HP Confirms Feds Investigating Autonomy Mess; Lynch Responds

Hewlett-Packard (NYSE: HPQ) last week confirmed in a 10-K SEC filing that the U.S. Department of Justice (DOJ) is investigating the vendor’s bombshell fraud allegations levied against the former management principals of its Autonomy division. Autonomy’s former CEO, meanwhile, continues to maintain his innocence.

HP contends that $5 billion of an $8 billion write-down it recorded in Q4 2012 owed to Autonomy intentionally cooking its books, a charge the enterprise management software company’s former chief executive Mike Lynch has vehemently and repeatedly denied.

In the 10-K filing, HP disclosed that “on November 21, 2012, representatives of the U.S. Department of Justice advised HP that they had opened an investigation relating to Autonomy.” The DOJ began its investigation only one day after HP charged Autonomy officials with misleading revenue reporting. At the time, HP said it “provided information” to the U.K. Serious Fraud Office, the DOJ and the SEC concerning “accounting improprieties, disclosure failures and misrepresentations at Autonomy that occurred prior to and in connection with HP’s acquisition of Autonomy.”

In response, Lynch has fired back denying the allegations, first in a short press statement, later in a long, open letter to HP posted on a website he opened to air his rebuttals, and now with two new blog entries, all the while persistently assailing HP for being sparse on details.

Here are some excerpts from Lynch’s initial blog post of December 28:

• “It is extremely disappointing that HP has again failed to provide a detailed calculation of its $5 billion write down of Autonomy, or publish any explanation of the serious allegations it has made against the former management team, in its annual report filing today.”
• “It is now less clear how much of the $5 billion write down is in fact being attributed to the alleged accounting issues, and how much to other changes in business performance and earnings projections.”
• “Simply put, these allegations are false, and in the absence of further detail we cannot understand what HP believes to be the basis for them.”
• “We continue to reject these allegations in the strongest possible terms.”

And his second blog post on the same day:

• “In a message posted on this website a week ago today, we urged Meg Whitman to use HP’s annual 10-K filing to provide a full explanation of the allegations of alleged accounting impropriety at Autonomy which she made on November 20. Unfortunately, she did not do so.”
• “HP’s 10-K filing appears to raise many more questions than it answers.”

Separately, HP also disclosed in its 10-K filing that the IRS initiated an audit in 2011 of the 2009 income tax return of HP’s U.S. group of subsidiaries providing Enterprise Services, claiming HP owes $17 million in taxes for the period. HP said it is contesting the assessment but just in case it has set aside enough money to cover any tax deficiencies or reductions in tax benefits that could result from the IRS actions.