Probe of HP's Autonomy acquisition runs into a little snag

Posted by Emma Woollacott

The UK's Serious Fraud Office is investigating HP's acquisition of business software firm Autonomy in 2011 - despite admitting a potential conflict of interest.

Embarassingly, the SFO itself uses the Autonomy product Introspect as a document management tool.

"The SFO is keen to ensure that there is now no conflict of interest or perception of such a conflict, and it is obliged as a first step to make inquiries to ensure that it can continue as the investigating body," it said in a statement to Reuters.

HP kicked up a fuss about Autonomy's behavior late last year after, it says, discovering that Autonomy executives deliberately overinflated its value before the purchase. It says Autonomy manipulated sales figures  its revenue, core growth rate and gross margins and business mix.

The deal is already being looked at by the US Department of Justice, and by the UK's Financial Reporting Council (FRC).

Former Autonomy CEO Mike Lynch has consistently denied the allegations, instead accusing HP of mismanagement.

"Autonomy received unqualified audit reports throughout its life as a public company. This includes the period in question, during which Autonomy was audited by Deloitte," he says in a statement. "We are fully confident in the financial reporting of the company and look forward to the opportunity to demonstrate this to the FRC."

Now, in documents filed with the US Securities and Exchange Commission, HP has confirmed that the SFO opened an investigation into the deal at the beginnning of February.

The row has had drastic consequences for HP. Autonomy cost it around $10 million, of which it ended up writing off $8.8 billion late last year. Some observers have suggested that this was an excessive amount.

Further, HP shareholders are now suing the company, along with auditing firms Deloitte and KPMG, claiming that HP mismanaged the purchase and concealed important information.