Former Autonomy CFO convicted on 16 fraud charges

A jury convicted Autonomy Corp. PLC's former chief financial officer on all 16 counts of wire and securities fraud Monday. The jury agreed with federal prosecutors who claimed that Sushovan Hussain, a British citizen, helped cook the books at the U.K. tech company to make it a more appealing acquisition target for Hewlett-Packard Co.

The 2011 deal resulted in a $16 million bonus for Hussain, but the acquisition was a disaster for HP.

Prosecutors told the jury this was because Hussain set up a series of deals in which revenue from the current quarter was recorded in the prior quarter, allowing Autonomy to continue exceeding analysts' growth projections. USA v. Hussain, 16-CR462 (N.D. Cal., filed Nov. 10, 2016).

Assistant U.S. Attorney Adam A. Reeves told the jury that the company was acting as if its growth was powered by software and licensing sales, a major outlier as competitors with similar business plans were stagnant or failing due to the global economic downturn in the years running up to the acquisition.

In fact, Autonomy's software business was stagnant just like every other company. Hussain created more than 20 hardware deals to prop up the business, Reeves said. The deals involved prospective projects with big-name clients, like Vatican City or the U.S. Department of Veterans Affairs.

Ultimately, those clients rejected the proposals more often than not, but not before Autonomy had entered into a separate agreement with a third party, prosecutors said.

Reeves said these deals involved Autonomy selling hardware to another company for use in the prospective project. Autonomy would then hire that company to help with the project, at a price slightly larger than the actual hardware sale.

The company lost money on the vast majority of these circular deals, but recorded them as net gains in the short term, allowing it to beat revenue projections while actually losing money, he added.

The jury wrestled with the case for three days, sending five separate notes to U.S. District Judge Charles R. Breyer making requests for permission to review transcripts of testimony or to see a copy of the indictment, some of which were denied.

"The jury verdict affirms that corporate criminals who cook their company's books to the detriment of victims in the United States, and specifically this district, will be held to account in our courts," said Acting United States Attorney Alex G. Tse.

John W. Keker, a partner with Keker, Van Nest & Peters LLP who represented Hussain, vowed to appeal the conviction and denied that his client engaged in any form of fraud. He took issue with Breyer's exclusion of evidence.

"Defense evidence of Hewlett-Packard's conduct in the year following the acquisition, which would have shown the jury that HP was not in fact misled at all, was excluded from evidence and will be one basis for the appeal," Keker wrote in a prepared statement. "It is a shame that the United States Department of Justice lent its support to HP's campaign to blame others for its own catastrophic failings."