back to article Deloitte settled HPE's Autonomy lawsuit for $45m back in 2016 and agreed to cooperate with US DoJ

Hewlett Packard Enterprise settled its potential lawsuit against Autonomy auditors Deloitte for $45m in 2016, The Register can reveal – shedding new light on how the $5bn lawsuit against former Autonomy CEO Mike Lynch and ex-CFO Sushovan Hussain came about. The amount of the settlement is less than 1 per cent of the $5bn for …

  1. Flak
    Go

    This story keeps on giving

    Keep them coming, please! One of my children is doing accountancy and auditing and this is a great case study which, I am sure, will be used for years to come.

    1. Anonymous Coward
      Anonymous Coward

      Re: This story keeps on giving

      Err, used how? As example of how to slither away quietly while the grass is beaten publicly to find the "bad guys"? Sheesh! The message is that accountants are like politicians - snakes?

      1. oiseau Silver badge
        Facepalm

        Re: This story keeps on giving

        ... accountants are like politicians - snakes?

        No.

        But I think they do have assigned bleacher seats in Hell.

        Between the thieves and the lawyers.

        O.

        1. batfink Silver badge

          Re: This story keeps on giving

          I believe you may have left out the word "other" in your post...

      2. macjules
        Coat

        Re: This story keeps on giving

        Deloitte are most definitely not good adders.

        1. spireite Silver badge
          Coat

          Re: This story keeps on giving

          Might be software they built in-house using Python

    2. Julz

      Re: This story keeps on giving

      I expect this case will still be active when your kid gets their first job.

  2. don't you hate it when you lose your account

    When?

    Will the accountants go to jail. Obviously I trained in the wrong field.

    1. Gordon 10 Silver badge

      Re: When?

      Since the US has form for trying to extradite Bankers and Accountants on very dubious grounds, I think you're safer staying in IT. Unless you a hacker with ASD. Then you're screwed when the Patelenfuhrer takes power.

  3. oiseau Silver badge
    WTF?

    Smells bad

    ... expressly said that Deloitte did not admit any wrongdoing or liability.

    Interesting.

    Lets see if I got this straight:

    A first class/world-renowned accounting firm assures a client, an important international IT corporation, that it can go ahead and pay 8.8 billion for another important IT corporation but shortly after the purchase, said client has to write down over 75% of the price paid.

    Then the accounting firm gets to expressly deny any "wrongdoing or liability" in exchange for paying their client 45M?

    Smells bad.

    If I were pressed to guess about what is going on, I'd say HPE purchased whatever Deloitte and chums are willing to say against Autonomy/Lynch et al in exchange for giving back their obviously unearned consulting fees.

    If I can see it, the judge will or al least should be able to.

    O.

    1. Gordon 10 Silver badge

      You got that wrong-ish

      Deloitte didn't assure HP of anything specifically, other than assuring *the world* the books of Autonomy had passed their yearly IFRS audit. A bad audit doesn't necessarily follow that a valuation for an acquisition was wrong.

      HP hired KMPG to do due diligence on the acquisition of Autonomy, then their CEO failed to read the preliminary report (the CFO appears to have been fired for reading it and advising against the acquisition), then failed to wait for KPMG to complete their due diligence before signing on the dotted line with Autonomy.

      The rest of your supposition seems plausible though. With one extra - if HP were hurt so badly by Deloitte's alleged dodgy auditing - why did they settle for $45m?

      1. You aint sin me, roit

        One question...

        Several answers.

        Deloitte's dodgy accounts don't explain why due diligence wasn't completed, and indeed how the unfavourable preliminary was ignored. HP is buying a smokescreen "the accounts were wrong, we were misled". How true this is, and indeed how much the incorrect accounts were responsible for a multi billion over evaluation are moot points. Though if it were true maybe HP wouldn't have settled for 45M...

        HP are also buying dirt on Lynch "sèe, even the auditors say he's a cheat".

        Finally, it's an easy win. Deloitte want to sweep it under the carpet coz it makes them look bad. And HP don't want to put Deloitte on the hook for billions, coz then they'd come out fighting and point out a few home truths HP wouldn't like.

        Divide and conquer. Deloitte are already done with...

        Don't think Lynch will get the "here's some cash, but I don't admit to doing anything wrong " option.

      2. JimboSmith Silver badge

        Re: You got that wrong-ish

        There's always something wrong when you hire somebody to scrutinise a deal and then ignore their report. I've written reports before that have gone largely unread by management*. In one fun instance my recommendations were ignored as the main person who was supposed to read it didn't bother. Then when the sh!t hit the fan and I was queried I pointed to my work.

        The difference is I wasn't writing about spending billions of pounds or dollars.

        *In one thing I wrote, I included a recommendation for compulsory watching of one of the Star Wars films once a week. He never mentioned it once, which was typical.

    2. Imhotep Silver badge

      Re: Smells bad

      My thoughts also. It certainly sounds like they are buying testimony, and the customer generally gets to specify what they want delivered.

