Autonomy Software Executive Indicted

November 12, 2016

I used to pay reasonably close attention to Autonomy Software plc. The outfit was a leader in search and content processing. The methods were based on math, not human editors. Bayesian, LaPlacian, and Markovian methods created a take away happy family. Early customers included some big defense companies, government agencies, and some banks. Over the years, Autonomy generated millions in revenue from its Digital Reasoning Engine, Integrated Data Operating Layer, and other technologies.

In 2011, Hewlett Packard went to an automated teller machine, withdrew $11 billion dollars, and bought Autonomy. The deal brought patents, the products, assorted bits and pieces, and executives who had shepherded the search and content processing company from zero to somewhere in the neighborhood of $700 million in revenue. Oh, the Autonomy deal brought along the shrunken head of Fast Search & Transfer, one of the outfits to take on Autonomy only to find itself struggling with revenues and some rumors of financial fast dancing. Fast Search went to Redmond in 2008, and Autonomy cruised along until HP showed up with a tractor trailer filled with money.

After buying Autonomy, HP found that the Autonomy management team did not fit the Sillycon Valley pioneer’s life style. The founder of Autonomy quit and a handful of Autonomy executives tagged along. HP found out that it did not have a clue how to make money from search and content processing. HP also learned that its auditors, accountants, senior executives, and lawyers were in the dark when it came to generating money in a sector where dozens of companies have gone down the drain. What happened to the wizards from Delphes, Endeca, Fast Search, et al?

Well, one went to jail or was sentenced. Now, if the information in “HP Fight about $11 Billion Takeover Sees Former Autonomy Executive Indicted on Felony Charges” is accurate, HP wants to put Sushovan Hussain, Autonomy’s financial manager and a minivan filled with other Autonomy executives, into orange jump suits.

The write up reports:

The indictment charges that Sushovan Hussain, “together with others, 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 hammer dropped on November 10, 2016. The write up says:

… federal prosecutors indicted Hussain in U.S. District Court in San Francisco. He was charged with wire fraud and conspiracy to commit wire fraud. Wire fraud is financial fraud involving use of telecommunications or information technology. The charges carry a combined maximum prison sentence of 20 years. The federal government is seeking at least $7.7 million from Hussain, money it said was gained through crime.

Autonomy denies the allegations that Autonomy pumped up revenues and doctored assorted information. HP apparently was unaware of “alarms” about HP which surfaced in 2007. The newspaper article adds:

Daniel Mahoney, research director of forensic accounting firm CFRA, told this newspaper in 2012 that his company in 2007 started sounding alarms about Autonomy in reports to investor clients. Summarizing the beliefs of himself and other analysts, Mahoney said, “Our concern was the organic growth that Autonomy was reporting was overstated … it seemed like they were constantly moving things around in their financial statements to make things appear better than they are.”

Okay, 2007. HP bought Autonomy in 2001. Presumably HP reviewed Autonomy’s financials, talked to resellers, interviewed executives, consulted the mid tier firms specializing in search, and other research prior to deciding $11 billion was the right sized number for Autonomy.

If not, what caused HP to buy Autonomy? If HP did its homework, why did  the company ignore the 2007 storm warnings?

The saga continues even though HP sold Autonomy earlier this year to Micro Focus for an alleged $8.8 billion. If that number is accurate, a $1.2 billion loss is important, but the real motivating factor may be the fact that HP’s approach to deal management may have been wobbly. To brush up on the Autonomy system, check out the free report at this link.

Excitement will ensue.

Stephen E Arnold, November 12, 2016


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