HP court filing claims Autonomy in 2010 headed for financial 'plane crash'

Email from ex-finance director part of claims by Hewlett-Packard UK firm's management falsified accounts in year before takeover

An email from a former finance director of UK software group Autonomy suggested the company was heading for a financial "plane crash" towards the end of 2010, according to lawsuit filed in the US by Hewlett-Packard.

The email – which described "swaths of reps with nothing to do" – is one of several handed to a court in California by HP on Thursday night, in support of the US company's claims that Autonomy's former management falsified accounts.

HP acquired Autonomy in 2011 in a $11bn (£6.7bn) deal but wrote down the value of the Cambridge-based former FTSE 100 company by $5.5bn the following year.

In an escalation of the row, HP has also accused Deloitte UK, Autonomy's auditor, of playing down evidence from a whistleblower.

The court filings, by HP's lawyer Marc Wolinsky, contain documents that put into the public domain for the first time key elements of its case against Mike Lynch, Autonomy's founder, Sushovan Hussain, his finance director, and their senior managers.

These include an email sent by Hussain to Lynch at 1.19am on 10 December 2010, three weeks before the end of Autonomy's financial year. It begins: "Really don't know what to do mike. As I guessed revenue fell away completely."

Titled "US idol", the email refers to what was then supposed to be one of Autonomy's fastest-growing business lines – sales of its search software, in the US, where half of its workforce was based.

The email goes on: "We've covered up with bofa and hopefully db and Doi but if latter two don't happen it's totally bad. There are swathes of reps with nothing to do maybe chase imaginary deals."

The reference to "bofa" is Bank of America Merrill Lynch, one of Autonomy's biggest clients. It is not known who the other two clients mentioned are.

The email also details how Autonomy's divisional heads are keeping separate "sheets", thought to be accounts of sales. "I think they keep separate sheets and unless I am v wrong don't discuss the sheets hence plane crashes and they don't know."

The email ends with a plea: "So radical action is required, really radical, we can't wait any more. Everywhere I look at us idol [sic] it's bad."

The radical action, HP claims in its filing, was to "sell the company", ultimately to HP.

The filing is part of a case in San Francisco to decide whether HP should be allowed to settle with shareholders pursuing its directors for approving the disastrous acquisition of Autonomy. Hussain is contesting the settlement and fighting for disclosure of the documents supporting HP's allegations.

Autonomy specialised in software that could search through corporate data such as emails, voice mails, text messages and files in different formats, making it among the most prized software companies on the London Stock Exchange.

But by August 2011, when its takeover by HP was announced, Autonomy was also among the most shorted stocks on the FTSE 100, with traders betting that its years of rapid growth could not be sustained. Autonomy was valued as a fast-growing pure software company, and any hint of pressure would have sent the share price crashing.

A spokesman for Autonomy's former management, who strongly deny all allegations of wrongdoing, said: "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 … The radical action referred to, was the termination of the unreliable sales reps."

HP's court filing sets out five techniques which the US computing firm claims were used to conduct what its lawyers call "massive fraud" over a period of "years".

The effect, says HP, was to inflate the Autonomy's revenues by 21% in 2009, 30% in 2010, and 26% in the first half of 2011. Revenue growth in 2010, which the then FTSE 100 firm reported as 17.7% when it released its result, was in fact only 5%, claimed HP.

HP's filing also rounds on Deloitte, whose Cambridge office signed off Autonomy's accounts during the years in question. Without naming the individual, HP claims the chief financial officer of Autonomy' in the US turned whistleblower in a case Deloitte was aware of. HP claims Deloitte made only passing reference to the fact that there had been a whistleblower, and never disclosed the person's seniority within Autonomy.

"On the 17 August 2011 due diligence call with HP and KPMG, Deloitte UK dismissively noted that a whistleblower had come forward in the past, but failed to tell HP and KPMG that the individual was Autonomy's then-CFO for the Americas," says the HP filing.

"Deloitte UK failed to disclose the seriousness and extent of the allegations made, and of the concerns that the executive had, which have since been shown to have been well-founded."

HP claims that the auditor signed off misleading public financial statements for Autonomy, and "did not disclose that it had long-running disagreements with Autonomy management over accounting practices at Autonomy".

A spokesperson for Deloitte UK said: "We believe any claim is utterly without merit and if one is ultimately brought we will defend ourselves strongly against it.

"Deloitte was not engaged by HP, or by Autonomy, to provide any due diligence in relation to the acquisition of Autonomy. We were only made aware of the proposed acquisition two days before it was announced and were asked at short notice to participate in a single, one hour phone call with KPMG which took place 24 hours before the deal was signed. We responded to all questions and requests in full."


Juliette Garside

The GuardianTramp

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