    3. a_yank_lurker Silver badge

      Re: Smells bad

      Deloitte paid off HPE to go away and the chump change indicates that. The claim the books were fraudulent does not really pass the smell test as the main point of an audit is whether the company is a viable and profitable business and the announced numbers are correct. It is does check that the numbers are put in the correct places as best as anyone can tell. These details are important but often not critical to the overall health of a company. In fact they may be more important for management to monitor internal costs and pro-rata profits.

      One point is the HP CFO said no to the purchase. She apparently looked carefully at the numbers and saw something she did not like. It does not matter what she saw but that she looked at the information she had available. I suspect a good bit of her analysis was looking at publicly released financial reports plus whatever KPMG told her.

    4. Dog Eatdog

      Re: Smells bad

      Autonomy was the client, not HP.

    5. mikepren

      Re: Smells bad

      Weren't they Autonomy auditors? Their duty of care is to Autonomy, and the current shareholders, not to any prospective purchasers.

  4. TimMaher Silver badge
    Coat

    Popcorn shortage

    This dreadful story of massive incompetence by HPE and their due-diligence auditors is now giving me a popcorn shortage.

    To make matters worse, the next tranche is marooned in the Suez Canal and my covfefe crate is still stuck in Zeebrugge

    1. Anonymous Coward
      Anonymous Coward

      Re: Popcorn shortage

      "This dreadful story of massive incompetence by HPE and their due-diligence auditors is now giving me a popcorn shortage."

      I would disagree that HPE's due dilligence auditors did anything wrong - they were viven around 12 hours access to Autonomy staff and some supplemental information and produced a report that suggested that any sane company should be very cautious.

      HPE's CFO seemed to understand what the report meant when she tried to discourage Leo from approving the acquistion.

      I would go so far as to say that KPMG did everything other than write "DO NOT BUY THIS" in big red letters on the HPE board room wall. But mad Leo knew better...

  5. MadAsHell

    Bolsters the Lynch defence

    The challenge for the plaintiff in this action is to show, on the balance of probability, that the defendant knowingly deceived them by false accounting. Their own world-class accountants produced a report saying don't buy this asset for this price, they don't have an admission of liability from the auditors of the asset, and the defendant is entitled to keep saying that 'my experts said the books were OK, but now I understand that they got this wrong, and your experts said don't buy it'.

    I believe that the Secretary of State for for Housing recently stated in the House the old legal maxim 'caveat emptor'. Seems to apply here.

    Of course an impartial bystander would wonder at the ego from the plaintiff of spending another $8M in legal fees in a vindictive attempt to draw attention away from their own arrogance, greed and stupidity.

    If this is how they run their company, their shareholders should wonder about the safety of their shareholdings. It can't possibly meet the fiduciary duty to the shareholders to continue this case - legally the defendant is nearly a man-of-straw - as there is no hope of getting any of their $8BN back. We used to call this playground spitefulness. And it's not how grown-ups should run a public company.

  6. sbt
    Angel

    It was pretty obvious, but still...

    Nailed it.

    I think it's been written elsewhere but fundamentally there is a conflict of interest when the audited is paying the auditor. Oh, yeah.

  7. CJatCTi

    If you want iffy accounts to pass audit get the big big boys as auditors

    Here is another case where you want your accounts to "pass" an audit get one of the big boys to sign them off. The situation is so bad the govenment is actualy changing / looking to change the law, what good that will do who knows.

    It nice to see one of them paying for their incompedence / frudulent activity.

    1. Dave314159ggggdffsdds Silver badge

      Re: If you want iffy accounts to pass audit get the big big boys as auditors

      You evidently don't know what auditors are supposed to do, so it's a particularly bizarre hatred you're displaying.

      An audit only checks that the accounts present a fair and accurate picture of the claimed financial state of a company. It doesn't check if those claims are fraudulent, although particularly incompetent embezzlers may be caught by an audit.

      1. Anonymous Coward
        Anonymous Coward

        Re: If you want iffy accounts to pass audit get the big big boys as auditors

        The UK Parliament and the UK courts disagree with you.

        https://www.bbc.co.uk/news/business-55855840

        from 31-JAN-2021 contains the lines:

        'In its 2019 report on auditing, Parliament's Business, Energy and Industrial Strategy Committee dismissed the idea of gap between what the public expected of auditors and their job.

        ...

        Their job already includes detecting "material fraud and making a judgement on a company's future prospects", it said.'

        The central point of the article is that an international audit standards body called the IAASB is trying to consult members on what it calls the "expectation gap" (that the public expect an audit to spot fraud, whereas the auditors don't look for it). In the UK, that argument has been lost, and no such expectation gap exists. Auditors in the UK should detect and report fraud.

        1. Dabooka

          Re: If you want iffy accounts to pass audit get the big big boys as auditors

          Well it is certainly the case where I work, the various sector funding bodies employ a variety of auditors to scrutinise and check, and some are very thorough indeed.

          And they do find fraud, often involving multimillions or even 10s of, so it does do the job on occasion (although we don't know what they don't see either of course).

  8. vogon00

    Yet another example....

    ...of corporate stupidity, BS and political games..

