Nov 20 When Hewlett Packard acquired
Autonomy last year for $11.1 billion, some 15 different
financial, legal and accounting firms were involved in the
transaction -- and none raised a flag about what HP said Tuesday
was a major accounting fraud.
HP stunned Wall Street with the allegations about its
British software unit and took an $8.8 billion writedown, the
latest in a string of reversals for the storied company.
HP Chief Executive Meg Whitman, who was a director at the
company at the time of the deal, said the board had relied on
accounting firm Deloitte for vetting Autonomy's financials and
that KPMG was subsequently hired to audit Deloitte.
HP had many other advisers as well: boutique investment bank
Perella Weinberg Partners to serve as its lead adviser, along
with Barclays. The company's legal advisers included
Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker
Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which
advised the board.
On Autonomy's side of the table were Frank Quattrone's
Qatalyst Partners, which specializes in tech deals, as well as
UBS, Goldman Sachs, Citigroup, JPMorgan
Chase and Bank of America. Slaughter & May and
Morgan Lewis served as Autonomy's legal advisers on the deal.
While regulators in the United States and the United
Kingdom, as well as the Federal Bureau of Investigation, are
likely to spend many months if not years investigating what
happened, legal experts said on Tuesday that it wasn't clear if
any of the advisers would ultimately be held liable.
"The most logical deep pocket would be the acquired firm's
auditors, who should have allegedly caught these defalcations,"
said James Cox, a professor at Duke University law school who
specializes in corporate and securities law. Since both auditors
missed the problems and it appeared to have taken HP a while to
catch it after it took over Autonomy, the auditors may have a
"You can have a perfectly sound audit and still have fraud
exist," he said. A Deloitte UK spokesman said the company could
not comment and would cooperate with any investigations.
The law firms and the bankers will likely argue that they
were not hired to review the bookkeeping and had relied on the
opinion of the auditors, securities law experts said.
Multiple sources with knowledge of the HP-Autonomy
transaction added that the big-name banks on Autonomy's side
were brought in days before the final agreement was struck.
These sources said the banks were brought on as favors for their
long relationships with the companies, in a little-scrutinized
Wall Street practice of crediting -- and paying -- investment
banks that actually have little do with the deal.
LAWSUITS, REPUTATIONS AT STAKE
Plaintiffs lawyers said they were taking calls from
investors about HP on Tuesday. Darren Robbins, a San Diego-based
plaintiff lawyer who represents shareholders, said the tech icon
appears to have spent billions on a shoddy company without
undertaking the proper due diligence, and thus misrepresented
its finances to investors.
"I think they have serious troubles," he said.
But plaintiff lawyers may have difficulty bringing so-called
derivative lawsuits against professional services firms, said
Brian Quinn, an M&A professor at Boston College Law School. In
those cases, plaintiff lawyers can sue third parties, such as
auditors, on behalf of HP -- but they must convince a judge that
HP's board is unfit to pursue those claims itself. In this
situation, though, HP's board disclosed the alleged fraud
itself, Quinn said.
Even if the bankers and lawyers escape any legal problems,
they could suffer a reputational hit. The scrutiny could be
particularly unwelcome for Perella Weinberg: the firm advised
Japanese camera maker Olympus' acquisition of British
Gyrus -- a transaction that prompted investigations in the
United States, United Kingdom and Japan into fees and payments
made by Olympus.
Olympus had hired Perella to execute the transaction, which
according to Thomson Reuters M&A database resulted in record
bankers' fee of $687 million. Perella was not implicated in the
Meanwhile, the most controversial banker involved in the
HP-Autonomy deal, Frank Quattrone of Qatalyst, represented
Autonomy and played a key role in getting HP to pay a high
A star investment banker in the 1990s, Quattrone had worked
at Morgan Stanley, Deutsche Bank and Credit
Suisse, and helped arrange some of the biggest tech
initial public offerings of the era, including Amazon.com Inc
and Cisco Systems Inc.
But his time at the top of Silicon Valley was curtailed by
charges that he blocked an investigation into IPO kickbacks.
After two trials failed to resolve his case, he ultimately
reached a deal with prosecutors.
His return to the Silicon Valley M&A scene has impressed
many in the tech world.
"His reputation is at an all-time high right now," said Dan
Scheinman, the former head of mergers and acquisitions at Cisco
who has worked with Quattrone on several deals.
Analysts almost uniformly deemed the $11.1 billion he got HP
to pay for Autonomy as overly rich -- a compliment to him at the
time, but possibly a hollow success if HP's allegations prove