In 2011/12 HP acquired Autonomy for approximately $11.1 billion. The deal quickly turned sour. The markets reacted badly and the CEO of HP was removed. HP brought a claim against the sellers who said it was motivated by buyer’s remorse.
- $4.55 billion against Autonomy for artificially and fraudulently inflating its growth, revenues and profits. In turn, HP claimed this from the sellers, Dr Lynch, who was the director and driving force and leading figure within Autonomy, and Mr Hussain, its CFO.
- $420 million against Dr Lynch and Mr Hussain personally for false representations.
- $76.1 million for losses from transactions HP claim Dr Lynch and Mr Hussain caused them to enter into in breach of their fiduciary duties or employment contracts.
In addition to action in the UK courts, there have been at least two sets of criminal proceedings in California with the imprisonment of Mr Hussain for wire fraud and the indictment of Dr Lynch in respect of which the US authorities are now seeking to extradite him to face trial.
What lessons can we learn?
- When you are selling, don't fraudulently inflate your revenues. Naturally.
- A limited liability company doesn't shield you from personal liability if you are in breach of your personal duties.
- When buying, undertake proper due diligence. Get the accountants to pore over the accounts and the lawyers to review the legal issues. That's literally their job.
- Remember, prevention is better - and cheaper - than cure. Money spent upfront wisely on proper advice, can save lots more being wasted later.