HP takes $8.8 billion accounting hit in connection with alleged fraud from purchase of Autonomy

AP File PhotoHewlett Packard CEO Meg Whitman

Hewlett-Packard Co. said on Tuesday that it’s the victim of a multibillion-dollar fraud at the hands of a British company it bought last year that lied about its finances.

HP CEO Meg Whitman said executives at Autonomy Corp. “willfully” boosted the company’s figures through various accounting tricks, which persuaded HP to pay $9.7 billion for the company in October 2011.

Autonomy’s former CEO said HP’s allegations are false.

HP is now taking an $8.8 billion charge to align Autonomy’s purchase price with what HP now says is its real value. More than $5 billion of that charge is due to false accounting, HP said.

The revelation is another blow for HP, which is struggling to reinvent itself as PC and printer sales shrink. The company’s stock hit a 10-year low in morning trading.

Autonomy makes search engines that help companies find vital information stored across computer networks. Acquiring it was part of an attempt by HP to strengthen its portfolio of high-value products and services for corporations and government agencies. The deal was approved by Whitman’s predecessor, Leo Apotheker, but closed three weeks into Whitman’s tenure as chief executive. Whitman was a member of HP’s board of directors when Apotheker initiated the Autonomy purchase.

Among the tricks used at Autonomy, Whitman said: The company had been booking the sale of computers as software revenue and claiming the cost of making the machines as a marketing expense. Revenue from long-term contracts was booked upfront instead of over time.

As a result, Autonomy appeared to be more profitable than it was and seemed to be growing its core software business faster than was actually the case. The moves were apparently designed to groom the company for an acquisition, Whitman said.

Once HP bought the company, Autonomy’s reported revenue growth and profit margin quickly declined. Autonomy CEO Mike Lynch continued to run the company as part of HP, but Whitman forced him out May 23 because it was not living up to expectations.

“Little did I know that there was more than met the eye,” Whitman said.

The case has been referred to the Securities and Exchange Commission and the U.K.’s Serious Fraud Office, she said. The company will also try to recoup some of the cash it paid for Autonomy through lawsuits.

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