SFO Autonomy probe could be compromised by software

In the latest twist in the HP vs Autonomy saga, the Serious Fraud Office has revealed that its probe into the software firm may be compromised because it actually uses Autonomy software...

by Elizabeth Anderson
Last Updated: 05 Aug 2014

First, this morning HP claimed Autonomy is under investigation by the Serious Fraud Office (SFO) and the US department of justice, who are combing the firm’s pre-takeover results. Next thing, the SFO has had to put the brakes on, saying there could be a conflct of interest because it uses the firm's software in its own operations.

The software, called Introspect, is a document management system, and the SFO says it wants to make sure that there is no real or percieved conflict of interest in its use of the software before continuing with the investigation.

It is the latest in a long line of stumbling blocks for HP, which stunned the tech world when it announced last November that it was writing down the value of Autonomy by $8.8bn (£5.9bn), having bought the Cambridge-based company for more than $10bn in October 2011.

Since then, Mike Lynch, Autonomy’s founder who quit seven months after HP acquired the company, has said he has heard nothing from HP and has always denied all allegations of suspect accounting.

‘We're absolutely happy with the accounting at Autonomy. I haven't heard anything from HP since last year,’ Mike Lynch told MT in February. ‘We'd love to see what HP has to offer. Then we would be in a position to respond to it.’

In a regulatory filing with the US Securities and Exchange Commission (SEC), revealed on Tuesday, HP said it had been told that investigations were under way by the US and UK authorities in November and February respectively.

Entrepreneur Mike Lynch – once dubbed Britain’s Bill Gates – founded and ran Autonomy until it was sold to US computer giant HP in 2011 for more than $10bn (£7bn). He stayed on at the firm after HP took over but was fired in May 2012, a few months before HP wiped almost £6bn from the value of the business.

Meg Whitman, HP’s chief executive who took over as the Autonomy acquisition was being completed, has accused Autonomy of wilfully inflating the company’s figures. She said that of the $8.8bn written off, some $5bn was ‘linked to serious accounting improprieties, misrepresentation and disclosure failures.’

Lynch blamed the problems on mismanagement at the firm, which he said stifled creativity and innovation.

‘The cultures of Autonomy and HP are very different. The people at HP who did the acquisition and shared the vision were fired. It was much more difficult after they left. HP needs to concentrate on innovation rather than trying to hit the competition down with a brick,’ Lynch told MT.

Last month, the UK's accountancy watchdog the Financial Reporting Council revealed it was starting its own investigation into Autonomy’s financial reports as well as the auditing work performed for the British software firm by Deloitte UK in the 28 months to June 2011.

However, the FRC has no prosecuting powers, although it can fine and suspend individuals as well as accounting firms.

The SFO will also want to tread carefully. It is currently facing its own legal battle with property tycoons the Tchenguiz brothers, who launched a £200m lawsuit against the SFO following a botched investigation into their role in the collapse of Icelandic bank Kaupthing.

Both brothers had borrowed money from the bank. But the investigation was dropped in October with the SFO admitting that it had ‘insufficient evidence to justify’ continuing the probe. The SFO is now fighting claims that it acted ‘recklessly’.

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