Deloitte settled HPE's Autonomy lawsuit for $45m back in 2016 and agreed to cooperate with US DoJ
- Reference: 1617016328
- News link: https://www.theregister.co.uk/2021/03/29/deloitte_settled_hpe_lynch_lawsuit_45m/
- Source link:
The amount of the settlement is less than 1 per cent of the $5bn for which [1]HPE is pursuing Lynch and Hussain .
[2]
Although HPE and Deloitte signed a confidentiality agreement over the $45m, its main details were hiding in plain sight inside the last ever accounts filed by Autonomy Corporation Ltd (ACL) before it was merged away into HPE's corporate structure, becoming known as ACL Netherlands BV.
A letter previously sent by HPE's lawyers to Deloitte in 2014 alleged "there is evidence that Deloitte was complicit in aspects of the misstatements in Autonomy's published information". That allegation would never be tested in court, though Britain's accounting regulator [3]eventually found it proven .
[4]
Public knowledge of the settlement sum also sheds light on why Deloitte was never a co-defendant with Lynch and Hussain in the High Court, despite the auditor being an obvious target for HPE following allegations of false accounting at Autonomy.
In 2012, HP [5]wrote down Autonomy's value by $8.8bn and announced it would be pursuing Autonomy's former management and Deloitte, the auditors who signed off Autonomy's accounts. While its legal case against Lynch and Hussain was filed in 2015, the potential for adding Deloitte to that case wasn't withdrawn until 2016. Various news outlets reported [6]rumours of settlement talks in 2015 but those didn't crystallise for another year, as we can now reveal.
ACL's last ever annual accounts revealed how the Deloitte settlement came about. HP had, legally speaking, threatened to sue wholly owned subsidiary ACL for $4.55bn. The accounts explained that ACL (naturally) accepted liability, leading to the next steps:
HP Vision BV recognised that the company [ACL] does not have the means to discharge its estimated liability to HP Vision BV and requested that the company take steps (including litigation) to recover its losses from the parties responsible for the publication of the information described above.
That information was Autonomy's pre-buyout accounts, which HPE claimed contain deliberate inaccuracies.
Accordingly, on 30 September 2014 the Company sent a pre-action letter to its former auditors, Deloitte LLP, in respect of losses suffered by the Company (including its liability to HP Vision BV under [the Financial Services and Markets Act]). On 27 April 2016 the Company reached a satisfactory settlement with Deloitte LLP, including a payment by Deloitte LLP of $45,000,000 (£31,245,660). Following the settlement with Deloitte, the Company reimbursed HPE for legal costs of $8,741,549 (£6,069,677) previously funded by HPE. Also, on 31 August 2016, the Company made a partial settlement of the claim from HP Vision BV, in the amount of $35,293,502 (£26,576,432).
We have asked Lynch for comment. Deloitte and HPE both declined to comment.
Cooperation agreements
Deloitte's former principals on Autonomy's accounts have all signed cooperation agreements with the US Department of Justice. As we [7]previously reported , these men are former lead auditors Richard Knights and Nigel Mercer, along with Lee Welham and Tom Murray.
During cross-examination in the High Court in 2019, Lynch's barrister Robert Miles QC asked Welham: "Do you recall that during 2015 the American DoJ were looking for cooperation from Deloitte?" to which the auditor replied "Yes".
"And," continued Miles, "Deloitte had some concerns about agreeing to testify while the civil claim was still out there; do you recall that?"
Welham said he didn't know for sure. Miles went on to show him a copy of the cooperation agreement, which was signed in 2016 as detailed in ACL's accounts.
The Register has obtained a copy of that agreement from the High Court proceedings. Deloitte agreed to make a dozen auditors available for interview by HPE's lawyers and, "so far as it is in Deloitte's power to do so to procure that each Deloitte Interviewee" should provide:
... such assistance and co-operation in those interviews as if they were being interviewed by Deloitte, including providing testimony as to their recollection of events and comments upon (a) whether particular facts were or were not known to them; (b) whether particular documents were or were not shown to them during the course of their audit work, and (c) where such facts or documents were not known or shown to them (whilst not expressing an expert opinion, consistent with their status as witnesses of fact) whether such facts or documents were in their opinion relevant to their work and the potential impact of such facts or documents on their work...
The 2016 agreement also expressly said that Deloitte did not admit any wrongdoing or liability. It also said Deloitte would hand over "complete access" to all of Deloitte's Autonomy audit papers and internal emails about them.
While the knowledge of the settlement has broadly been known about since 2015-16, when rumours of talks were first reported, neither the amount of the settlement nor its key terms has been revealed until now.
Public knowledge of why Deloitte wasn't a co-defendant alongside Lynch may answer questions about why that came to be, as well as showing precisely how HPE secured the audit firm's cooperation with its case against Lynch and Hussain.
Had Deloitte not cooperated with HPE and instead stood alongside Lynch and Hussain in the High Court, it seems likely (in light of [8]the Financial Reporting Review Panel's report ) that the reputational and professional consequences of an adverse judgment could have had a large impact upon the firm.
