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The fireworks have commenced over H-P's (HPQ -10.4%) Autonomy write-down and fraud accusations....

The fireworks have commenced over H-P's (HPQ -10.4%) Autonomy write-down and fraud accusations. Leo Apotheker, CEO when the Autonomy deal (controversial from the start) was pushed through, insists H-P's due diligence was solid. Fired Autonomy CEO Mike Lynch unsurprisingly denies everything. Meg Whitman, who voted for the deal as a board member, effectively threw Apotheker and former strategy chief Shane Robison under the bus during H-P's earnings call. H-P execs claim both Autonomy's revenue and margins were inflated by hardware deals.
Comments (16)
  • Lawyers in the UK and US are cheering this latest news. Everyone else sees a sad slow demise of a once great company.
    20 Nov 2012, 11:55 AM Reply Like
  • I'm not seeing anything because I'm so mad.

     

    Not at them. I'm mad at me.
    20 Nov 2012, 11:59 AM Reply Like
  • You know it's time to jump ship when the finger pointing starts; for those poor unfortunate souls left. Whitman should have never been hired to begin with anyway.
    20 Nov 2012, 12:02 PM Reply Like
  • And who should have been hired? From what I can see Meg is finally taking the hard medicine that HP needed to take under the previous leadership but kicked the can down the road. The finger pointing began long ago and most of the problems this company faces are the result of a dysfunctional BOD and some bad CEO selections, strategic acquisitions, and executive direction.
    20 Nov 2012, 02:21 PM Reply Like
  • Exactly... Whitman couldn't have been worse than Apotheker. This is a perfect example of a company with terrible management that couldn't anticipate anything or create anything of value to shareholders. Instead, they just threw money on acquisition after acquisition, hoping something would stick and make money
    20 Nov 2012, 02:23 PM Reply Like
  • How is she taking the hard medicine by throwing previous employees under the bus? I would have some respect left for a new hire but considering she was on the board and had some say in the decisions it's a terrible tactic. HP should have hired outside help because with Whitman it has just become a circle of pain. It makes sense to promote from within when the company is firing on all cylinders, such as Apple, but when there are constant miss fires it will not work.
    21 Nov 2012, 09:28 AM Reply Like
  • Can we now say..."we told you so"...look at the bad news on the printers as well.
    20 Nov 2012, 12:06 PM Reply Like
  • HPQ just did what MSFT did with the AQuantive $6.2 billion writedown. Hey fellas what ever happened to internal R&D? These guys are simply too big and can't grow so they threw money around like drunken sailors on shore leave.
    20 Nov 2012, 04:52 PM Reply Like
  • Hmmm, sure glad to not be invested in HPQ these days.
    20 Nov 2012, 05:08 PM Reply Like
  • All one had to do is listen to Chanos when he made his statements months back. When I quoted him then, I got significant rebuke from HP fans on this site. Sometimes short sellers get it completely right. HP's balance sheet though is/was so obviously in need of repair, and their business portfolio lacks focus. They do indeed need to shed businesses, pay down debt, and focus on growth areas. The problem is that they ought to have shed some of those businesses years ago - now they are in a tight position to get good prices for them.

     

    HP is a tragedy on the R&D front. They have destroyed so much IP over the years, not putting those ideas to productive ends.
    20 Nov 2012, 07:23 PM Reply Like
  • The kicker was, when Meg Whitman, appearing live on CNBC yesterday morning said, "when this FIRST surfaced in MAY 2012, we looked into it."

     

    So, according to her statements on National Television, she (Whitman), personally had knowledge of the irregularities (alleged fraud), which not only makes her as CEO complicit in fraud, but further exposes the endemic ineptitude demonstrated on her behalf since the diversity issue which led to her even being allowed to warm the chair.

     

    Look for Whitman to step down as CEO, as an act of contrition from HP, now desperate to keep public trust and confidence, and to keep themselves from flat-lining.

     

    Both feet in mouth, Ms. Whitman. When accusations arise, go to ground, not TV.

     

    Deloitte....well, same thing you did at SIEMENS, eh? Book the hours, look busy, and claim you found no irregularities, right?
    21 Nov 2012, 06:29 AM Reply Like
  • Dr V
    At what point did her "knowledge" become a material fact that should have been disclosed. Surely, the second quarter 10Q should have had some comment I would think.
    21 Nov 2012, 10:16 AM Reply Like
  • Excellent Question.

     

    As far as Corporate Regulation is concerned, at the point where through misrepresentation of material facts occurred. The specific elements of actual proof of misrepresentation, vary whether the case is prosecuted as a criminal or civil action. those elements normally include:

     

    · Material false statement;

     

    · Knowledge of its falsity;

     

    · Reliance on the false statement by the victim;

     

    · (A loss) Damages suffered;

     

    · A deceit or fraud constituting a false statement made willfully or recklessly, which causes loss to another.

     

    Not only is a misrepresentation fraudulent if it was known or believed by the maker of the representation to be false when made, but mere non-belief in the truth is also indicative of fraud.

     

    Thus, whenever a person makes a false statement of record, which he does not actually and honestly believe to be true, for purposes of civil liability, that statement is as fraudulent as if he had stated that which he did not know to be true, or knew or believed to be false. The motive of the person making the representation is irrelevant.

     

    In civil cases, when determining whether a representation was made fraudulently, the standard of proof applicable is the balance of probability (i.e. more likely than not) and not the criminal standard of proof beyond reasonable doubt. However, the amount of evidence required to establish proof may vary according to the gravity of allegation to be proved.

