HP Says It Was Duped Into Overpaying For Company
ROBERT SIEGEL, HOST:
Hewlett-Packard claims it was duped into overpaying when it acquired Britain's largest software company a little more than a year ago. HP released a quarterly earning report yesterday and announced that it was writing off most of the $11 billion investment. The firm HP bought, Autonomy, denies any improprieties. From member station KQED, Aarti Shahani reports.
AARTI SHAHANI, BYLINE: HP says the British software firm Autonomy engaged in a willful effort to mislead investors and potential buyers.
FRANCINE MCKENNA: They said they depended on Deloitte, Autonomy's auditor, for most of the information that they received during their due diligence.
SHAHANI: Francine McKenna, author of a popular Forbes accounting blog, is a CPA herself.
MCKENNA: Unfortunately, Autonomy's founder says they depended on Deloitte, their auditor, to get their books straight.
SHAHANI: That puts Deloitte, one of the Big Four global accounting firms, dead in the middle of this multibillion-dollar scandal. Just this summer, Deloitte paid $19 million to settle allegations it misled investors of Bear Stearns, the Wall Street investment firm that nearly collapsed in 2008.
While McKenna expects Deloitte will be brought to court on HP's acquisition of Autonomy, she does not think the firm will be brought to justice. McKenna expects a settlement as usual.
MCKENNA: That's almost always the case, 99.9 percent of the case. And what that means is that whether the auditor did or didn't do a good job is really never made public.
SHAHANI: As for HP's auditor, Ernst & Young did not force its client to disclose to shareholders the fact that they had questions about Autonomy for several months. Ernst & Young is also the auditor of Facebook, Groupon and Zynga, other troubled West Coast companies.
Autonomy founder Mike Lynch claims HP is scapegoating him. When news broke, HP stock tumbled. While accountants, bankers, lawyers and business executives dispute who is responsible, one set of victims is already calling securities lawyer Darren Robbins.
DARREN ROBBINS: Institutional investors are expressing their concern and, frankly, their disappointment over representations that are now being made that one of the largest technology companies in the world somehow was duped.
SHAHANI: For years, Robbins says, investors have seen HP mishaps. But they thought, overall, the company was so big, it had to be stable.
ROBBINS: Then they're told that their securities are worth half of what they paid for them. It's nothing short of outrageous.
SHAHANI: The Securities and Exchange Commission is looking into the HP-Autonomy deal. Two years ago, the SEC dismantled a task force that focused on traditional accounting fraud.
McKenna, the CPA, says the scandal is plenty of proof that securities regulators need to return to the nuts and bolts of accounting regulation, especially given that technology companies have a fake-it-till-you-make-it approach to revenues.
MCKENNA: So the SEC is racking up a lot of wins on insider trading, on Ponzi schemes, on some of this exchange in market manipulation issues. But we've seen, for the last five years at least, lower and lower numbers for enforcement actions against companies for accounting fraud.
SHAHANI: The SEC has asked the Federal Bureau of Investigations to help in its inquiries. British regulators are also looking into the HP-Autonomy deal. For NPR News, I'm Aarti Shahani in San Francisco.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.