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An SEC Query for HP

By Peter Burrows and Ben Elgin The Securities & Exchange Commission has asked Hewlett-Packard (HPQ) for information about the timing of stock trades made by Chief Executive Mark Hurd shortly before he was hired on March 29. BusinessWeek Online has learned that the SEC sent the computer maker a letter in April requesting information about the trades and the timing of its discussions with Hurd.HP provided the requested information, and the SEC has not made any additional requests, says a source familiar with the proceedings.

ROUTINE MATTERS. The SEC inquiry relates to Hurd's sale of NCR (NCR) while he was still CEO of that company, according to two sources with knowledge of the matter. If Hurd knew he was a candidate for the top job at HP at the time of the sales, the trades could constitute insider trading on his part.

It is unclear if there is an ongoing probe by the SEC. Since the SEC declined to comment, it is not known whether the agency is still looking into the case, or whether it has closed its inquiry. The SEC routinely sends out thousands of inquiries each year, but investigates only a fraction of them. Companies that receive such inquiries from the SEC are often stuck in limbo, as the SEC almost never notifies companies if it has closed the books on a probe.

According to public records, between Mar. 1 and Mar. 3, Hurd sold approximately 36,000 NCR shares at around $39 per share, earning $1.4 million. At the time, NCR's stock was near an all-time high.

"NO QUESTION WHATSOEVER." NCR stock fell 17% on the day HP announced Hurd's appointment. That followed a 3% drop the previous day when BusinessWeek Online reported that his selection might be imminent (see BW Online, 3/28/05, "HP's Next Chief: One Tough Call"). Hurd was hired by HP to replace former CEO Carly Fiorina, who was fired on Feb. 7.

HP spokesman Robert Sherbin says that Hurd did not learn he was a candidate for the HP job until shortly after his final NCR stock sale was processed on Mar. 3. "The shares were sold before any discussion occurred with HP, and there's no question whatsoever about the propriety of the transactions," says Sherbin.

HP has provided the SEC with information on Hurd's trades, along with a timeline of events that confirms his discussions with the company took place after the trades, according to one source at HP with knowledge of the SEC inquiry. Hurd decided to sell stock roughly a week before the last trades on Mar. 3, but it took until that day for NCR to clear the sale by its then-CEO, the source says.

QUICK TO ACTION. It's not known whether Hurd, NCR, or Russell Reynolds Associates, the executive search firm HP hired to find a new CEO, also received inquiries from the SEC. Hurd, through an HP spokesman, declined comment. NCR and Russell Reynolds also declined to comment. NCR has said in earlier statements that it followed proper procedures, and that there was nothing improper about the trades.

HP received the request for information soon after The Wall Street Journal published an article on Apr. 6 regarding Hurd's stock sales. "The SEC is moving rather quickly these days to get a handle on newsworthy events, so that scandals don't get out ahead of them," says Georgetown University law professor Donald Langevoort. "It's premature to think there's smoke, much less fire." Burrows is BusinessWeek's Computer editor based in the Silicon Valley bureau, where Elgin is a correspondent

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