Quattrone May Return to Court in Cameo at HP-Autonomy Trial

Updated on
  • Qatalyst banker was an adviser on the disastrous acquisition
  • Ex Autonomy CFO Hussain charged with wire, securities fraud

Any prosecution that involves a big Silicon Valley merger-gone-bad requires a dealmaker witness, and in the case of Hewlett-Packard Co.’s infamous acquisition of Autonomy Corp., that honor may fall to one of tech’s most famous rainmakers: Frank Quattrone.

The criminal fraud trial against former Autonomy Chief Financial Officer Sushovan Hussain began Monday in San Francisco, more than six years after the ill-fated deal. Quattrone advised Autonomy, then the U.K.’s second-largest software business.

Frank Quattrone

Photographer: Tony Avelar/Bloomberg

The U.S. claims Hussain cooked Autonomy’s books to arrive at the software company’s $10.3 billion price tag in 2011. The deal was expensive: it reflected a 64 percent premium to Autonomy’s share price. A year after it was completed, HP wrote down the value by $8.8 billion, citing fraud by Autonomy.

Specifically, HP called out “the willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics.” A guilty verdict would go some distance toward vindicating HP, which referred its fraud claims to the Justice Department. It would also give HP momentum as it heads toward a trial next year in London in a $5 billion civil case against Hussain and Autonomy co-founder and former Chief Executive Officer Mike Lynch.

“This is a case about lying and cheating,” Robert Leach, a lawyer for the U.S., said during opening arguments Monday. Hussain misled outside auditors, analysts and the market, he said, to create a “false appearance of growth.”

Hussain has denied wrongdoing. His lawyer, John Keker, has repeatedly criticized the prosecution by saying the U.S. is doing HP’s bidding for the company’s own failure.

Quattrone is known for driving up the value of companies looking to sell, a strategy he honed during the tech IPO flurry of the 1990s. He made a name for himself by taking companies public during the dot-com boom, earning $120 million in 2000 alone. Legal experts say he could help jurors understand how the price was arrived at and where it went wrong.

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He’s no stranger to federal court. Quattrone was briefly sidelined by an obstruction of justice conviction in 2004, for hindering a government investigation into whether his employer doled out shares of hot IPOs to favored clients to win business. The conviction was overturned two years later.

Quattrone returned to his bare-knuckled tactics in a second act by founding Qatalyst Partners in 2008.

The U.S. trial of Hussain will excavate the history that led to HP’s acquisition, when the company attempted to expand into higher margin enterprise software from hardware such as PCs, printers and servers. Autonomy was a San Francisco and Cambridge, England-based data-management company.

British Accountants

In addition to Quattrone, potential witnesses include Leo Apotheker, the former HP CEO who pushed the deal, and British accountants at Deloitte, Autonomy’s auditor, who are cooperating with the U.S. Autonomy’s former head of U.S. sales, Christopher Egan, also agreed to cooperate with federal prosecutors.

While it’s not certain Quattrone will testify, prosecutors said in a court filing he’s “likely” to be called as a witness. If so, he may be asked to explain whether he relied on what the government describes as Hussain’s misleading financial statements, which resulted in an inflated share price. Quattrone didn’t respond to several requests for comment.

His role on the deal makes him a potentially important witness, said Mark Molumphy, a lawyer who represented HP shareholders in a civil suit over the acquisition. Quattrone’s testimony may be used by prosecutors to illustrate how Silicon Valley transactions are negotiated and financed, “and possibly reveal many of the conflicts of interest that permeate these types of deals,” Molumphy said.

Wire, Securities Fraud

Hussain, a U.K. citizen, has pleaded not guilty to 14 counts of wire fraud, one count of conspiracy to commit wire fraud, and one count of securities fraud. If found guilty, he faces jail time and fines of as much as $7.7 million -- the amount he is said to have personally made on the transaction.

He “acted at all times with the highest standards of honesty, integrity and competence,” and used the proper accounting rules for a British company, Keker said in an emailed statement.

Emmanuel Fyle, a spokesman for Hewlett Packard Enterprise Co., said the company is “pleased that Hussain is finally facing a jury trial for his actions and we look forward to seeing him held accountable for his alleged role in defrauding HP.”

Depending on how deep prosecutors want to dig into the merger’s history, jurors may learn that HP wasn’t Autonomy’s only potential suitor.

Quattrone also pitched the company to Oracle Corp. In a 2011 email to Oracle, Quattrone described Autonomy as “a very strategic asset that could alter the balance of power in the industry for whoever might acquire it.”

“Autonomy was shopped to us,” Oracle CEO Larry Ellison said after the HP deal was announced. “We looked at the price and thought it was absurdly high.”

It’s possible Quattrone’s testimony may be more mundane than his career or role in the Autonomy deal might suggest.

He may be called to explain how information Hussain provided was relied on to determine Autonomy’s acquisition price, according to Tim Crudo, a former federal prosecutor turned defense lawyer. The banker may simply be “a regular old government witness, nothing special.”

This case is U.S. v. Hussain, 16-cr-00462, U.S. District Court, Northern District of California (San Francisco).

(Updates with HPE comment in 16th paragraph.)
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