Hewlett-Packard and its CEO Meg Whitman are still in trouble over the failed $11 billion purchase of UK-based software company, Autonomy Corp., in 2011. A federal judge Tuesday refused to dismiss a shareholder class action against HP and Whitman, saying she may have misled investors. But he did dismiss claims against the two men who cooked up the deal, former HP CEO Leo Apotheker and Autonomy founder Michael Lynch.
U.S. District Judge Charles Breyer said that once Whitman told shareholders on May 23, 2012, that Autonomy was having growing pains, to explain poor performance, rather than the suspected potential of accounting irregularities, she misled investors.
HP acquired Autonomy in August 2011 for $11 billion but by November 2012 it announced it had been the victim of fraud and wrote down 85 percent, or nearly $9 billion of the purchase price. This caused a significant decline in HP stock price. And that led to lawsuits.
Whitman told investors Autonomy would be “very profitable” after the acquisition by HP, allegedly while knowing a whistleblower warned of Autonomy accounting irregularities.
“Whitman’s decision to put forward entrepreneurial challenges as an explanation while choosing not even to mention the alternative possibility of accounting fraud, which she knew to be plausible, constitutes a material omission,” Breyer wrote.
The May 23, 2012 shareholder conference call was significant because that was the date it is alleged she would have been aware of potential accounting problems at Autonomy.
The ruling greatly narrows the shareholder suit but it does keep the case alive.
HP bought Autonomy Corp. in 2011 for $11 billion in a deal brokered by Apotheker and Lynch but when the stock market reacted by cutting HP stock price by 20 percent, Apotheker was fired. Lynch who had become an executive at HP also lost his job. Both men left before the deal was finalized, which let them out of this lawsuit.
“It is implausible that had defendants known abut the fraud being perpetrated on them before the deal closed that they would have gone ahead with the deal,” Breyer said.
Case: In re HP Securities Litigation, No. C12-5980CRB