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Former CFO of Software Company Acquired by HP Is Convicted of Accounting Fraud

Ruth Singleton
Published Date:
May 1, 2018

iStock-949207990 Fraud Accounting InvoiceThe former chief financial officer of software company Autonomy Corp. was found guilty yesterday of using accounting fraud to come up with the $11.7 billion price that Hewlett Packard Co. paid for it in 2011. A federal jury in San Francisco voted to convict Sushovan Hussain on 14 counts of wire fraud and one count of securities fraud. He faces up to 25 years in prison on the securities fraud count.

Autonomy, founded in Cambridge, England, in 1996, was the United Kingdom’s second largest software company when HP acquired it.  According to Bloomberg, HP later wrote down its value by $8.8 billion, citing fraud by Autonomy, and asked the U.S. Department of Justice to investigate.

The government argued that, for more than two years prior to the sale, Hussain “falsely inflated Autonomy’s revenues to make it appear Autonomy was growing when it really was not.  Specifically, Hussain used backdated contracts, roundtrips, channel stuffing, and other forms of accounting fraud to inflate Autonomy’s publicly-reported revenues by as much as 14.6% in 2009, 17.9% in 2010, 21.5% in the first quarter of 2011, and 12.4% in the second quarter of 2011.” An article in Fortune provides details of how Autonomy perpetrated the fraud.

As reported by Bloomberg, the prosecution introduced into evidence emails, phone records, earning statements, press releases and even an alleged payment of hush money to demonstrate what prosecutor Adam Reeves called “a balance sheet of fraud.”  

In his closing argument, Reeves said that from 2009 to 2011, at a time when many technology companies were suffering the effects of the 2008 financial crisis, Hussain built a façade to “eke out consensus estimates."  By 2011, Reeves said, Autonomy had become an “unsustainable Ponzi scheme," prompting Hussain to urge Mike Lynch, Autonomy’s co-founder and former chief executive officer, to sell the company.

John Keker, Hussain’s lawyer, argued at trial that HP was responsible for the decrease in Autonomy's value. He characterized Autonomy as one of HP's many failed acquisitions requiring write-offs, a list that included Palm, Compaq and Electronic Data Systems.

Keker declined to comment to Bloomberg after the verdict.

In a statement, Alex Tse, acting U.S. Attorney for the Northern District of California, said, “The jury verdict affirms that corporate criminals who cook their company’s books to the detriment of victims in the United States, and specifically this district, will be held to account in our courts.”

“Hussain engaged in outright fraud and deliberately misled the market about non-existent sales through a series of calculated sham transactions,” a spokesman for HP said in a statement emailed to Bloomberg. “The jury has now held him accountable for his role in defrauding HP.”

HP has filed a $5 billion civil lawsuit against Hussain and Lynch, which will go to trial in London next year.

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