Hewlett-Packard has revealed it plans to sue the UK arm of Deloitte, auditor of the Cambridge software firm Autonomy that HP bought for $11bn (£6.6bn) before writing off nearly half the company's value and accusing the former management of accounting improprieties.
The latest threat came as a San Francisco judge shot down HP's $48m settlement with two law firms which had been pursuing HP directors over the affair on behalf of disgruntled shareholders. HP instead had persuaded the firms to drop the class action and join it in pursuing Autonomy's former management.
HP bought Autonomy in 2011 but the following year wrote down its value by $5bn, blaming "accounting improprieties, misrepresentation and disclosure failures" by its former management. The Californian laptops, printers, servers and software group's shares crashed after the announcement.
HP has repeatedly threatened court action against Autonomy founder Mike Lynch and his finance director Sushovan Hussain. On Monday, during the hearing over HP's settlement with shareholders, the company's lawyer Marc Wolinsky disclosed that HP also planned to sue Deloitte over its auditing of the Autonomy accounts.
An HP spokesperson said: "We will continue to work to have the derivative actions settled or dismissed and to hold the former executives of Autonomy as well as Autonomy's auditor, Deloitte UK, responsible for the wrongdoing that occurred."
Deloitte signed off Autonomy's accounts in 2009 and 2010, a period during which HP claims to have found a number of irregularities. HP claims that more than $200m of Autonomy's $1bn revenues in 2010 were questionable.
A spokesperson for Deloitte UK countered: "Any possible claim would be utterly without merit and we will defend ourselves strongly against it. Deloitte was not engaged by HP, or by Autonomy, to provide any due diligence in relation to the acquisition of Autonomy. Deloitte UK was auditor to Autonomy at the time of its acquisition by HP. Deloitte UK conducted its audit work in full compliance with regulation and professional standards."
This week the Guardian revealed Deloitte was aware of the details of three transactions which HP says cast doubt over Autonomy's dealings with resellers – companies selling its software on to end users. Kraft, Eli Lilly and KMPG were named as end users of Autonomy software in multimillion-dollar deals with resellers, sales which helped boost Autonomy's quarterly revenues. All three deals were subsequently restructured, with one reseller paid $400,000 in compensation fees.
Lynch and Hussain deny all allegations of wrongdoing and blame the writedown in their company's value on bad management by HP. The HP allegations have prompted an investigation by the US Securities and Exchange Commission and the Federal Bureau of Investigation, as well as the UK's Serious Fraud Office.
At the San Francisco hearing, called to give preliminary approval to HP's settlement of shareholder class actions, US district judge Charles Breyer rejected the fees attorneys would have recouped under the settlement. "That's out," he said.
HP had promised Cotchett, Pitre & McCarthly and Robbins Geller Rudman & Dowd $18m in over 32 months, so long as they switched their efforts to pursuing Lynch and Hussain. Should legal action against the former Autonomy managers be successful, the firms could win a further maximum of $30m.
It is understood both firms have already agreed to sign the settlement without the promise of fees.
A number of parties objected to the shareholder settlement, including Hussain. In court on Monday, Hussain's attorney John Keker called the deal a "whitewash".
"This is a joke," Keker said. "If it were a carcass, animals would walk around it, it stinks so much."
Marc Wolinsky, HP's lawyer, said HP would vigorously contest Hussain's ability to review documents.
Breyer has scheduled a hearing for 26 September. The judge said he would need to weigh the evidence against HP officers as part of his analysis on whether the deal absolving them of liability is fair for shareholders.
"Something went terribly wrong," Breyer said of the Autonomy acquisition.
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