HP, Whitman Must Face Investor Suit Over Autonomy

Hewlett-Packard Co. and Chief Executive Officer Meg Whitman must face claims in a shareholder securities fraud lawsuit alleging investors were misled about the acquisition of Autonomy Corp., a judge ruled.

U.S. District Judge Charles Breyer in San Francisco said today investors can proceed with claims against Whitman over statements she made in May and June of 2012 about the British software company. Whitman “omitted material information which the complaint alleges she possessed at the time, namely that she was considering accounting fraud at Autonomy” as the explanation for its weak performance, Breyer said in a ruling.

The judge also found that Hewlett-Packard’s quarterly earnings filing in September 2012, which said the fair value of Autonomy “approximated the carrying value,” was misleading because the company “knew there was a real possibility that HP had substantially overpaid for Autonomy.”

“Defendants may not have known for certain that HP had overpaid for Autonomy as of that date, but they did know that a credible alternative explanation was under investigation,” Breyer said. Today’s ruling didn’t address the merits of the claims, only whether lawyers for the investors can proceed with the case.

Breyer dismissed investor claims against former Hewlett-Packard CEO Leo Apotheker, former Autonomy CEO Mike Lynch and three other executives, saying the lawsuit failed to adequately show that any of them knowingly or intentionally misled shareholders.

Michael Thacker, a spokesman for Hewlett-Packard, declined to comment on today’s ruling.

Autonomy Charge

The lawsuit was filed following Hewlett-Packard’s disclosure in November 2012 that it would take an $8.8 billion charge on the value of Autonomy, which it bought for $11 billion in 2010. Hewlett-Packard said it was the victim of fraud because Autonomy overstated its revenue growth and prospects.

The investors allege that Whitman blamed Autonomy’s disappointing results on integration issues while failing to disclose an audit was ordered after a whistle-blower came forward. The whistle-blower, a senior member of Autonomy’s leadership team, raised concerns about Autonomy’s accounting improprieties with Hewlett-Packard’s general counsel, according to the complaint. Whitman learned of the allegations and immediately authorized an investigation, according to the complaint.

She didn’t mention this in statements she made in May and June of 2012, according to the complaint.

The case is Nicolow v. Hewlett-Packard Co. (HPQ), 12-cv-05980, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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