HP lifts lid on Autonomy lawsuit claims, but Lynch cries BOLLOCKS

Re: The Enron Defence

Wasn't it Enron who claimed all their BS financial fraud moves were just peachy because their auditors OK'd them?

Regardless of the claims re. Autonomy itself, I am hoping someone can explain to me why the auditors are not on the hook for this one as well. Surely, if the fraud was that massive and pervasive it should have come out through the audit? Otherwise, what is the point of an audit in the first place?

Re: The Enron Defence

Missing the point slightly, whether or not that was going on and all HP has been able to find is a couple of examples in the 100m range, the SFO also gave up - so it doesn't explain

a) why HP didn't do proper due diligence.

b) how it equates it a multi billion write off.

If autonomy is a little whiffy HP stinks to high heaven.

Re: The Enron Defence

No. Enron was completely different. Enron used special vehicles (in the financial sense) to 'hide' debts and make themselves look spiffy while it was all rotten to the core.

There is nothing financially improper to book one transaction as profit in one quarter and then book another, identical, transaction as expense the next, provided it adheres to accounting rules :-)

Entertainment/media giant ClearChannel used to do the same thing between their divisions (before they were 'unbundled to maximise shareholder value')... What the ClearChannel Outdoor division billed as revenue was something the ClearChannel Entertainment division had to put down as an expense (i.e. paying CCO for billboard ad space), despite both being part of the same conglomerate. CCE's revenue used to be enormous, their profit would be razor thin (relatively speaking), while CCO had much fatter margins. And CC as a whole got to add all the sums up and say that their revenue was X even though a lot of said revenue was cross-divisional revenue that cancelled itself out. If all that cross-divisional crap had been taken out, the revenue would've been much lower but that doesn't look sexy to the stock brokers :-)

Re: The Enron Defence

I thought Autonomy was booking large deals that included an element of their software license plus a large chunk of hardware sales, then taking a charge against their marketing budget for the cost of the hardware. So sales looked good and on the up, but in fact the software license element of those sales was much smaller than you might expect from what was after all a software company.

Re: Correct me if I'm wrong but when you *buy* a company

You get to dig deep into the other firms accounts.

Most certainly someone does, whether it is the acquirer directly, or an accounting firm hired to perform the diligence, you do get to dive deep into the books. A truly competent purchaser wants to know exactly WHAT they are buying.

My employer bought up a family owned company a few years ago, and since the children of the owners had authority to act on behalf of the underlying corporation; we looked hard at any and all contracts that they may have signed.

Once we had an understanding on a purchase, we required, as a matter of the purchase, to have ALL EMPLOYEES disclose any and all employment contracts that they had with the company. This included the children of the owners. Since they were not aware of the pending sale, they indicated in their disclosures that no such contracts existed. The other aspect of the understanding was that the sellers were to revoke the authority of the children to sign any employment related contracts during the diligence period. They were not told why.

Sale closes, and we decide that it would be a Good Thing(tm) to put into place our own management, so we dismissed them. Cue the lawsuits for "contractually agreed upon severance benefits" when they pulled these 'severance agreements' out of their asses. "See you in court." was our reply.

First one of the kiddies on the stand, made an attempt to persuade the judge that he should get severance benefits; was completely blown out of the water when the disclosure document was put in front of him (apparently he forgot about it). His lawyer tried to get the judge to rule that he had the authority to sign such a contract, but that was also blown out of the water when the stockholder resolution revoking the authority was introduced as evidence. Wisely, the children dropped all efforts to recover their 'severance pay'.

Meanwhile, our auditors were reviewing all expenses of the company to determine if any company funds were not misused, and one could make the case that payment of household utility bills out of company funds (and booking them as usual and customary business expenses) was misuse. After re-filing the tax returns showing all of those funds as 'executive benefits' (subject tp being reported on a 1099 form) instead occupancy expenses; they became serial tax evaders. Cue the letters from the IRS.

Payback is a bitch, isn't it?

@Tim Worstall

"There's no one at all in The City who ever really believed Autonomy's accounts. Nothing specific, just a whiff to them."

That certainly sounds like a warning bell to be weary of them but of course that's still the outside view.

As HP was buying the company their auditors should have much better access to the companies finances and operations.

My only awareness of this was when a US company sent 3 auditors into a UK company (single site) with essentially "Access all areas" authority. they went deep

The only issue identified was the large number of unlicensed games running on 3 machines on the network.

The machines the auditors had brought with them. |:-)

"no one ... really believed Autonomy's accounts"

"There's no one at all in The City who ever really believed Autonomy's accounts."

Well, apart from their auditors, presumably, who signed off the accounts year after year. Same auditor every year, makes life so much simpler.

Auditors can usually be relied upon to do what they're paid for. Like a financial-sector equivalent of Douglas Adams' Electric Monk, except much more expensive.

Deloittes were Autonomy's auditors, and also provide "non-audit services" to Autonomy, including advising Autonomy on executive pay. Hmmm. In the US, Sarbanes-Oxley would in theory prohibit that, and US accounting practices would have made Autonomy's books look rather different. Allegedly.

Where's the story about what the techies and other employees knew at Autonomy? I've seen a handful of writeups that say anyone with the full picture would be a little concerned.

Still doesn't excuse HP's idiocy though.

http://www.economist.com/news/finance-and-economics/21567953-two-controversies-ensnare-big-four-accountable

http://www.goodreads.com/quotes/150267-the-electric-monk-was-a-labour-saving-device-like-a-dishwasher

RE:Autonomy and the City

The Autonomy management team, bankers, accountants, auditors are all likely to have contributed to the original value of around US$5.7 billion (which was over valued based on HP's write down to around $3.3 billion) - but HP and their advisor's seem to be the ones that bumped that figure up to US$11 billion.

To pay double the market rate suggests HP had a plan so cunning they could pin a tail on it and call it a weasel. Or that HP's board were thick as two short planks. Possibly both....

So you know ALL in the city? Silly statement

Re: Let's not forget how much HP overpaid...

Didn't they get shopped to Oracle who laughed at the valuation?

My direct experience of Autonomy was:

1. Being invited to lunch at Per Se in NYC along with ~100 other people. Lunch at Per Se is $400+ per person. Most of the other people were Fin Serv types, none of us had any intentions of buying anything from them.

2. Being scheduled for an interview with them and the internal recruiters who set that up being unaware that they had moved their NY office location almost a year before. I took that as a sign of internal incompetence and walked away from the process. I'm very glad I did