UK accountancy watchdog lodges complaints in Autonomy case

Out-Law News | 05 Jun 2018 | 10:39 am | 2 min. read

The UK's accountancy watchdog has lodged formal complaints against two former senior executives of Autonomy, the UK software company, and two of the company's former accountants.

The allegations made by the Financial Reporting Council (FRC) relate to accounting practices of Autonomy and the diligence shown by its auditors, Deloitte, around the time of the company's takeover by Hewlett-Packard (HP). The FRC first opened an investigation into Autonomy's financial reporting in 2013.

The Financial Reporting Council (FRC) has alleged that Autonomy's former chief financial officer Sushovan Hussain "breached the fundamental principle of integrity by acting dishonestly and/or recklessly when preparing and approving Autonomy’s annual report and accounts for the years ended 31 December 2009 and 31 December 2010".

The allegation concerns "the accounting treatment of Autonomy’s purchases and sales of computer hardware and the inadequacy of their disclosure", the FRC said.

The FRC has also alleged that Hussain breached the integrity principle in respect of to Autonomy’s accounting for transactions with 'value added resellers', and by "making false or misleading statements" to the FRC's Financial Reporting Review Panel (FRRP).

Stephen Chamberlain, Autonomy's former vice president of finance, has also been served with a formal complaint by the FRC. Chamberlain is accused, through the complaint, of "acting dishonestly and/or recklessly" and of having "failed to act with competence and due care" when preparing Autonomy's 2009 and 2010 accounts.

The FRC's complaint also concerns Chamberlain's alleged practices in respect of accounting for transactions with VARs in the second quarter of 2011. Chamberlain is also alleged to have failed to correct a misleading statement made by Hussain to the FRRP.

The watchdog's complaints against Richard Knights and Nigel Mercer of Deloitte include that the pair allegedly failed to adequate challenge Autonomy’s accounting and disclosure of its purchases and sales of computer hardware, and its accounting for transactions with VARs, and to "correct false or misleading communications" made by Autonomy to the FRRP.

Knights is also alleged to have "recklessly failed" to correct a misleading statement made by Hussain to the FRRP in a meeting in January 2010 and "failed to act with objectivity during the period October 2009 – July 2010".

HP has previously claimed that it paid more money than it should have when it bought Autonomy in 2011 as a result of "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy".

Dr Mike Lynch, Autonomy's former chief executive, has fervently denied the allegations. HP, which acquired Autonomy in a reported £7 billion deal, is suing Lynch and Hussain for a reported $5 billion in damages in a case scheduled to be heard before the High Court in London in 2019. Lynch has countersued HP.

Last month, a US court found Hussain guilty of 16 counts of fraud relating to Autonomy's accounts. Hussain is set to appeal the judgment, according to a report by the Financial Times.

The UK's Serious Fraud Office (SFO) closed its investigation into alleged accounting impropriety at Autonomy in early 2015. At the time it said there were "insufficient evidence for a realistic prospect of conviction" in relation to some of the allegations it had been investigating, and cited the fact that US authorities were taking responsibility for investigating the other allegations raised in the case on jurisdictional grounds.