HP Autonomy Triggers $1 Billion Shareholder Lawsuit

Current and past Hewlett-Packard (NYSE: HPQ) top brass brushed off bright red flags about Autonomy’s accounting records and failed to fully investigate the British software maker’s finances prior to pushing through the doomed deal, shareholders claimed in a $1 billion class action lawsuit filed in San Francisco district court.

According to a report in the U.K.’s Guardian, the lawsuit named HP CEO Meg Whitman, former CEO Leo Apotheker, former Chairman Ray Lane and Autonomy founder Mike Lynch among eight defendants, accusing those who presided over the deal with “cursory due diligence on a polluted and vastly overvalued asset.”

Whitman and Lane, in particular, are accused in the lawsuit of using “devices, schemes and artifices to defraud” shareholders into buying HP stock before ultimately acknowledging they had erred in buying Autonomy in October, 2011 for some $11.1 billion. A year later HP took an $8.8 billion write down from the Autonomy purchase and admitted it had overpaid to acquire the company. In early April, Lane stepped down from his position as HP’s chairman and two directors resigned their positions.

HP: Don’t Blame Us

HP, in a statement, offered the following: “As we have continually said, HP relied on the audited financial statements and the representations of Autonomy’s management and its auditors regarding Autonomy’s business and revenue. Those facts and figures appear to have been willfully manipulated by certain Autonomy employees prior to the company’s acquisition, to mislead investors and potential buyers.”

According to reports, court documents portray key players in the transaction acting out of something less than pure business interests. HP’s Apotheker is depicted as prodded by auditors, bankers and investment advisors who stood to make some “$100 million in fees” from the Autonomy transaction, while Lynch is painted as wanting to get out from under before his fraud caught up to him.

And, HP’s board, which ultimately approved the deal, is said to have been war weary from infighting to the extent that it mishandled the purchase.

Lynch has strongly rejected any suggestion of impropriety and Apotheker has claimed he’s not to blame.

Getting Cold Feet?

Perhaps the bombshell of the court filing is that HP, in a quiet action done behind investors’ backs, tried a last-minute maneuver to pull out of the deal. As HP chairman at the time, Lane allegedly attempted to pull the plug on the purchase prior to the October 3, 2011 deadline, but was advised that the UK Takeover Panel would reject any attempt by HP to back out.

Some of the red flag accusations by the claimants, as reportedly detailed in the lawsuit, are astounding. For example, HP’s due diligence on Autonomy lasted only three weeks, limited by the software company’s refusal to supply documents supporting its audits. HP is also said to have ignored information provided by four whistleblowers who tried to warn them the deal was sour.

Dutch pension fund PGGM Vermogensbeheer is a lead claimant in the case, contending it lost $35 million on its HP investments, according to the Guardian report.