UK fraud-busters have dropped their probe into “serious accounting improprieties” at IT firm Autonomy, following US giant Hewlett-Packard’s disastrous $11.1bn (£7.3bn) takeover in 2011.
The deal made a fortune for Autonomy’s founder Mike Lynch (worth £485m according to the Sunday Times Rich List), but HP wrote off $8.8bn on the purchase a year later, of which $5.5bn was put down to alleged accounting fraud.
HP, which was accused of vastly overpaying for Autonomy by analysts, passed information from a whistleblower to investigators, claiming that “some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures” to inflate the company’s apparent worth.
Autonomy’s management, including Mr Lynch, have always denied the claims. The Serious Fraud Office began its investigation two years ago, but said yesterday that on the information available “there is insufficient evidence for a realistic prospect of conviction”.
However, the claims are still being investigated by the US Department of Justice and the Securities and Exchange Commission. The UK’s accounting watchdog is still investigating Autonomy’s accounts between 2009 and June 2011, putting the role of auditor Deloitte under particular scrutiny.
Mr Lynch said he was “pleased that after a two-year review of the material, the SFO has concluded that there is not a case to pursue”. He added: “Let’s remember, HP made allegations of a $5bn fraud, and presented the case in public as a slam dunk.” HP said it “remains committed” to holding Autonomy’s former management accountable and was co-operating with the US investigation.
The claims centred on Autonomy allegedly booking low-margin hardware sales as much higher-margin software licensing revenues. They also focused on Autonomy’s alleged use of software licensing sales to resellers – who sell on software to their own clients – to “inappropriately accelerate revenues” or, in a worst-case scenario, when no end user customers existed at the time of the sale.
Autonomy reportedly booked $11.55m in revenues based on sales of its software earmarked for use in the proposed digitisation of the Vatican’s library, even though the Vatican eventually chose to use a different company, according to sources. Autonomy’s former management has said some of the claims were down to differences in interpretations of accounting standards.
Mr Lynch claimed in 2012 that the writedown was simply a case of bungling by HP. He said at the time: “Look at the size of the writedown. If you have done meticulous due diligence with 300 people you can’t get it that wrong.” The businessman, who set up Autonomy in 1996, has set up a $1bn fund, Invoke Capital, to invest in tech firms since the HP deal.
HP was pushing for the Autonomy deal in 2011 to help shift the business away from low-margin computer hardware sales into more valuable software sales. But shares cratered following the announcement and have only recently recovered the ground lost.
HP executives faced legal action from investors last year over the botched acquisition, but agreed a settlement which involved investors dropping all claims against the US firm’s current and former executives, in return for HP pursuing claims against former Autonomy bosses.