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Former Autonomy CFO loses bid to escape fraud charges

Member: Nifa

The long-running case between Hewlett-Packard (HP) and executives of British firm Autonomy rumbles on.  In 2011, HP acquired Autonomy for £8.3 billion ($11 billion), but it was later forced to write-off around three-quarters of the company’s value after uncovering what it alleged were accounting irregularities that had been perpetrated by Autonomy’s former management team.

The Serious Fraud Office (SFO) investigated the case, but owing to a lack of evidence abandoned its enquiries. However, US prosecutors are now seeking at least £5.8 million ($7.7 million) from Autonomy’s former Chief Financial Officer (CFO), Sushovan Hussain.  They allege that “together with others”, Mr Hussain engaged in a fraudulent scheme to “deceive purchasers and sellers of Autonomy securities and HP about the true performance of Autonomy’s business, its financial condition, and its prospects for growth”.

HP then sued Mr Hussain and Mike Lynch, Autonomy’s founder, for £3.8 billion ($5.1 billion), alleging “accounting misrepresentation”, which both men denied.  Mr Lynch has subsequently countersued HP for £121 million ($160 million) over reputational damage – a case that is due to be heard in London next year.  Mr Hussain has been charged in the US with wire fraud and conspiracy to commit wire fraud. Wire fraud is financial fraud involving the use of telecommunications or information technology.

However, his lawyers argued that the Department of Justice could not proceed with the allegations, saying the US Government’s case is built on events that took place outside the country.  The district judge disagreed, saying that as long as the US Government identifies a domestic wire transmission, which it does in 14 of the counts against him, then the statute is not “improperly extraterritorial” in its application.  HP began a forensic investigation into Autonomy’s accounting after an executive came forward alleging there had been improper accounting procedures at the firm. As with all forensic investigations, this involved an analysis of the accounts, supporting documentation and wire transfers.

Forensic accountants on both the prosecution and defence sides will be scrutinising every scrap of evidence ahead of the US court case next year.

Author: Roger Isaacs, 21 November 2017

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