Fraud Lawsuit Against HP Can Go Forward, Judge Says

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Fraud Lawsuit Against HP Can Go Forward, Judge Says
By Bob Egelko
A federal judge has narrowed a shareholder suit against Hewlett-Packard for allegedly deceiving investors over its ill-fated purchase of the British software maker Autonomy Corp., but allowed the case to proceed against HP and its chief executive officer, Meg Whitman.

The Palo Alto technology giant bought Autonomy for more than $11 billion in August 2011, a deal arranged by then-CEO Léo Apotheker and finalized by Whitman, who took over after Apotheker was ousted in September 2011. In November 2012, HP declared it had been defrauded and wrote down $8.8 billion, about 85 percent of the purchase price. Its stock fell sharply as a result.

The class-action lawsuit by shareholders, led by Dutch pension management company PGGM, claimed that HP and its officers had disregarded warning signs before the purchase, knew soon afterward that Autonomy had been overvalued, and misled investors with reassuring statements before the November 2012 announcement.

The plaintiffs said numerous analysts and commentators had questioned Autonomy's market value, and HP's chief financial officer, Catherine Lesjak, told the board of directors in July 2011 that she strongly objected to the purchase. As further evidence that company executives knew they had been swindled, the plaintiffs cited the removal of Apotheker and the 20 percent plunge in HP's stock price immediately after the sale was announced.

The suit seeks unspecified damages. PGGM said its HP stock lost $35 million in value after the November 2012 announcement.

On Tuesday, U.S. District Judge Charles Breyer of San Francisco said most of the allegations, even if proven, would show only that HP officials acted imprudently in approving the purchase and not that they knowingly misled shareholders.

The lawsuit "fails to establish any coherent motive as to why (HP and its executives) would knowingly purchase a company for several times its actual value or that they knew Autonomy's accounting was problematic," Breyer said. He dismissed all claims against Apotheker and five other current or former executives.

On the other hand, he said, the plaintiffs provided evidence that an unidentified member of Autonomy's leadership team approached HP in May 2012 with concerns about the British company's accounting practices. Whitman immediately authorized an investigation by accounting firm PricewaterhouseCoopers, but did not mention any such concerns in a May 23, 2012 conference call to investors and later public statements, Breyer said.

Instead, Whitman attributed Autonomy's weak performance to "classic entrepreneurial company-scaling challenges," the judge said. He also cited HP's September 2012 Securities and Exchange Commission filing that declared the company had paid "fair value" for Autonomy.

Based on the information that Whitman and HP had allegedly received about Autonomy, and the investigation they had ordered, the shareholders can proceed with their claim that Whitman and the company knowingly deceived investors, Breyer said.

The ruling allows the plaintiffs to seek full recovery of their losses, said their lead attorney, Ramzi Abadou. "We're eager to now prove our fraud claims in this important case," he said.

HP spokesman Michael Thacker said the company had no comment. Whitman's lawyers were unavailable for comment.

Fraud Lawsuit Against HP Can Go Forward, Judge Says
By Bob Egelko
A federal judge has narrowed a shareholder suit against Hewlett-Packard for allegedly deceiving investors over its ill-fated purchase of the British software maker Autonomy Corp., but allowed the case to proceed against HP and its chief executive officer, Meg Whitman.

The Palo Alto technology giant bought Autonomy for more than $11 billion in August 2011, a deal arranged by then-CEO Léo Apotheker and finalized by Whitman, who took over after Apotheker was ousted in September 2011. In November 2012, HP declared it had been defrauded and wrote down $8.8 billion, about 85 percent of the purchase price. Its stock fell sharply as a result.

The class-action lawsuit by shareholders, led by Dutch pension management company PGGM, claimed that HP and its officers had disregarded warning signs before the purchase, knew soon afterward that Autonomy had been overvalued, and misled investors with reassuring statements before the November 2012 announcement.

The plaintiffs said numerous analysts and commentators had questioned Autonomy's market value, and HP's chief financial officer, Catherine Lesjak, told the board of directors in July 2011 that she strongly objected to the purchase. As further evidence that company executives knew they had been swindled, the plaintiffs cited the removal of Apotheker and the 20 percent plunge in HP's stock price immediately after the sale was announced.

The suit seeks unspecified damages. PGGM said its HP stock lost $35 million in value after the November 2012 announcement.

On Tuesday, U.S. District Judge Charles Breyer of San Francisco said most of the allegations, even if proven, would show only that HP officials acted imprudently in approving the purchase and not that they knowingly misled shareholders.

The lawsuit "fails to establish any coherent motive as to why (HP and its executives) would knowingly purchase a company for several times its actual value or that they knew Autonomy's accounting was problematic," Breyer said. He dismissed all claims against Apotheker and five other current or former executives.

On the other hand, he said, the plaintiffs provided evidence that an unidentified member of Autonomy's leadership team approached HP in May 2012 with concerns about the British company's accounting practices. Whitman immediately authorized an investigation by accounting firm PricewaterhouseCoopers, but did not mention any such concerns in a May 23, 2012 conference call to investors and later public statements, Breyer said.

Instead, Whitman attributed Autonomy's weak performance to "classic entrepreneurial company-scaling challenges," the judge said. He also cited HP's September 2012 Securities and Exchange Commission filing that declared the company had paid "fair value" for Autonomy.

Based on the information that Whitman and HP had allegedly received about Autonomy, and the investigation they had ordered, the shareholders can proceed with their claim that Whitman and the company knowingly deceived investors, Breyer said.

The ruling allows the plaintiffs to seek full recovery of their losses, said their lead attorney, Ramzi Abadou. "We're eager to now prove our fraud claims in this important case," he said.

HP spokesman Michael Thacker said the company had no comment. Whitman's lawyers were unavailable for comment.

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December 4, 2013 at 12:51 PM