The fallout from Hewlett Packard’s disastrous purchase of United Kingdom enterprise technology company Autonomy continues.
The Department of Justice filed criminal charges on Friday against former Autonomy CEO Mike Lynch, accusing the British executive of misrepresenting Autonomy’s finances in the lead up to the company’s $11 billion sale to HP in 2011. Autonomy’s then vice president of finance, Stephen Chamberlain, is also named as a defendant in the lawsuit.
A year after the sale, HP took a $8.8 billion writedown on the acquisition, which HP attributed to the UK’s company’s accounting improprieties and other misrepresentations of its business health.
Hewlett Packard has since changed its executive teams and eventually split into two separate companies, Hewlett Packard Enterprise and HP Inc. In 2017, Hewlett Packard Enterprise spun out its software business related to Autonomy to U.K.-based enterprise software company Micro Focus.
Meanwhile, a U.S. jury convicted Autonomy’s former CFO Sushovan Hussain in April for wire fraud and conspiracy charges related to the deal. Hussain is appealing the conviction.
If Lynch and Chamberlain are convicted, they could face up to 20 years of prison and a $250,000 fine, according to the legal filings.
Lynch’s lawyers called the DOJ charges a “travesty of justice” in a public statement. They lawyers added, “The claims amount to a business dispute over the application of U.K. accounting standards, which is the subject of a civil case with HP in the courts of England, where it belongs.”
Fortune contacted Lynch’s law firm and will update this story if it responds.
Here’s a few interesting tidbits from the DOJ’s lawsuit.
Autonomy’s “scheme to defraud”
The lawsuit said that Autonomy’s “scheme to defraud” began in January 2009 and lasted until October 2011. The purpose of the scheme was to ensure that Autonomy’s quarterly earnings looked positive, which would lead to the defendants being rewarded financially for the fabricated successes. Additionally, the scheme was meant to inflate the company’s stock price, making it appear to be a good acquisition target.
Backdating: Autonomy’s revenue boost of choice
The DOJ alleged that the executives were able to make Autonomy’s sales higher than they actually were via a number of methods. The executives allegedly engaged in the practice of “backdating “ financial agreements that would let them record the sales in prior periods, presumably earning the company fraudulent tax benefits. They also allegedly recorded sales on contracts without mentioning unspecified contingencies that would have otherwise impacted “revenue recognition,” the filing said.
How auditors, analysts, and regulators were misled
The executives allegedly lied to an independent auditor about the way the company records sales. They also made “false and misleading statements” to market analysts covering the company to give the appearance that Autonomy’s financial health and future for business growth was better than it actually was. When regulators contacted the company over its financial statements, the executives allegedly lied to them.
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Intimidation and misrepresentation
The lawsuit alleges that the defendants intimidated, pressured, and even paid off people, presumably employees, who voiced concerns about the company’s dubious financial practices. The executives also intimated and pressured financial analysts who questioned or criticized the Autonomy’s financial practices, although the lawsuit doesn’t elaborate how exactly they did so.
