FBI Probes Possible Criminal Accounting Fraud at HP Unit Autonomy

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"Improprieties" may be code-speak for "crimes"

As usual, DailyTech readers are dead on in their commentary.  Responding to our report on Hewlett-Packard Comp.'s (HPQ) dire earnings guidance due to accounting "improprieties" at recently acquired Autonomy, havoti97 wrote:

Hewlett and Packard are turning in their graves. These "improprieties" sound like fishy criminal activities to me. How come no one is being held accountable. At the minimum, some fraud charges should be filed and somebody needs to do hard time. There is just no deterrence for things like this to repeat.

That comment proved prophetic as today the U.S. Federal Bureau of Investigations, working hand-in-hand with the U.S. Securities and Exchange Commission to investigate claims brought to it by HP.

In order for the SEC and FBI to investigate accounting errors, they must typically be criminal in nature and pertain to interstate or international offenses.  HP reportedly personally requested the investigation after it was shocked to find out Autonomy had doctored its books in an apparent attempt to inflate its value.

The plan to buy Autonomy for $10.3B USD drew much criticism from analysts that argued HP was over-paying by at least twice what the UK enterprise software firm was worth.  Léo Apotheker -- obsessed with reforming HP to resemble his former employer German enterprise software giant SAP AG (ETR:SAP), who gave him the boot shortly before his pickup by the HP -- ignored these glaring warning signs.  
 
The board also shares some blame for failing to take heed of the warnings, as does new CEO Meg Whitman who completed the final stages of the purchase agreement shortly after taking over the reins after Mr. Apotheker was effectively fired for the second time in two years.

However, as much as HP failed to practice due diligence, if its side of the story is to be believed, Autonomy's leadership duped it with basically outright lies regarding improperly categorized hardware and other cleverly cooked books.  HP estimates $3.8B USD of the $8.8B USD hit it took on the purchase were due to its own misreading of the software company's value, while the majority of it -- $5B USD was due to the possibly criminal "improprieties".

The FBI and SEC have not posted any official press releases confirming the probe, so at this point the only evidence of it are HP's remarks [8-K] and a report by Bloomberg BusinessWeek.

If Autonomy is indeed probed, it could take some time to investigate the misconduct as one of its two headquarters is located in Cambridge, UK, outside U.S. jurisdiction.  Autonomy does have a second joint-headquarters in San Francisco, Calif.  Thus far there have been no reports of any FBI raid on that location, as may later occur, if the reports of the probe are accurate.

Source: Bloomberg Businessweek

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