HP-Autonomy fraud investigation dropped by Serious Fraud Office
SFO says that there is 'insufficient evidence' to continue fraud investigation
The Serious Fraud Office (SFO) has closed its criminal investigation into the $11.1bn (£7.4bn) purchase of Autonomy by systems giant HP, which was started after HP claimed that it had found accounting irregularities in Autonomy's books after the deal had been completed.
However, the SFO stressed that not all allegations had been dismissed and that investigations will continue in the US, with the SFO transferring jurisdiction over these allegations to US authorities. Autonomy's accounts are also being combed by the Financial Reporting Council.
In a statement, the SFO said that there was insufficient evidence to bring a case against the company's former management: "In respect of some aspects of the allegations, the SFO has concluded that, on the information available to it, there is insufficient evidence for a realistic prospect of conviction."
It continued: ""In respect of other aspects... jurisdiction over the investigation has been ceded to the US authorities whose investigation is ongoing."
The deal continues to be investigated by both the Department of Justice and the Securities and Exchange Commission in the US, and Lynch and the former senior management of Autonomy could still face extradition in the US to answer charges if HP gets its way.
Cambridge University mathematician Lynch, who founded the company in the mid-1990s, welcomed the SFO decision. In a statement, he said, "As we have always said, HP's allegations are false and we are glad that after a two year review of the material presented by HP, the SFO has concluded that there is not a case to pursue
"Let's remember, HP made allegations of a $5bn fraud, and presented the case in public as a slam dunk. HP now faces serious questions of its own about its conduct in this case and the false statements it has made."
However, HP - also in a statement - said that it would remain "committed to holding the architects of the Autonomy fraud accountable". It continued: "As the SFO made clear, the US authorities are continuing their investigation and we continue to co-operate with that investigation."
HP has strongly claimed that Autonomy under CEO Lynch misled HP over the value and growth of its business by using a number of techniques that amounted to fraud. It is also pursuing action against Lynch and other senior managers at Autonomy in the US.
The company claims that Autonomy under Lynch booked hardware sales as software and engaged in "channel stuffing" in the years leading up to the acquisition - booking the sale of excessive volumes of goods to partners that are not subsequently sold on to customers. HP also claims that Autonomy recognised revenue on transactions that never closed and overstated UK profits by as much as 80 per cent.
Lynch, however, and his former CFO Sushovan Hussein, suggest that the claims are down to differences in accounting practice and did not amount to fraud. They say that these should have been highlighted by HP's own due diligence process prior to acquisition and that the allegations are a cover by HP's own management for grossly over-paying for the company.
Indeed, it has been suggested that database giant Oracle turned down the opportunity to buy Autonomy for less than half the amount that HP paid, with its then CEO Larry Ellison suggesting that the mooted $5bn purchase price was too high. HP investors, in addition to sueing the company, have also suggested that it clearly botched the acquisition.
The decision by the SFO may not be good news for Lynch in the long term. In cases of alleged fraud involving more than one jurisdiction, national authorities often decide among themselves which agencies should take the lead, and which should provide a supportive role.
The US authorities have a reputation for being more aggressive than the SFO - which in the past has been labelled the "Serious Farce Office" - with managers found guilty of fraud handed long prison sentences in punishment.