by Jim Lundy
It is a story you just can’t make up. Former Autonomy CFO Sushovan Hussain was convicted in US Federal Court in San Francisco for fraud related to Autonomy’s financial practices, fined $4 million, and sentenced to five years in jail.
The HP Autonomy Deal That Should Have Never Happened
There are few times when an acquisition can nearly sink a company; the Autonomy acquisition by Hewlett-Packard (HP) was one of those deals. HP acquired Autonomy in 2011 for $11 billion and just a year later wrote down the value of Autonomy by $8.8 billion. HP was plagued by the deal and it led to HP Board Member Meg Whitman taking over HP as CEO in September 2011.
Note, for much of the time before the deal, I was at Gartner. Many of us knew that the numbers at Autonomy looked too good to be true for years, but since the source was public information, we did not have access to the data that eventually came out. That said, everyone knew that it looked too good to be true.
Inflating Sales at Autonomy—The Truth Prevails
Stuffing the channel is an old term that used to apply to hardware. It appears that is what Autonomy did with its software, but with a bunch of roundtrip transactions with resellers, some of which didn’t happen. In 2016, as a result of the investigation by the SEC, former Autonomy CEO of US Operations Christopher Egan was ordered to pay back over $900,000 of compensation related to the sale to HP. Egan also began to cooperate with the US Government.
Former Autonomy CFO Sushovan Hussain Faces Jail
In April 2018, Hussain was convicted in US Federal court of 16 counts of wire fraud, securities fraud, and conspiracy. His jail sentence was just handed down in May 2019. He received no bail and was fined $4 million and also must forfeit the $6.1 million in proceeds he made from the proceeds of the HP Autonomy deal.
On Deck—The Criminal Trial of Former Autonomy CEO Mike Lynch
With convictions piling up and the evidence now clearly showing a pattern of both inflated and sham deals, the outspoken former Autonomy CEO Mike Lynch is on trial. While he faces a civil suit brought by HP in London, it is the US Criminal Trial that he and former finance VP Stephen Chamberlain are facing that everyone is watching. With his CFO in jail, all signs point to Mike Lynch heading there too.
Bottom Line
The bottom line is that all transactions can be traced and the truth on how revenue is calculated will come out. HP did not do their due diligence before they bought Autonomy and it paid the price. Now the former Autonomy executives are going to pay a price, too. Jail will not be fun.