Photo: Bloomberg TV
Shortly after HP revealed that the Department of Justice is investigating accusations of fraudulent accounting at Autonomy, the British software company it bought last year for $11.1 billion, Autonomy’s founder and former CEO, Mike Lynch, came out swinging.HP filed its annual 10-K report with the SEC yesterday, which disclosed the investigation and offered an explanation for how it arrived at the $8.8 billion writedown it took on the purchase in November. But in the process, it raised fresh questions, Lynch says.
Now Lynch has claimed that “HP is backtracking,” according to a post he wrote on his blog.
HP has accused Autonomy’s former management team of committing “accounting improprieties, incomplete disclosures and misrepresentations,” which it said contributed to $5 billion of the total writedown it took on the $11.1 billion purchase of Autonomy.
Now Lynch thinks HP is softening its language about the writedown.
For instance, the 10-K filing now says that a $5.7 billion goodwill impairment charge “incorporates” the alleged accounting improprieties at Autonomy. Lynch believes this wording gives HP wiggle room in how much fraud it actually found versus how much of the writedown it’s attributing to “changes in business performance” and other items.
In a November press release, HP said that “more than $5 billion” was “linked” to the alleged improprieties.
He notes that the 10-K also used the word “believes” when talking about the Autonomy situation.
Lynch again called for HP to provide details and proof about its accusations.
UPDATED: We asked HP for comment on Lynch’s latest post but haven’t heard back yet. It has previously responded to his calls for more information by saying that the company is leaving things in the hands of the authorities, that it plans to “take legal action,” and that it wants Lynch to answer HP’s questions “under penalty of perjury.”
HP Issued the following statement:
HP today issued the following statement related to its write-down of Autonomy as
represented in its 2012 10-K:
HP has been very transparent about the issues relating to Autonomy and the
reasons why we announced an $8.8 billion non-cash impairment charge on
November 20th. As we have said previously, the majority of this impairment
charge, more than $5 billion, is linked to serious accounting improprieties,
disclosure failures and outright misrepresentations discovered by HP’s internal
investigation into Autonomy’s practices prior to and in connection with the
Our Form 10-K for fiscal 2012 is meant to provide the necessary overview of
HP’s financial condition, including our audited financial statements, which is
what our filing does. As disclosed in the filing, the U.S. Department of Justice
advised HP that they have opened an investigation relating to Autonomy. HP
is cooperating with the Department of Justice, the Securities and Exchange
Commission and the UK’s Serious Fraud Office in this matter. We continue to
believe that the authorities and the courts are the appropriate venues in which to
address the wrongdoing discovered at Autonomy.
Now that the Department of Justice is investigating, HP shareholders will hopefully be getting more answers soon.
Here’s the full text of Lynch’s post:
HP is backtracking
In a message posted on this website a week ago today, we urged Meg Whitman to use HP’s annual 10-K filing to provide a full explanation of the allegations of alleged accounting impropriety at Autonomy which she made on November 20. Unfortunately, she did not do so. HP finally filed its 10-K yesterday, more than a week later than usual, but again failed to provide any detailed information on the alleged accounting impropriety, or how this could possibly have resulted in such a substantial write down.
HP’s failure to provide us and its own shareholders with clarity on these crucial issues does not come as much of a surprise. Ever since putting out those very serious but non-specific allegations last month, HP has refused to disclose either the substance of its allegations or any supporting evidence.
In fact, HP’s 10-K filing appears to raise many more questions than it answers. Having had further time to study HP’s filing since it was released near midnight last night (UK time), it is apparent that a number of the statements contained within the filing are materially different from HP’s previous commentary on these issues. It also appears that the company is back-tracking on a number of key points that under-pinned its original allegations:
1. How much of the Autonomy write down is actually being blamed on alleged accounting improprieties?
In its November 20 statement, HP stated that “The majority of [the Autonomy] impairment charge, more than $5 billion, is linked to serious accounting improprieties, misrepresentation and disclosure failures” committed by “former members of Autonomy’s management team”. However, HP’s 10-K filing refers much more equivocally to a $5.7 billion goodwill impairment charge that “incorporates” the alleged accounting improprieties at Autonomy. So, how much of the $5.7 billion is being directly attributed by HP to alleged accounting improprieties, and how much should in fact be attributed to other changes in business performance, earnings projections and discount rate?
2. Does HP have facts or beliefs?
In its November 20 statement, HP was definitive in accusing “former members of Autonomy’s management team” of “serious accounting improprieties, misrepresentation and disclosure failures”, stating these matters as fact. However, HP’s 10-K filing is materially weaker, referring to its interpretation of alleged accounting improprieties which it “believes” to have taken place at Autonomy. Why did it make such definitive assertions before any independent assessment of the matter, and why is it less confident now than it was a month ago?
3. Why does the 10-K contain less detail than its last statement?
HP’s November 20 statement clearly leveled the accusations at “former members of Autonomy’s management team”. However, HP’s 10-K filing does not repeat – let alone expand upon – this specific detail, or indicate who it is accusing of wrongdoing. Every time we ask for more information, we get less.
Today we renew the call for HP to release the PwC report on which its allegations are based, along with any other relevant supporting evidence that was behind the statements of November 20, and explain the material differences between those statements and the 10-K.
It is time for Meg Whitman to stop making allegations and to start offering explanations.