PALO ALTO -- The FBI has opened a criminal investigation into claims by Hewlett-Packard (HPQ) that it was tricked by "serious accounting improprieties" into overpaying billions of dollars for a British software firm
Sources familiar with the investigation said the Federal Bureau of Investigation's San Francisco office opened a probe into the $11 billion deal Tuesday at the request of the Securities and Exchange Commission. The bureau investigates complex financial crimes and has legal attachés at overseas offices that can cooperate with local agencies.
While investigators examine whether and how HP was fleeced, others are raising questions about the company's description of the Autonomy deal.
"What they've said to date about the fraud doesn't correspond to why half the value in the company disappeared," said Lynn Turner, a managing director at the accounting firm LitiNomics, based in Mountain View, and a former chief accountant for the SEC.
Hewlett-Packard, a venerable Palo Alto computer giant, stunned investors and Wall Street on Tuesday with the sensational allegations and a massive $8.8 billion write-down.
HP said that $5 billion of that was attributable to "misrepresentations" by unnamed Autonomy employees about the value of the company.
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HP acquired Autonomy in 2011 under then CEO Léo Apotheker. A few months later Apotheker was out and Whitman was the new CEO with the job of integrating the acquisition, which was made when she was an HP board member. She publicly supported the deal despite criticism from some quarters about its rich price.
Whitman said during a Tuesday conference call that HP discovered problems with Autonomy's books only after Autonomy founder Michael Lynch left the company and an Autonomy executive revealed details of the misrepresented finances. The consulting firm Deloitte audited Autonomy and KPMG advised HP on the deal.
Lynch has denied any improprieties. Lynch told The Wall Street Journal that HP's "figures are just mad. You are talking about handing them an asset worth $12 billion and they are saying $9 billion of that they are taking off. That would be such an obvious massive thing with 300 people and all these firms doing due diligence, how could you possibly not spot it?"
According to a story in the May Fortune magazine, HP's chief financial officer, Cathie Lesjak, vigorously objected to the Autonomy deal, telling the board that the company was paying too much for the company, whose software helps customers sort through massive amounts of data. Lesjak had no comment on the article.
Much commentary Wednesday centered around the role of HP's board.
"They have a well established track record now of doing acquisitions that have cost their shareholders dearly," said Turner of LitiNomics.
Turner said HP's board "got fleeced and didn't even realize it at the time."
He said the company's claim that Autonomy mischaracterized about $200 million in hardware sales as software sales doesn't account for a $5 billion write-down.
Another allegation, that some sales were booked without having any customer, "takes it to a new level. If you can't have an audit detect that, why pay for an audit in first place?"
Contact Pete Carey at 408-920-5419. Follow him on Twitter.com/petecarey.