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Ex-Autonomy CFO: HP Trying To Hide Truth

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  • by serviscope_minor (664417) on Tuesday August 05, 2014 @10:19AM (#47606513) Journal

    There are two things I'm certain of in no particular order:

    1. HP are wildly incompetent.
    2. Autonomy management (especially Lynch) are a bunch of crooks.

    I do actually know people who have had dealings with Lynch.

    • But I heard they were both in Gartner's Magic Quadrant!

    • Agreed but you missed out 3. Only the lawyers will get rich.
    • by gbjbaanb (229885) on Tuesday August 05, 2014 @12:47PM (#47607397)

      you missed out the bit where HP wanted the Automony enterprise search stuff so badly, they just didn't bother working out how much the rest of the business was actually worth and made them a stupid (by Autonomy standards) but ordinary (by Silicon Valley takeover standards) offer.

      Mind, with WhatsApp being bought for $16bn, and only bringing a free> product to the table, you'd think the Autonomy deal was the paragon of financial prudence. that HP turned it into the equivalent of a free app is down to the competence of HP's management.

      Oh yeah, you already covered that. Was worth repeating though.

      • by creimer (824291)

        [...] a stupid (by Autonomy standards) but ordinary (by Silicon Valley takeover standards) offer.

        I worked at a video game company that went on a spending spree prior to the dot com bust. Only later did upper management realized that they paid two to four times the actual value of each takeover. Crap in, crap out.

      • by putaro (235078)

        Facebook stock trades at 94x earnings. HP trades at 14x. Facebook stock is quite a bit more risky than HP stock because it has so much forward growth built into it already. Zuckerman treats Facebook stock like Monopoly money because it pretty much is.

  • Doesn't anyone read this stuff before it gets posted?

  • I miss groklaw (Score:5, Insightful)

    by charlieo88 (658362) on Tuesday August 05, 2014 @10:34AM (#47606605)
    Too bad there isn't a website like groklaw that would track these things and provide some pretty nifty analysis too.
  • by Joe Gillian (3683399) on Tuesday August 05, 2014 @10:35AM (#47606613)

    There's a line in the IT World article that really stands out at me, which is:

    "Autonomy founder and CEO Mike Lynch, who was ousted from HP in 2012, has denied any wrongdoing, saying publicly that HP was aware of Autonomy's accounting practices..."

    So in this case, Autonomy is making the case that they were cooking their books, but committing accounting fraud is perfectly okay because HP should've known about it... or am I missing something here?

    • by BenJeremy (181303) on Tuesday August 05, 2014 @10:43AM (#47606655)

      ...and he's also apparently arguing that, knowing Autonomy is cooking the books, and about to implode, HP thought it would be a great idea to buy them.

      Whatever one can say about the competence of HP's board, nobody could seriously claim they'd buy a company if they knew that was going on.

      • Whatever one can say about the competence of HP's board, nobody could seriously claim they'd buy a company if they knew that was going on.

        I could. It's common for frauds of this nature to involve an disgruntled ex-employing of one company starting a business, then getting a conspirator for that old employer to help him sell is fraud to them. HP should look long and hard at who was pushing this deal inside the company. I wonder if the conspirator(s) knew the deal was shady but didn't realize it was a full-on fraud until it was too late.

      • by gbjbaanb (229885) on Tuesday August 05, 2014 @01:05PM (#47607535)

        depends. Did they get a bonus for getting the takeover through?

        Takeovers tend to be very popular for just that reason.

      • Re: (Score:2, Interesting)

        by Anonymous Coward

        I left autonomy a bit before the HP acquisition (and was part of a different company that had previously been acquired by autonomy). Everybody there knew that autonomy handled their books oddly (ie booking all revenue from a deal before the services were delivered). It was explained to us that it was because autonomy was UK based and therefore were not subject to quite the same rules. If HP was not aware of the issues (which I don't believe), then it is still their fault because they obviously did not ta

    • probably not (Score:5, Insightful)

      by Anonymous Coward on Tuesday August 05, 2014 @10:47AM (#47606679)

      There's a line in the IT World article that really stands out at me, which is:

      "Autonomy founder and CEO Mike Lynch, who was ousted from HP in 2012, has denied any wrongdoing, saying publicly that HP was aware of Autonomy's accounting practices..."