     

    In all fraud cases, the prosecution or claimant must prove that a false statement was intentional and part of a deliberate scheme to defraud. Under the law, there is no such thing as an accidental or negligent fraud. In most instances, only false representations of "presently existing facts" may be prosecuted.

     

    False Opinions

     

    The rule precluding fraud actions based on false "opinions" is subject to certain exceptions, principally cases involving opinions provided by professional advisers, such as Certified Public Accountants, (who in this case HP claim to be responsible for the fraud, although they (CPA's) deny any knowledge thereof.

     

    This is where it starts to look grim for the firms who last performed due diligence regards Autonomy.

     

    An accountant may be prosecuted for fraud who:

     

    · Certifies that a financial statement fairly presents the financial condition of the audited company when the accountant knows it does not;

     

    · Falsely states that the audit was conducted in accordance with generally accepted accounting principles;

     

    · Deliberately distorts the audit results.

     

    FALSE STATEMENTS UNDER OATH: PERJURY - S.2

     

    (As amended by the Criminal Justice Act 1948)

     

    If any person lawfully sworn as a witness or as an interpreter in a judicial proceeding willfully makes a statement material in that proceeding, which he knows to be false of does not believe to be true, he shall be guilty of perjury, and shall, on conviction thereof on indictment, be liable to imprisonment for a term not exceeding seven years, or to a fine or to both such imprisonment and fine.

     

    FALSE STATEMENTS ON OATH MADE OTHERWISE THAN IN A JUDICIAL PROCEEDING - S.2

     

    (As amended by the Criminal Justice Act 1948)

     

    If any person -

     

    (1) being required or authorized by law to make any statement or oath for any purpose, and being lawfully sworn (otherwise than in a judicial proceeding) willfully makes a statement which is material for that purpose and which he knows to be false or does not believe to be true; or

     

    (2) willfully uses any false affidavit for the purposes of the Bills of Sale Act, 1878, as amended by any subsequent enactment, he shall be guilty of a misdemeanor, and, on conviction thereof on indictment, shall be liable to imprisonment for a term not exceeding seven years, or to a fine or to both such imprisonment and fine.
    22 Nov 2012, 03:00 AM Reply Like
  • Dr V

     

    Thanks for the lengthy reply.

     

    Seems to me the question is did the audited statements meet GAAP requirements of the UK? If so, then if the HP people didn't correctly understand those statements it is their tough luck and the Autonomy people have a pretty good legal case against HP.

     

    IMO the HP due diligence, business acquisition and corporate accounting people screwed up big time. Who did the projections on the future value of the acquisition and what did they understand about the accounting? Why didn't the HP accountants realize there might be a problem the first month that they performed a closing on the new Autonomy business unit? Why no preannouncement when management first learned of a "problem"? I could go on.

     

    IMO, Meg's big mouth on CNBC is going to come back to haunt her and the B of D.
    22 Nov 2012, 08:10 AM Reply Like
  • Well spotted.

     

    I do apologize as well, I should have mentioned the legal explanation I gave is in fact based upon current UK Corporate Law & Governance. According to GAAP , the overstatement of revenue under any tax code is illegal, full stop, Ignorantia juris non excusat,("ignorance of the law does not excuse").

     

    The questions you pose are indeed the million dollar questions, as the media is now avoiding, in an attempt to put the story on the back burner whilst FBI / SEC / FSA continue to investigate.

     

    Apparently, there was enough evidence uncovered in the internal investigation, that the U.S. District Attorney's Office for the Southern District of New York, called in the FBI, so this is indeed criminal in nature.

     

    The most damning statements include:

     

    1) "Most of the board was here and voted for this deal, and we feel terribly about that," Whitman said. "What I will say is that the board relied on audited financials. Audited by Deloitte - not 'Brand X' accounting firm, but Deloitte. During our very extensive due diligence process, we hired KPMG to audit Deloitte. And neither of them saw what we now see after someone came forward to point us in the right direction."

     

    a. Witman blames not only Deloitte here, but further implies they (HP) called in KPMG to peep on Deloitte? So two (2) of the "Big Four" Auditors missed it? That's pure schmegegge.

     

    As I stated in the previous post:

     

    "An accountant may be prosecuted for fraud" who:

     

    · Certifies that a financial statement fairly presents the financial condition of the audited company when the accountant knows it does not;

     

    · Falsely states that the audit was conducted in accordance with generally accepted accounting principles;

     

    · Deliberately distorts the audit results.

     

    That is quite clear, little room for finagling.

     

    2) Apotheker told The Associated Press on Tuesday that he was "stunned and disappointed" to learn of the allegations against Autonomy, and pointed out that they had gone undiscovered by HP's auditors, executives and directors.

     

    a. Leo Apotheker, just throws it right into Meg's lap here, suggesting that HP (BoD, C-Officers, Accountants) are at fault having missed it during due diligence,

     

    3) HP, in the understatement of the year, says it is “extremely disappointed” to find out some former members of Autonomy’s management team inflated Autonomy’s underlying financial metrics – GAAP and non-GAAP. HP boldly called it a “willful effort to mislead investors and potential buyers”. Read: CRIMINAL FRAUD.

     

    She (Whitman) MUST step down now to keep that company from being broken into pieces, albeit, likely the plan all along. Watch those shorts, and check the order book
    23 Nov 2012, 03:08 AM Reply Like
  • Dr V
    Will be an interesting soap opera to watch as this saga plays itself out.
    23 Nov 2012, 11:14 AM Reply Like
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