the unreliable sales reps.
They point to these two documents, written after the “covered up” email, which show revenue did indeed come in at $US244 million, slightly ahead of analysts’ estimates. This email shows they believed the revenue for the quarter would be $US252 million:
The revenue booked ended up being a little less than that:
HP wants the case settled. The company told Business Insider:
There is no doubt that former senior Autonomy management engaged in a sophisticated, brazen scheme of deception to inflate revenues and growth in Autonomy’s publicly filed financial statements over multiple years. HP will hold them accountable for their actions through the appropriate legal channels.
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