      So in this case, Autonomy is making the case that they were cooking their books, but committing accounting fraud is perfectly okay because HP should've known about it... or am I missing something here?

      Probably not.

      I did my MBA in Entrepreneurship (yeah, I KNOW! Spare me!) and we spent quite a bit of time on financial due diligence. Some of the case studies - things that happened in real life - were just pathetic.

      Remember kids, all the bullshit that businesses pull on us consumers, they do to each other ten fold and justify by saying "you should have known better".

      Then if it's worth it, sue.

    • by fuzzyfuzzyfungus (1223518) on Tuesday August 05, 2014 @10:55AM (#47606711) Journal
      They may be drawing on the distinction between dubiously legal accounting practices and dubiously legal accounting practices that amount to fraud against HP.

      Since this lawsuit is brought by HP, alleging that it has been defrauded, demonstrating that HP knew what they were buying when they bought it would seem to be a sound defense(if not necessarily a plausible one or one that they will succeed in demonstrating).

      If it were the state coming after Autonomy for violations of accounting regulations this argument would be of absolutely no defensive value; but that isn't this case (and the penalties for just breaking the law are probably way lower than for defrauding shareholders large enough to sue you...)
    • by reanjr (588767) on Tuesday August 05, 2014 @12:45PM (#47607381) Homepage

      Non-publicly traded companies have some leeway with how they do their accounting. This is especially important for startups which may not have a relevant example to fall back on. Just because their accounting didn't meet HP's standards does not mean they were "cooking the books".

    • by tomhath (637240)
      That seems to be their only defense at this point. May as well run it up the flagpole.
  • by putaro (235078) on Tuesday August 05, 2014 @11:09AM (#47606799) Journal

    HP is a multi-billion dollar corporation. In other words, they get to wear the big boy pants. Due diligence is part of the acquisition process and it's a breach of the HP board's fiduciary responsibility to the shareholders to have gotten rooked so badly. I know people who worked at Autonomy prior to the acquisition and there were plenty of rumors going around about Autonomy's accounting shenanigans.

    Lynch and Hussain may very well have committed fraud on HP. However, getting taken for $8B brings to mind the old saying about a fool and his money.

    • by Solandri (704621) on Tuesday August 05, 2014 @11:26AM (#47606905)
      Autonomy was audited by Deloitte. HP hired KPMG (who subcontracted Ernst & Young) to double-check Deloitte's audit. Those are three of the four biggest accounting firms in the world [wikipedia.org]. All gave the green flag.
      • by smooth wombat (796938) on Tuesday August 05, 2014 @11:31AM (#47606937) Homepage Journal

        And these (some of them at least) are the same folks who signed off on the mark-to-market figures and related matters for Goldman Sachs, BofA and the rest of the folks who caused our financial system to collapse in 2007-2008.

        See a pattern?

        • by rahvin112 (446269) on Tuesday August 05, 2014 @12:23PM (#47607243)

          If your accounting is violating all the rules it's possible to hide the real accounting information from everyone. Look at what Enron did with layers of fake companies that weren't on the books holding all the bad debt. When you go to that level of fraud the only people that are going to be able to unravel it are forensic accountants and months of fine toothed combs. The system is gameable because it operates on a system of trust, when these CEO's and accountants are willing to go to the level of full on accounting fraud the system we have doesn't work because it always assumed we had rational players that aren't two bit scammers. The degrading of ethics in business school has apparently turned that on it ear.

          Maybe the answer is for these accounting firms to hire real forensic accountants to analyze companies. But if we've reached that point it's even scarier than you can imagine. What I think we need to do is be putting these CEO's and CFO's in jail, for 15-30 years and assigning high enough criminal penalties and restitution to ensure they are broke when they get out. Sarbanes-Oxley gave them the teeth to make that happen, the problem is right now Crime pays. The justice department should be investigating everyone involved.

          • All the laws on the books regarding Fraud, and yet it is perpetrated on such a massive scale and then goes generally unpunished. There may be a fall guy or two, but the main players get rich, hide their ill-gotten gains inside trusts that become untouchable, and their wealth is passed on to their heirs before the law can grab any of it.

