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Former Autonomy CFO charged with fraud

The US government has charged Autonomy’s former finance chief with a multimillion-dollar fraud before the UK software company’s disastrous $11bn sale to Hewlett-Packard in 2011.

Federal prosecutors are seeking at least $7.7m in proceeds from Sushovan Hussain, a long-serving Autonomy executive, who they allege exaggerated its financial performance and misled investors, including HP during its due diligence process.

Mr Hussain, who denies any wrongdoing, was indicted on charges of wire fraud and conspiracy in a US district court in San Francisco on Thursday.

In 2012, HP announced an $8.8bn writedown of the value of Autonomy, which specialised in analysing large quantities of data, just a year after the deal closed. Since then it has offloaded the unit to Micro Focus, as the legal fallout from the deal continues on both sides of the Atlantic.

In the UK, HP has sued Mr Hussain and Mike Lynch, Autonomy’s founder, for $5.1bn, alleging “accounting misrepresentations”. Both executives have consistently denied any such illegal activities.

Mr Lynch has countersued HP for $160m over reputational damage, claiming that its executives tried to “shift the blame” for the disastrous deal to them. The cases are due to be heard before the High Court in London in 2018.

Mr Hussain was Autonomy’s chief financial officer from June 2001 until November 2011, as well as serving as a board director for much of that time. According to court filings, he personally made at least $7.7m when HP acquired Autonomy.

The US case against Mr Hussain alleges that he and unnamed other parties “engaged in a fraudulent scheme to deceive purchasers and sellers of Autonomy securities and HP about the true performance of Autonomy’s business, its financial condition and its prospects for growth”.

The alleged scheme, which prosecutors say involved backdating contracts and misleading auditors about revenue recognition, ensured that Autonomy always met or exceeded its quarterly forecasts, bringing bonuses and “artificially” buoying the company’s share price, making it a more attractive takeover target.

John Keker, Mr Hussain’s lawyer, said his client was “innocent of wrongdoing”.

“He defrauded no one and, as Autonomy’s CFO, acted at all times with the highest standards of honesty, integrity and competence,” Mr Keker said in a statement. “He will be acquitted at trial.”

Mr Keker, who has represented banker Frank Quattrone and director George Lucas, accused HP of trying to blame others for “its own catastrophic failings”.

A spokesperson for the former management of Autonomy said: “This journey started as an allegation of a $5.5bn fraud, now we are talking about $7.7m and we are confident that Sushovan will show it to be zero. We know Sushovan is innocent of all these charges, and the evidence will prove this to be the case.”

The UK’s Serious Fraud Office investigated the deal but found insufficient evidence to prosecute.

In September, HP Enterprise agreed to sell its software division, including much of what was previously Autonomy, to Micro Focus, another UK-based software group, as part of a $8.8bn deal.

Via FT