London, England, United Kingdom (4E) – The lawyers for technology giant Hewlett Packard are preparing a lawsuit against Deloitte UK in its audit of Autonomy, the software company. The issue stems from allegations that Autonomy had bloated its financial figures, an oversight that the accounting firm failed to see.
In response, Deloitte said, “HP’s claim would be utterly without merit and we will defend ourselves strongly against it.” It added, “Deloitte was not engaged by HP or by Autonomy to provide any due diligence in relation to the acquisition by HP. Deloitte UK conducted its audit work in full compliance with regulation and professional standards.”
The allegations of accounting impropriety, misrepresentation and failure to disclose during the botched purchase of Autonomy had come to light by HP’s claims, which prompted the US Securities and Exchange Commission as well as the Federal Bureau of Investigation to conduct an investigation on the matter. This was followed suit by the UK Serious Fraud Office.
During the same hearing, the US judge with jurisdiction over the matter, US District Judge Charles Breyer threw out the settlement agreement between plaintiff shareholders and HP on the same subject matter. Included in the deal rejection are the millions of dollars in fees that shareholder lawyers would have received.
Breyer said it succinctly, “That’s out.”
Originally, HP is facing a suit regarding its USD8.8 billion write-down for the acquisition of Autonomy. HP has urged officials on both sides of the pond to review the data analysis firm for fraud and other malpractices. HP would seek reparation for damages sustained, to which Autonomy claims it did no wrongdoing.
The shareholder suit is for damages resulting from that botched acquisition, claiming poor corporate governance in its failure to do proper due diligence over the Autonomy transaction. Last June, a settlement agreement was entered into between the shareholders and HP. The agreement consists of the shareholder suit being dropped and shareholders would join with HP to sue Autonomy.
This deal was widely criticized, as it enriched the lawyers, up to USD18 million in retainer’s fees and another USD48 million in other fees but did not provide any reparation or even apology to the shareholders in the suit.
These fees are unacceptable according to Judge Breyer but did not close the option of HP hiring these lawyers despite the nullification of the settlement agreement. Another provision of the settlement agreement would be the institution of governing procedures in the review of potential mergers and acquisitions, without any payment of any restitution to shareholders.
Judge Breyer had scheduled another court hearing in September to determine how the case is to progress. He added he would need to review the evidence presented implicating HP officers, to analyze if a deal exonerating them of any liability would prove to be fair to HP shareholders.
In a nutshell, Judge Breyer candidly observed of the Autonomy acquisition by HP, “Something went terribly wrong.”
Because of the decision, HP would need to redraft the provisions that Judge Breyer had denied. Another hearing, set for September 26, is set to review and hopefully approve the new settlement provisions.