Just when I thought we'd get May ended 'safely' this story gets posted:
May 31, 2013, 1:09pm PDT
In HP-Autonomy lawsuit, auditors Deloitte, KPMG out of gunsights
Auditors KPMG and Deloitte have been quietly dropped from the legal fight over the acquisition of Autonomy, which puts more onus on the board and Meg Whitman to explain how they missed the alleged fraud that led to an $8.8 billion writedown.
What has largely escaped notice is that a May 3 consolidated complaint in the shareholders derivative case droppedKPMG LLP and Deloitte Touche Tohmatsu Limited as defendants, refocusing the case on the company’s management and board.
That’s interesting, given that CEO Meg Whitman in a Nov. 20 earnings call with analysts made a point of placing attention on the role of the auditors in the purchase of the British software firm, which led to an $8.8 billion writedown for HP. Whitman served on the board when it approved the purchase.
“What I will say is the board relied on audited financials, audited by Deloitte, not brand X accounting firm but Deloitte,” Whitman said in the call. “And by the way, during our very extensive due diligence process, we hired KPMG to audit Deloitte, and neither of them saw what we now see after someone came forward to point us in the right direction.”
She didn’t indicate the identity of that “someone” in analyst call.
With the auditors out of the case, Whitman and the board are left to explain their own actions in the Autonomy derivative suit. It also removes a cloud over the auditors. Auditing firms in past corporate disasters have taken the fall when they have been involved in massive mistakes or misdeeds, for example Arthur Andersen’s demise after Enron’s 2001 unraveling.
“To the extent that the light is no longer shining on KPMG, this puts greater pressure on HP’s board and management to take responsibility for this train wreck,” said Stephen Diamond, associate professor of law at Santa Clara University. “When you go to buy a company, you have an obligation as a director to make sure that the purchase is worth how much you pay for them.”
Mark Molumphy, a lawyer representing shareholders in the suit, confirmed in a phone call that KPMG and Deloitte are no longer defendants. He didn’t respond to follow up calls seeking comment as to why the auditors are no longer in the crosshairs. HP declined to comment. A spokesperson from KPMG confirmed that the firm was no longer involved in the case. Deloitte didn’t return multiple calls seeking comment.
The shareholder suit claims that HP’s board failed to adequately review Autonomy’s finances before buying the British software maker. The purchase closed while Palo Alto-based HP, the world’s biggest maker of personal computers, was run by former CEO Leo Apotheker.
In a May 7 story that appeared in the U.K. publication The Guardian, HP commented on the case: "As we have continually said, HP relied on the audited financial statements and the representations of Autonomy's management and its auditors regarding Autonomy's business and revenue."
Chuck House, shown here with son Warren, is co-author with Raymond Price, of THE HP PHENOMENON: INNOVATION and BUSINESS TRANSFORMATION (2009, Stanford University Press). He is Exec Director of InnovaScapes Institute, which published his memoir of HP Colorado Springs, PERMISSION DENIED, in 2013. House, Chancellor Emeritus of Cogswell Polytechnical College, was also executive director of Media X, Stanford University's research program on innovation, media and technology. Previously director of Intel Corporation’s Virtual Collaboratory, EVP R/D at Dialogic, President of Spectron Microsystems, SVP at Veritas Software and Informix Software after 29 years at Hewlett-Packard in a wide variety of roles. An IEEE Fellow for Logic Analysis technology, he also was President of ACM, the world’s largest Computer Science society, and is an ACM Fellow. He holds HPs only Medal of Defiance, awarded by David Packard for "extraordinary contempt and defiance beyond the normal call of engineering duty". Other awards include Engineer of the Year, Smithsonian Wizard of Computing, Top 50 inventions of 20th century, CNN top 25 inventions of past 25 years, Intrapreneuring Honor Roll