Judge casts doubt on HP shareholder settlement over Autonomy acquisition

Tuesday 26 August 2014 08.14
HP announced a $8.8bn writedown a year after buying Autonomy, blaming accounting fraud and inflated finances
HP announced a $8.8bn writedown a year after buying Autonomy, blaming accounting fraud and inflated finances

A US judge has cast doubt over a proposed agreement struck between Hewlett-Packard and plaintiff shareholders to settle a lawsuit over the computing giant's botched acquisition of Autonomy.

At a hearing in San Francisco yesterday, US District Judge Charles Breyer rejected several million dollars in fees that shareholder attorneys would have recouped under the settlement. "That's out," he said.

In order to approve the remainder of the deal, Breyer said he would have to make further inquiries into whether dismissing claims against HP officers, including current Chief Executive Officer Meg Whitman, was fair for shareholders.

HP announced a $8.8bn writedown in November 2012, just over one year after buying Autonomy, and linked more than $5bn to accounting fraud and inflated financials by Autonomy executives. 

The British company and its executives have denied any wrongdoing.

Under the terms of the settlement reached in June, shareholder attorneys agreed to drop all claims against HP's current and former executives, including Whitman, board members and advisers to the company.

HP, in turn, agreed to team up with the shareholder attorneys to bring claims against former Autonomy executives, including Chief Executive Michael Lynch. 

The shareholder attorneys would have recouped at least $18m in fees.

In court yesterday, HP attorney Marc Wolinsky disclosed that HP also intends to sue the British unit of Deloitte & Touche over its role in auditing Autonomy. 

In a statement, Deloitte said any HP claim "would be utterly without merit and we will defend ourselves strongly against it."

HP's allegations of accounting improprieties, misrepresentation and disclosure failures at Autonomy have prompted an investigation by the US Securities and Exchange Commission and the Federal Bureau of Investigation, as well as Britain’s Serious Fraud Office.

Multiple parties objected to the shareholder settlement, including former Autonomy Chief Financial Officer Sushovan Hussain. 

In court yesterday, Hussain's attorney John Keker called the deal a "whitewash" and asked that he be allowed to review internal HP documents that absolve Whitman and others of wrongdoing.

"This is a joke," Keker said. "If it were a carcass, animals would walk around it, it stinks so much."

Wolinsky said HP would vigorously contest Hussain's ability to review documents. In a statement, HP said it will continue with its bid to settle or dismiss the shareholder litigation.

Breyer scheduled another court hearing next month to decide how to move forward, and whether Hussain and others would be allowed to formally intervene in the case.

Regardless, Breyer 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.