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Belated Action by FRC Re Autonomy

I commented previously on the conviction of former Autonomy CFO Sushovan Hussain for fraud in relation to the accounts of Autonomy Plc (see https://www.sharesoc.org/blog/regulations-and-law/they-do-things-differently-in-the-usa/ ). Just to show that this was not solely a case prompted by Hewlett Packard over their disastrous acquisition of the company, supported by a partisan California court as some have alleged, the Financial Reporting Council (FRC) have now announced formal complaints over the conduct of auditors Deloittes and senior finance staff of Autonomy – including Mr Hussain.

Allegations include: failings by the auditors to adequately challenge Autonomy’s accounting and disclosure of its purchases and sales of computer hardware; adequately to challenge Autonomy’s accounting for transactions with value added resellers (“VARs”) and to correct false or misleading communications made by Autonomy to the Financial Reporting Review Panel (“FRRP”) of the FRC.  Sushovan Hussain and Stephen Chamberlain are alleged to have breached the fundamental principle of integrity by acting dishonestly and/or recklessly when preparing and approving Autonomy’s Annual Report and Accounts for the years ended 31 December 2009 and 31 December 2010 and related charges.

There will be tribunal hearing to hear these complaints for which a date has not yet been set. It seems likely that the claims will be defended.

So 8 years later we have a non-criminal action by the regulatory authorities in the UK over accounting and audit failures while the US prosecuted for fraud. Surely this is not good enough if the allegations are true? Plus it’s been too long before action has been taken. If the claims are upheld then the accounts were wrong and sufficiently wrong not just to mislead the investors in Autonomy but to prompt Hewlett Packard to purchase the company at a grossly inflated price – that is their claim which is the subject of an on-going civil action. But it could also be seen as a fraud on stock market investors which is a criminal offence in the USA but not the UK. That is what needs changing.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

2 Comments
  1. niq says:

    Having commented here last time you talked autonomy, perhaps I should follow up. This time we (techie community) are just as cynical as you: c.f. https://www.theregister.co.uk/2018/05/31/financial_reporting_council_autonomy/ and the comments section thereon.

    I still find this hard to see as remotely in the same league as Carillion or various others. That Autonomy was overvalued and overhyped was clear to everyone at the time, including the less insane members of the HP board. And including this investor, who steered clear of Autonomy while making its Cambridge neighbour ARM my biggest (and most successful) single holding.

  2. Roger Lawson says:

    You’re probably right that Autonomy was overvalued and overhyped and HP was unwise to buy it. As I like investing in software companies I looked at it several times but never invested and there were other analysts who took a dim view of their accounts. But that hardly excuses the behaviour that has now come to light.

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