[9]
The High Court is awaiting Mr Justice Hildyard's judgment, which is expected to be handed down at some point between [10]April and May . ®
Get our [11]Tech Resources
[1] https://www.theregister.com/2021/03/25/hpe_v_lynch_high_court_roundup/
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YGH5omi9-Yjq5oqYY2q16QAAAEo&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://www.theregister.com/2021/01/06/frrp_deloitte_autonomy_auditors_report/
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YGH5omi9-Yjq5oqYY2q16QAAAEo&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://www.theregister.com/2012/11/20/hp_alleges_autonomy_fraud/
[6] https://www.theguardian.com/business/2015/apr/01/hewlett-packard-in-talks-to-reach-legal-settlement-over-alleged
[7] https://www.theregister.com/2021/02/11/lynch_extradition_criminal_charges_never_dropped/
[8] https://www.theregister.com/2021/01/06/frrp_deloitte_autonomy_auditors_report/
[9] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YGH5omi9-Yjq5oqYY2q16QAAAEo&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[10] https://www.theregister.com/2021/03/25/hpe_v_lynch_high_court_roundup/
[11] https://whitepapers.theregister.com/
Re: This story keeps on giving
Err, used how? As example of how to slither away quietly while the grass is beaten publicly to find the "bad guys"? Sheesh! The message is that accountants are like politicians - snakes?
Re: This story keeps on giving
... accountants are like politicians - snakes?
No.
But I think they do have assigned bleacher seats in Hell.
Between the thieves and the lawyers.
O.
Re: This story keeps on giving
I believe you may have left out the word "other" in your post...
Re: This story keeps on giving
Deloitte are most definitely not good adders.
Re: This story keeps on giving
I expect this case will still be active when your kid gets their first job.
When?
Will the accountants go to jail. Obviously I trained in the wrong field.
Re: When?
Since the US has form for trying to extradite Bankers and Accountants on very dubious grounds, I think you're safer staying in IT. Unless you a hacker with ASD. Then you're screwed when the Patelenfuhrer takes power.
Smells bad
... expressly said that Deloitte did not admit any wrongdoing or liability.
Interesting.
Lets see if I got this straight:
A first class/world-renowned accounting firm assures a client, an important international IT corporation, that it can go ahead and pay 8.8 billion for another important IT corporation but shortly after the purchase, said client has to write down over 75% of the price paid.
Then the accounting firm gets to expressly deny any "wrongdoing or liability" in exchange for paying their client 45M?
Smells bad.
If I were pressed to guess about what is going on, I'd say HPE purchased whatever Deloitte and chums are willing to say against Autonomy/Lynch et al in exchange for giving back their obviously unearned consulting fees.
If I can see it, the judge will or al least should be able to.
O.
You got that wrong-ish
Deloitte didn't assure HP of anything specifically, other than assuring *the world* the books of Autonomy had passed their yearly IFRS audit. A bad audit doesn't necessarily follow that a valuation for an acquisition was wrong.
HP hired KMPG to do due diligence on the acquisition of Autonomy, then their CEO failed to read the preliminary report (the CFO appears to have been fired for reading it and advising against the acquisition), then failed to wait for KPMG to complete their due diligence before signing on the dotted line with Autonomy.
The rest of your supposition seems plausible though. With one extra - if HP were hurt so badly by Deloitte's alleged dodgy auditing - why did they settle for $45m?
One question...
Several answers.
Deloitte's dodgy accounts don't explain why due diligence wasn't completed, and indeed how the unfavourable preliminary was ignored. HP is buying a smokescreen "the accounts were wrong, we were misled". How true this is, and indeed how much the incorrect accounts were responsible for a multi billion over evaluation are moot points. Though if it were true maybe HP wouldn't have settled for 45M...
HP are also buying dirt on Lynch "sèe, even the auditors say he's a cheat".
Finally, it's an easy win. Deloitte want to sweep it under the carpet coz it makes them look bad. And HP don't want to put Deloitte on the hook for billions, coz then they'd come out fighting and point out a few home truths HP wouldn't like.
Divide and conquer. Deloitte are already done with...
Don't think Lynch will get the "here's some cash, but I don't admit to doing anything wrong " option.
Popcorn shortage
This dreadful story of massive incompetence by HPE and their due-diligence auditors is now giving me a popcorn shortage.
To make matters worse, the next tranche is marooned in the Suez Canal and my covfefe crate is still stuck in Zeebrugge
Bolsters the Lynch defence
The challenge for the plaintiff in this action is to show, on the balance of probability, that the defendant knowingly deceived them by false accounting. Their own world-class accountants produced a report saying don't buy this asset for this price, they don't have an admission of liability from the auditors of the asset, and the defendant is entitled to keep saying that 'my experts said the books were OK, but now I understand that they got this wrong, and your experts said don't buy it'.
I believe that the Secretary of State for for Housing recently stated in the House the old legal maxim 'caveat emptor'. Seems to apply here.
Of course an impartial bystander would wonder at the ego from the plaintiff of spending another $8M in legal fees in a vindictive attempt to draw attention away from their own arrogance, greed and stupidity.
If this is how they run their company, their shareholders should wonder about the safety of their shareholdings. It can't possibly meet the fiduciary duty to the shareholders to continue this case - legally the defendant is nearly a man-of-straw - as there is no hope of getting any of their $8BN back. We used to call this playground spitefulness. And it's not how grown-ups should run a public company.
It was pretty obvious, but still...
[1]Nailed it .
I think it's been written elsewhere but fundamentally there is a conflict of interest when the audited is paying the auditor. [2]Oh, yeah .
[1] https://forums.theregister.com/forum/all/2021/03/25/hpe_v_lynch_high_court_roundup/#c_4228329
[2] https://forums.theregister.com/forum/all/2021/01/06/frrp_deloitte_autonomy_auditors_report/#c_4181599
If you want iffy accounts to pass audit get the big big boys as auditors
Here is another case where you want your accounts to "pass" an audit get one of the big boys to sign them off. The situation is so bad the govenment is actualy changing / looking to change the law, what good that will do who knows.
It nice to see one of them paying for their incompedence / frudulent activity.
This story keeps on giving
Keep them coming, please! One of my children is doing accountancy and auditing and this is a great case study which, I am sure, will be used for years to come.