Hewlett-Packard (NYSE: HPQ) is a Lawyer's Dream

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After alleging last Tuesday that it had been defrauded by the management of takeover target Autonomy, resulting in a $8.8 billion write down, Hewlett-Packard Company (NYSE: HPQ) itself came under scrutiny by the Federal Bureau of Investigation.

According to Businessweek, "The FBI, responding to an inquiry by the U.S. Securities and Exchange Commission, is looking into Hewlett-Packard Co.'s allegations of accounting improprieties at its Autonomy Corp. unit, a person familiar with the matter said."

Autonomy founder and former CEO, Mike Lynch has angrily denied HP's allegations.

"HP came in with about 300 people, crawled over everything and you know what? They found nothing. And you know why? There was nothing to find," Lynch said in a television interview with The Telegraph. "What actually happened is that they mismanaged Autonomy and in doing that have destroyed a lot of shareholder value.'"

In the meantime, Hewlett-Packard CEO Meg Whitman and the rest of the board are trying to distance themselves from the decision to acquire Autonomy. Instead they're blaming former CEO Leo Apotheker and his strategy of moving HP toward becoming less dependent upon hardware and more dependent upon software for its revenue.

HP's advisors in the deal, notably auditing firm Deloitte, are scrambling to shed any responsibility for the alleged fraudulent accounts.

Deloitte, which had audited Autonomy's books for most of a decade issued a statement Wednesday saying, "Deloitte categorically denies that it had any knowledge of any accounting misrepresentations in Autonomy's financial statements."

The Deloitte statement continued, "Deloitte was not engaged by HP, or by Autonomy, to provide any due diligence in relation to the acquisition of Autonomy."

HP Board Questioned

Now that Hewlett-Packard has made its accusations, the spotlight is being directed on the HP board and their ability to conduct due diligence.

Lynn E. Turner, former chief accountant of the U.S. Securities and Exchange Commission and a managing director at LitiNomics Inc., an economic and forensic consulting firm told Bloomberg News, "The big issue isn't the fraud they're talking about. The big issue is that HP has made acquisitions that have turned out to be a disaster."

Investors are likely to hold the HP board liable for the failed deal. Many analysts and traders are calling for the Hewlett-Packard board to step down.

Shareholder rights law firm Johnson & Weaver, LLP announced today (Monday) that it is starting "an investigation an investigation into whether certain officers and directors of Hewlett-Packard Co. breached their fiduciary duties to the company and violated federal securities laws in connection with the Company's acquisition of Autonomy Corp. PLC."

However, as The New York Times wrote, "One suit we will not see: litigation by Hewlett-Packard shareholders against the directors for making a bad decision to acquire Autonomy. H.P. is incorporated in Delaware, and that state's law precludes a suit against board members for violating the so-called duty of care, namely making a bad decision."

Even if shareholders cannot sue the HP board for being incompetent, Whitman and her colleagues will have their hands full defending themselves against the government's investigation into their claims of wrongdoing while trying to sue Autonomy for redress.

At the end of the day, Hewlett-Packard has shown itself to be quite adept at destroying shareholder value, but not very good at creating it.

Perhaps Jim Chanos is right about HP being a value trap. It's hard to derive any value from a company that seems to lurch from one bad investment to another, leaving a string of multi-billion dollar write downs in its wake.

HP stock (NYSE: HPQ) has recovered slightly from last week's fall, trading around $12.70 Monday afternoon.

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