One of the Big Four accountants has been dragged into the massive scandal surrounding the former British tech pioneer Autonomy.
Deloitte is accused by regulators of failing to spot a string of misleading practices at the software company before it was sold to Hewlett Packard (HP) for £7.4billion seven years ago.
After the deal, HP wrote off three-quarters of Autonomy’s value and said executives, including former boss Mike Lynch, cooked the books to make it look more valuable than it was.
Deloitte is accused by regulators of failing to spot a string of misleading practices at the software company before it was sold to Hewlett Packard (HP) seven years ago
Sushovan Hussain, Autonomy’s former finance chief, was convicted of fraud four weeks ago in a US court. Yesterday, the UK’s Financial Reporting Council (FRC) said Richard Knights and Nigel Mercer, the auditors at Deloitte who vetted the books, had not properly scrutinised its accounts.
The regulator claimed Knights ‘recklessly’ failed to correct a misleading statement made by Hussain to an FRC panel and had not acted objectively.
Hussain, who is appealing against his conviction in the US, also faces action from the watchdog, which assisted with his prosecution. It accused him of ‘acting dishonestly and/or recklessly’ when submitting Autonomy’s accounts, giving details of transactions with third-party sellers and making statements to the FRC.
Stephen Chamberlain, Autonomy’s former vice-president of finance, faces similar accusations and is accused of failing to act ‘with competence and due care’, failing to provide vital information to Deloitte and failing to correct misleading statements by Hussain.
Autonomy boss Mike Lynch
The FRC is taking its complaints to an independent tribunal, with the hearing dates not yet confirmed.
If its claims are upheld, Deloitte, Knights, Mercer, Hussain and Chamberlain could face fines of up to £10m under a new sanctions regime, although the tribunal can impose unlimited fines.
Knights and Mercer could be banned from their profession.
Deloitte has always maintained it knew nothing of any alleged improprieties in Autonomy’s accounts and a spokesman for the auditor yesterday said that it had fully co-operated with the FRC.
He added: ‘We are disappointed these complaints have been brought and we will defend ourselves against them.’
The spokesman said Knights no longer did statutory audit work and Mercer had retired. Spokesmen for Hussain and Chamberlain were approached for comment last night but did not respond. The FRC’s allegations are yet another blow to former Autonomy boss Mike Lynch and Hussain as they prepare for a £3.7billion High Court showdown with HP Enterprises (HPE), which included Autonomy when it was split off from HP in 2015.
Lynch and his former finance chief are accused of artificially inflating Autonomy’s value before it was sold in a deal that netted them millions of pounds.
Both deny any wrongdoing and maintain they have been made scapegoats by HPE after it mismanaged the takeover of Autonomy.
Lynch has insisted the firm was ‘open and transparent’ with auditors and has launched a £117million counter-claim over reputational damage.
But in a blow in early May, US prosecutors – with assistance from UK authorities – presented accounts, press releases, emails and phone calls which they claimed showed systematic fraud at Autonomy. By late 2011, they said, the British company had become ‘an unsustainable Ponzi scheme’.
The High Court battle between HPE and Lynch and Hussain is expected to take place next year. Lynch is counter-suing. A spokesman for Lynch yesterday declined to comment on the FRC’s complaints.
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