When HP took over Autonomy last year, the $11.1 billion price tag seemed high; but it was reasonable, said HP, given Autonomy's marvellous performance.
Now, though, HP - which has taken a $5 billion charge in its latest quarter over the purchase - is claiming it was had, saying that Autonomy overinflated its value before the purchase.
The fraud came to light, says HP, when a whistleblower approached it following the departure of Autonomy founder Mike Lynch in May.
"HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP," it says in a statement.
"These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal. We remain 100 percent committed to Autonomy and its industry-leading technology."
The company says that Autonomy's books misprepresented its revenue, core growth rate and gross margins and business mix.
Specifically, it says, Autonomy took revenue from low-end hardware sales and improperly counted it as 'license revenue' when calculating. And this negative-margin, low-end hardware, it says, amounted to as much as 15 percent of Autonomy’s revenue.
HP says Autonomy also used licensing deals with value-added resellers to make it appear that money had come in earlier than was the case - or, worse, create revenue where no end-user customer actually existed at the time of sale.
"This appears to have been a willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers," says HP.
The company's referred the matter to the US Securities and Exchange Commission’s Enforcement Division and the UK’s Serious Fraud Office for civil and criminal investigation. It says it's also taking the matter to the civil courts.