Hewlett-Packard’s doomed takeover of Autonomy Corporation has taken another twist: The former CFO, Sushovan Hussain, has been found guilty of fraud.
The saga began in 2011, when HP’s board unanimously approved the acquisition of the booming British software business Autonomy Corporation for £6.7bn. Autonomy specialised in analysing unstructured, ‘big data’ and operated with an infamously cut-throat zeal.
The acquisition turned sour in 2012 when HP accused Autonomy of “accounting improprieties” and Hussain specifically of making “false and misleading statements” about the company’s finances.
In its annual reports, Autonomy stated it had prepared its financial statements in accordance with International Financial Reporting Standards, and in particular, the accounting requirements for revenue recognition.
The reports illustrated healthy revenues and high gross margins. When the acquisition was announced, HP noted Autonomy’s strong financial performance, stating Autonomy had “a consistent track record of double-digit revenue growth, with 87% gross margins and 43% operating margins in 2010”.
These figures, HP said, were bogus. And an American court agreed, convicting Hussain, an ICAEW member and British citizen, on 16 counts of wire and securities fraud.
American investigators said Hussain inflated revenues via a litany of nefarious means, including backdating written agreements to record revenue in prior periods and making false statements
Hussain now faces a maximum sentence of 20 years in American federal prison. Hussain’s lawyer confirmed he plans to appeal the sentence.
In a comment to the press, a HP spokesperson welcomed the court’s decision. “HP is pleased with the verdict. As we have consistently maintained, Hussain engaged in outright fraud and deliberately misled the market about non-existent sales through a series of calculated sham transactions.
“Autonomy manipulated their revenue, and quarterly results, making an accurate valuation impossible. That Hussain attempted to depict the fraud as nothing more than a misunderstanding of international accounting rules was, and still remains, patently ridiculous – and the jury has now held him accountable for his role in defrauding HP.”
The UK’s Serious Fraud Office investigated the matter for two years, but closed the investigation after it concluded there was “no realistic prospect of a conviction”. A Financial Reporting Council investigation, however, is ongoing.
Hussain and his former CEO Mike Lynch face a civil case in the UK, too. HP is seeking £3.7bn in damages from the two men. That trial will begin next year.
About Francois Badenhorst
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