Oh look, if it was good enough for the housing industry it's good enough for Autonomy!

Following the completion of its annual review of its goodwill and purchased intangible assets for impairment, on November 20, 2012, HP announced that it recorded a non-cash charge for the impairment of goodwill and intangible assets within its Software segment of approximately $8.8 billion in the fourth quarter of its 2012 fiscal year.  The majority of this impairment charge relates to accounting improprieties and disclosure failures at Autonomy Corporation plc (“Autonomy”) that occurred prior to HP’s acquisition of Autonomy, misrepresentations made to HP in connection with its acquisition of Autonomy, and the impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term. The balance of the impairment charge relates to the recent trading value of HP stock.  HP does not expect the impairment charge to result in any future cash expenditures.

Misrepresentations eh?  That's fraud, right?

Note that HP paid something like $10 billion for the company, which means they bought something that they now say is something like more than 50% overvalued on a cash basis and the rest is the goodwill impairment, which makes the whole somewhere over an 80% loss of value!

That sounds a lot like a steroid-driven version of "seller down payment assistance" and other various related schemes in the housing industry -- but there, you see, it's (mostly) legal.

It shouldn't be -- anywhere.

Why not?  Because transactions in which the price of something is intentionally overstated through machinations such as this distort the market.  If the true economic value of the transaction is not reported then others who are viewing the transaction in the marketplace are deceived as to the exchange of value that took place, and this leads them to believe that value was exchanged when in fact it was not. 

Frauds of this sort are not simply that the someone (in this case it is alleged HP) gets rooked in their transaction, it is also the systemic effects that a false transaction stream has when it takes place in the public view in that it inflates third party's views of what's going on in that marketplace, and thus defrauds those third parties as well.

If I was hearing the reports correctly in my non-coffee-addled daze this morning the allegation is that the company was basically self-dealing in that it was providing funds to "customers" who then bought from the company.  From Faber's reporting:  "Apparently the company was selling computer hardware ... at a loss.... and treated much of the cost of those sales as marketing expenses....  had given money to VARs to buy the product."

See, just like seller-provided "down payment assistance"!

Oops....

HP (NYSE: HPQ) is off ~10% this morning.