            Want to fix the problem, get harsh. Make a law that hiding money in trusts and other means after perpetrating fraud is also an act of fraud and thus, confiscate the wealth fr

          • If your accounting is violating all the rules it's possible to hide the real accounting information from everyone. Look at what Enron did with layers of fake companies that weren't on the books holding all the bad debt. When you go to that level of fraud the only people that are going to be able to unravel it are forensic accountants and months of fine toothed combs. The system is gameable because it operates on a system of trust, when these CEO's and accountants are willing to go to the level of full on accounting fraud the system we have doesn't work because it always assumed we had rational players that aren't two bit scammers. The degrading of ethics in business school has apparently turned that on it ear.

            We had posts on this subject maybe a few months after the acquisition blew up on HP and it became to clear to everybody that HP got suckered. The posts at the time said that HP's upper management put heavy pressure on all parts of the company to quickly approve the purchase of Autonomy and dissenting voices who wanted a closer look were silenced. There were various outside sources prior to the purchase who were warning that simple logic dictated that Autonomy's claimed sales figures could not be correct,

            • They got suckered.

              Right. It's the fault of the bad people. Management is only responsible for decisions that work out. Adverse effects of decisions, or a lack of due diligence, or anything else is someone else's fault.

        • Big (whatever the # is now) accounting firms are whores and have been for decades.

          They sign off on anything they are paid to sign off on and provide for someone to sue when it goes bad. Living in a fight club like world of % that go bad and average settlements.

          How they have avoided being sued into oblivion (those that have avoided it) would be a good subject for some investigative reporting.

      • by putaro (235078)

        Interesting - apparently they were suing Deloitte and KPMG but have now dropped them from the lawsuit [bizjournals.com]. It seems odd that they'd let the auditors off the hook.

    • I have been involved in the accounting and due diligence on several acquisitions in the 100's of millions and a few in the billions. If the executives want to buy a company bad enough they will downplay the findings and make the acquisition happen. Any time you hear about write-downs or other accounting issues after an acquisition rest assured management was fully aware of it. The auditors that look at this are good and will find these things.

      The problem is the auditors also want repeat business so they wil

      • by putaro (235078)

        Yes, right on the money. This was Apotheker's deal to save the company and transform HP into a software company. He was doing everything he could to ramrod it through, I'm sure.

  • by Alioth (221270) <no@spam> on Tuesday August 05, 2014 @11:48AM (#47607033) Journal

    HP is wildly incompetent. They ruin every business they buy. Look at their "we're dropping VMS" and a while later "Oh no, we're going to port it to amd64" flagellations as they continue to ruin what's left of DEC and Compaq.

    We used to use software produced by Autonomy (actually, a company that Autonomy had earlier bought). As soon as HP took over, the customer service went to shit and we've since dropped the product because they had basically no flexibility when it came to changing demand and licensing. Previously, Autonomy would have been willing to work with us and allow us to change our licensing levels as demand for the service we were using this software for changed.

    • by indulgenc (694929)

      Sounds like you were using KeyView. Did you find a good alternative?

    • by Fubari (196373)
      Kind of depressing hearing about HP (I like to toss this out whenever I read about HP doing something unwise).
      Step 1. Buy a really expensive company.
      Step 2. Ignore it for a year or so.
      Step 3. Rationalize how to dramatically throw it away.
      Step 4. Profit? What is a few billion $ between friends?

      Out of the longgg list of HP acquisitions, here are some
      of the more notable ones that caught my eye:

      * Verifone 1997 $1.1 (billions)
      * Compaq 2002 24.0
      * P&G IT: 2003 3.0
      * Peregrin 2005 0.4
      * MercuryInter.
  • by sandbagger (654585) on Tuesday August 05, 2014 @05:13PM (#47609163)

    When I was a kid, HP meant rock solid. They made bench test gear you could drive a car over. Then something happened. They turned into a company that would install a root kit on a reporter's computer because of an exposé -- rather than fix the problem revealed.

    I remember the very last time I bought something from HP. It was a CD burner that came out of the box broken.

    There was a book called How HP Lost Its Way that came out a few years ago. I never read it but I'd say that these recent events are current data points on a long term trend, not anything new.

    • by whoever57 (658626)

      When I was a kid, HP meant rock solid. They made bench test gear you could drive a car over.

      That business was spun off, it's now called Agilent Technologies.

      Then something happened. They turned into a company that would install a root kit on a reporter's computer because of an exposé -- rather than fix the problem revealed.

      What happened was that HP got into the PC business. The PC business is completely different to most other businesses that HP was in: cutthroat margins, little technical innov

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