When Hewlett Packard acquired Autonomy last year for $11.1 billion, some 15 different financial, legal and accounting firms were involved in the transaction — and none raised a flag about what HP said Tuesday was a major accounting fraud.
HP stunned Wall Street with the allegations about its British software unit and took an $8.8 billion writedown, the latest in a string of reversals for the storied company.
HP Chief Executive Meg Whitman, who was a director at the company at the time of the deal, said the board had relied on accounting firm Deloitte for vetting Autonomy's financials and that KPMG was subsequently hired to audit Deloitte.
HP had many other advisers as well: boutique investment bank Perella Weinberg Partners to serve as its lead adviser, along with Barclays. Banking advisers on both sides of the deal were paid $68.8 million, according to data from Thomson Reuters /Freeman Consulting.
Barclays pocketed the biggest banker fee of the transaction at $18.1 million and Perella was paid $12 million. The company's legal advisers included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.
On Autonomy's side of the table were Frank Quattrone's Qatalyst Partners, which specializes in tech deals and which picked up $11.6 million. (Read More: The Silicon Valley Legend Behind HP/Autonomy Deal)
While regulators in the United States and the United Kingdom, as well as the Federal Bureau of Investigation, are likely to spend many months if not years investigating what happened, legal experts said on Tuesday that it wasn't clear if any of the advisers would ultimately be held liable.
"The most logical deep pocket would be the acquired firm's auditors, who should have allegedly caught these defalcations," said James Cox, a professor at Duke University law school who specializes in corporate and securities law. Since both auditors missed the problems and it appeared to have taken HP a while to catch it after it took over Autonomy, the auditors may have a strong defense.
"You can have a perfectly sound audit and still have fraud exist," he said. A Deloitte UK spokesman said the company could not comment and would cooperate with any investigations.
The law firms and the bankers will likely argue that they were not hired to review the bookkeeping and had relied on the opinion of the auditors, securities law experts said.
Multiple sources with knowledge of the HP-Autonomy transaction added that the big-name banks on Autonomy's side were brought in days before the final agreement was struck. These sources said the banks were brought on as favors for their long relationships with the companies, in a little-scrutinized Wall Street practice of crediting — and paying — investment banks that actually have little do with the deal. (Read More: Autonomy Founder 'Shocked' by HP Allegations of Fraud)
Lawsuits, Reputations at Stake
Plaintiffs lawyers said they were taking calls from investors about HP on Tuesday. Darren Robbins, a San Diego-based plaintiff lawyer who represents shareholders, said the tech icon appears to have spent billions on a shoddy company without undertaking the proper due diligence, and thus misrepresented its finances to investors.
"I think they have serious troubles," he said.
But plaintiff lawyers may have difficulty bringing so-called derivative lawsuits against professional services firms, said Brian Quinn, an M&A professor at Boston College Law School. In those cases, plaintiff lawyers can sue third parties, such as auditors, on behalf of HP — but they must convince a judge that HP's board is unfit to pursue those claims itself. In this situation, though, HP's board disclosed the alleged fraud itself, Quinn said.
Even if the bankers and lawyers escape any legal problems, they could suffer a reputational hit. The scrutiny could be particularly unwelcome for Perella Weinberg: the firm advised Japanese camera maker Olympus' acquisition of British Gyrus — a transaction that prompted investigations in the United States, United Kingdom and Japan into fees and payments made by Olympus.
Olympus had hired Perella to execute the transaction, which included a fee paid to "advisers" of $687 million — way beyond the usual scale for a transaction valued at only $2 billion. Perella was not implicated in the matter.
Meanwhile, the most controversial banker involved in the HP-Autonomy deal, Frank Quattrone of Qatalyst, represented Autonomy and played a key role in getting HP to pay a high price.
A star investment banker in the 1990s, Quattrone had worked at Morgan Stanley, Deutsche Bank and Credit Suisse, and helped arrange some of the biggest tech initial public offerings of the era, including Amazon.com and Cisco Systems.
But his time at the top of Silicon Valley was curtailed by charges that he blocked an investigation into IPO kickbacks. After two trials failed to resolve his case, he ultimately reached a deal with prosecutors.
His return to the Silicon Valley M&A scene has impressed many in the tech world.
"His reputation is at an all-time high right now," said Dan Scheinman, the former head of mergers and acquisitions at Cisco who has worked with Quattrone on several deals.
Analysts almost uniformly deemed the $11.1 billion he got HP to pay for Autonomy as overly rich — a compliment to him at the time, but possibly a hollow success if HP's allegations prove true. (Read More: Can HP Really Rebound by 2014?)