Computing giant Hewlett-Packard today fired back at the former CFO of the British software company Autonomy who last month challenged a settlement in a shareholder lawsuit, saying for the first time it intends to sue him.
In papers filed with the U.S. District Court in San Francisco, HP called Sushovan Hussain “one of the chief architects of the massive fraud” it says was committed when HP acquired Autonomy for $11 billion in 2011 only to write down its value by about $5 billion a year later. “The notion that he should be permitted to intervene and challenge the substance of a settlement designed to protect the interests of the company he defrauded is ludicrous,” HP said in the filing.
Though it has been implied, this is the first time HP has stated explicitly that it intends to take any of Autonomy’s former executives to court.
Hussain asked a judge to block the settlement of a shareholder derivative lawsuit. HP announced it had reached the settlement deal on June 30, ending a negotiation process Re/code first disclosed in February. The deal calls for the shareholders who had initially sued HP to assist the company in future lawsuits against former Autonomy executives. The settlement must be approved by Judge Charles R. Breyer.
HP has claimed since late 2012 that Autonomy executives engaged in accounting improprieties that inflated the British company’s valuation ahead of its acquisition. HP paid about $11 billion for it, but in 2012 wrote down the value of the acquisition by about $5 billion as part of a larger $8 billion write-down. Mike Lynch, Autonomy’s founder and former CEO, has continued to argue that he did nothing wrong, and that the irregularities HP has alleged can be attributed to differences in the accounting standards used in the U.S. and the U.K.
In the filing, HP says unequivocally that it intends to sue Hussain in England and that he is likely facing criminal prosecution by regulatory authorities investigating the case in both the U.S. and the U.K. HP referred its findings to the U.S. Department of Justice and the U.K. Serious Fraud Office.
“Hussain … knows that prosecutors on both sides of the Atlantic are investigating him, that HP is cooperating with those authorities and that, until he is charged, he has no access to the information that HP is providing to the authorities,” the filing reads. “So Hussain, the fraudster, wraps himself in a mantle of self-righteousness in an attempt to obtain discovery that he hopes will help him stay out of prison and defend the civil litigation he expects HP will file in the U.K.”
The shareholder derivative lawsuits are part of the long tail of unfinished business related to the Autonomy deal that has dogged HP for nearly three years since it closed. HP has alleged that Autonomy had a habit of reselling computers with its software installed on them at a financial loss near the end of its fiscal quarters in order to bolster its apparent financial performance. HP also claimed Autonomy used transactions that were improper with third-party resellers to create the appearance of software license revenue. The deal cost HP’s then-CEO Léo Apotheker his job, and led to Meg Whitman taking over as CEO.
Update: I just received a statement from Hussain’s lawyer, John Keker.
“My comments will appear in our opposition, due next Monday. Ask yourself why they [HP] waited a year after a merger which was vetted by hundreds of HP employees and agents, before and after, before claiming fraud (to support an almost $9 billion writedown) and then ask yourself why, if they are so concerned about fraud, HP has been scared to sue anywhere for three years. And then ask yourself why they say they intend to sue in England — could it be, as they admit, because there is less discovery?”
Update 2: And now we have a second response, this one a statement from a spokesman for the rest of Autonomy’s former management team, which would include former CEO Mike Lynch.
“This breathless ranting from HP is the sort of personal smear we’ve come to expect. As the emotional outbursts go up, the access to facts seems to go down. HP has struck a corrupt and collusive settlement to try to bury the truth rather than face a court. Meg Whitman is buying off a bunch of lawyers so she doesn’t have to answer charges of incompetence and misdirection in front of a judge and jury. Quite simply we are asking for discovery and facts, they are trying to hide them — that’s what separates us and her.”
Here’s the filing.