    OK, Deloitte's role in this farrago is less than clear and is likely to remain so, unless a judge decides to do some extra digging into their actions in the interests of justice.

    Notwithstanding this I wouldn't be at all surprised if Deloitte end up being this decade's Arthur Andersen!

    1. Version 1.0 Silver badge
      Facepalm

      Re: Yet another example....

      Clearly if HPE win the case it will have demonstrated that they were stupid - if you remember at the time, that was what just about everyone was saying originally.

      So basically HP will have a much better reputation in future if they lose the case.

      1. Anonymous Coward
        Anonymous Coward

        Re: Yet another example....

        "So basically HP will have a much better reputation in future if they lose the case."

        HPE doesn't matter at this point in time - showing the board was mislead (i.e. they win the case) rather than incompetent avoids HPE shareholders suing HPE and likely destroying it in the process.

        HPE's history of acquisitions didn't bode well so reputation is almost irrelevant behind survival.

  9. ExampleOne

    HP appear to be taking "HP were misled" (undeniably true) and "Autonomy tried to mislead us" (possibly true) and combining the two and hoping that no one notices that there is a serious problem in the chain of which can be summarised as "Autonomy couldn't mislead HP as HP had already misled themselves".

    Do I think Lynch is innocent of all wrongdoing? Not really. Do I think Lynch is guilty of trying to mislead HP? Probably. Do I think Lynch succeeded in misleading HP? Not at all. HP did that perfectly fine without needing a fradylent due diligence report they never received!

    1. ManMountain1

      Agreed. The most likely scenario here is that a. Lynch is a fraudster AND b. HP was stupid. Whether a trumps b or b trumps a, who knows, but I suspect both statements are true.

  10. Franco Silver badge

    I interpreted it as we massively overpaid for something that our CFO told us not to buy at all, the auditors that we hired did a bad job and didn't find evidence of bad practices but have admitted they did a bad job so please don't hold the fact that we never bothered to read their report anyway against us.

    It's very clear from the evidence that it was going to take a lot more red flags than were found to stop Apotheker and the board from completing the purchase. Around the same time HP also massively overpaid for ArcSight and 3PAR, and also bought Palm with less than successful results.

    1. Steve K Silver badge

      Not quite...

      the auditors that we hired did a bad job and didn't find evidence of bad practices but have admitted they did a bad job

      Not quite.

      Deloitte were hired by Autonomy as their auditors. The only way they were hired by HP is in the sense that after HP had bought Autonomy, they had been the auditors of that company up to that point and so had a historical responsibility for previous audit opinions. This is why HP sued itself initially (as per the article) and then its former-Autonomy wing sued Deloitte, since HP itself had not directly paid Deloitte for the work, but its acquisiton had.

      KPMG were hired by HP for the due diligence in the Autonomy acquisition and wrote the draft reports that was never finalised and went unread anyway by the CEO. KPMGs report is not under dispute.

      1. Franco Silver badge

        Re: Not quite...

        Thanks for the clarification, that just makes things worse for HP though. We got a second auditor in, but ignored them, but everything is Autonomy's fault because the first auditor says so. Oh, and we didn't pay them to say that, honest.

  11. h3nb45h3r

    Maybe it's possible...

    ...That Fujitsu were able to sell their Horizon software, fundamentally a system that was unable to add up, to Deloitte to help with the audit?

  12. PhilipN

    "Window dressing"

    Many a long year since I first heard this expression for end-of-year financial jiggery-pokery in the squeaky-clean appallingly hypocritical City of London.

    Since when the power of accounting and particularly audit firms - who were once derisively but accurately called "add and tick men" - has gone way beyond being a simple pillar of the capitalist system. Mixing metaphors I know but it is the tail wagging the dog.

    But then what do you expect from a profession which swears by double-entry (snort... snigger)?

  13. Mike 137 Silver badge

    "agreed to cooperate with US DoJ"

    How generous of them. It's a strange attribute of any legal system if it's OK for a proven perpetrator to publicly announce whether or not it chooses to co-operate with a department of justice.

  14. imwilki

    Shareholders did well !

    From the FT at the time, more red flags than a cabinet minister's dining room...

    Paul Morland, a tech analyst at Peel Hunt, called it an “amazing” premium for a company whose earnings grew by just 6 per cent in the first half of the year. “It doesn’t get any better than this, and holders should accept the offer before HP changes its mind. HP’s CEO used to be in charge at SAP, so he should understand software, but this bid seems to defy logic. We believe HP shareholders should be worried.”

    Autonomy's not HP's ! Surely given HP's record of value destructive acquisitions at this time, this case should be consigned to the bin. This was just a window dressed up deal to a desperate purchaser with a dash of some mild earnings accretive accountancy practices.

  15. imwilki

    Shareholders did well !

    Paul Morland, a tech analyst at Peel Hunt, called it an “amazing” premium for a company whose earnings grew by just 6 per cent in the first half of the year. “It doesn’t get any better than this, and holders should accept the offer before HP changes its mind. HP’s CEO used to be in charge at SAP, so he should understand software, but this bid seems to defy logic. We believe HP shareholders should be worried.”

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