This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

They Do Things Differently in the USA

Former Autonomy CFO Sushovan Hussain has been found guilty of 16 counts of fraud in a Federal Court in California. He was convicted on all 16 counts of wire and securities fraud. This case was based on allegations of false accounting to ramp up the value of the Autonomy business prior to its acquisition by Hewlett-Packard. The latter subsequently wrote down most of the $10.3 billion cost of that acquisition.

More background on this case is given in a previous blog post here: https://roliscon.blog/2018/02/26/autonomy-legal-case-and-revenue-recognition/

Although Autonomy was a UK public company, and the Serious Fraud Office did look at the case they decided to do nothing. However a civil action against Mr Hussain and the former Autonomy CEO, Mike Lynch (who was not indicted in the US case), is still being pursued in the English courts. This decision will clearly strengthen that action.

The US prosecutor suggested in court that the accounts were a façade and eventually proved to be an “unsustainable Ponzi scheme”. Mr Hussain is apparently likely to appeal the verdict, but he faces a prison sentence of up to 20 years – sentencing will take place on Friday.

How different to the UK where prosecutions for fraud based on false accounting almost never take place. Questions were raised about the accounts of Autonomy by investors and a whistle blower also raised issues before the sale to H/P but the UK authorities did nothing. The FRC did announce an investigation into the accounts of Autonomy in 2013. It is still listed as a “current” case on their web site, i.e. no report and no conclusions as yet. Why the delay?

This case demonstrates the typical sloth and inaction of the UK regulatory authorities in comparison with the USA. The FCA/FRC are both very ineffective, and the recent events regarding the Aviva preference shares and the collapse of Beaufort show how ineffective those bodies are in protecting the interests of investors. It’s a combination of a defective legal system and a culture of inaction and delay that permeates these organisations. Well at least that is my personal view.

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

4 Comments
  1. Keith says:

    That’s a seriously good point, anyone disagree? Perhaps there’s a blockage that needs looking into, complete mystery to me. Anyway, perhaps there will be some answers eventually.

  2. niq says:

    While agreeing with your underlying point (one we’ve seen many times in various guises), there are other factors involved. Not all of them reflect favourably on this judgment, and I don’t just mean the long-established nationalism often seen in US courts.

    In this case, HP has form, with a long track record of spectacularly hubristic acquisitions. As everyone knows, they paid good money for Palm before writing all of it off. But much more relevant to this case was the 2011 acquisition for silly money of EDS, a leading purveyor of hot air, with a long track record of government IT fiascos. Both the EDS and Autonomy acquisitions are believed by many of us in technology to be HP’s misguided attempts to ape IBM’s and Oracle’s capacity in enterprise software and services (indeed, I said so at the time of both acquisitions). That 2011 date may itself be significant: Oracle had just acquired Sun Microsystems, completing a capacity previously unique to IBM to offer a very full range of enterprise hardware/software/services.

    It is said that Oracle commented on the $11bn acquisition that they had recently been approached to buy Autonomy and had turned down a $4bn asking price as too high.

  3. rogerwlawson says:

    Niq: I quite accept that Hewlett-Packard had frequently in the past shown gross incompetence in acquisitions, particularly of software companies (I used to do a lot of business with H/P). But that hardly excuses the facts that led to the conviction. The judge was quite right to reject evidence of events after the acquisition took place and from what I understand about the legal case and my knowledge of what frequently goes on in software companies, the judgement of the jury does not seem perverse. But any mistakes after the deal by H/P might have an impact on any damages award that might arise in the outstanding civil case.

  4. niq says:

    rogerlawson, we’re not talking “events after the acquisition”. Senior people within HP warned *before* the deal that it was hopelessly overvalued (CFO Catherine Lesjak and ex-chairman Raymond Lane, to name but two). And whereas Oracle’s comment is anecdotal and might be urban myth, Lesjak and Lane formed part of the evidence in court!

    Though I must correct my earlier comment regarding dates. 2011 was the Autonomy acquisition following Oracle/Sun in 2010. The EDS acquisition was in 2008.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.