Accounting Fraud Watch: Autonomy Trial, Patisserie Valerie Arrests, Longfin CEO Charged

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Plus, Patisserie Valerie’s ex-chairman doesn’t have nice things to say about Grant Thornton and Steinhoff warns of lingering damage from massive accounting fraud.

Lynch says HP’s Meg Whitman couldn’t cope with ‘all the fires’ [Bloomberg]
On his first day of testimony, Autonomy founder Mike Lynch said Hewlett-Packard Co.’s executives made him a scapegoat for their “own incompetence” during the botched integration of his firm.

Mike Lynch

HP has accused Lynch of being the architect of a massive $5 billion accounting fraud that caused it to overpay for Autonomy, once the U.K.’s second-biggest software company.

This is Lynch’s first opportunity to rebut weeks of testimony against him in the trial, which started in March.

Lynch said that incoming HP CEO Meg Whitman “could not cope with all the fires” after she took over the computing giant at the end of 2011.

HP alleges that Lynch and his deputy Sushovan Hussain artificially inflated revenue, typically at the end of the financial quarter, to meet or beat stock market expectations.

Hussain was sentenced in May to five years in prison, after a U.S. jury found him guilty of fraud.

Five arrested in investigation into Patisserie Valerie [Reuters]
I made a brief mention of this on Monday, but if you missed the news, the Serious Fraud Office said on June 23 that five more people have been arrested in the investigation into the collapse of British cafe chain Patisserie Valerie after accounting irregularities were discovered last year.

The new arrests bring the total to six. Patisserie Holdings’ former finance director Chris Marsh was arrested and released on bail over the scandal last year. The names of the five people recently arrested were not released.

The chain, which went belly up in January, was plunged into crisis in October 2018 when it discovered accounting irregularities, which have now totaled £94 million.

The Financial Reporting Council said in November it was investigating Grant Thornton’s audit of Patisserie Valerie for 2015-2017.

Patisserie Valerie ex-chair says he was tricked by false picture of company’s health [The Guardian]
Luke Johnson didn’t mince words when he talked about who he thought was to blame for the accounting fraud:

“It’s taken me almost nine months to come to terms with what happened,” he wrote. “I know that I was not dishonest. I was unaware of fraud. I received solid weekly numbers, comprehensive monthly management accounts and, of course, annual accounts that were given a clean bill of health by our auditors.”

Indeed Johnson points the finger at Grant Thornton. He said: “One of the most astonishing aspects of the entire episode is the way in which it seems such an eminent firm had the wool pulled very comprehensively over its eyes. They never raised any material issues about the quality of our accounts.”

SEC charges Longfin CEO with accounting fraud [CFO]
The SEC has filed additional charges against Longfin CEO Venkata Meenavalli, alleging he falsified the cryptocurrency firm’s revenue and fraudulently secured its public listing.

Venkata Meenavalli

The civil fraud complaint filed on June 5 against Meenavalli came just over a year after the SEC charged him with illegally distributing shares in Longfin after it went public through a Regulation A+ “mini-IPO.”

The new charges allege in part that Meenkavalli made false representations to obtain SEC approval for the Reg A offering and then, with Longfin consultant Andy Altahawi, engaged in a fraudulent scheme to meet the criteria for a Nasdaq listing.

Longfin and Meenavalli recorded more than $66 million in sham revenue, representing nearly 90% of the company’s total 2017 reported revenue, according to the SEC. In a parallel criminal case, federal prosecutors have charged Meenavalli criminally with accounting fraud.

Altahawi has already agreed to a settlement with the SEC that includes disgorgement of $21 million and a $2.9 million penalty.

Scandal-hit Steinhoff says will suffer more in 2019 [Reuters]
Steinhoff International warned of the lingering damage from a massive accounting fraud scandal after the South African retail group reported a 1.2 billion euro ($1.3 billion) annual loss, sending its shares down 8% on June 18.

Steinhoff first flagged holes in its accounts in December 2017, the amount of which has since been put at more than $7 billion.

While it reduced losses by 70% compared to the 4 billion euro figure in 2017, Steinhoff warned that the reputational damage it had suffered and advisor and professional fees would weigh on its performance this year.

Now under new management and working to clean up its balance sheet after the fraud, Steinhoff blamed one-off expenses including professional fees of 117 million euros and impairments for its 2018 loss.

An investigation by Steinhoff’s auditor PwC found eight people, including former Steinhoff executives, were involved in a scheme where potential intercompany transactions worth 6.5 billion euros were fraudulently recorded as external income to prop up profits and hide costs in money-losing subsidiaries.

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