Judge OKs HP Shareholder Suit Over Autonomy Statements
SAN FRANCISCO — A federal judge on Tuesday refused to dismiss shareholder allegations that Hewlett-Packard CEO Meg Whitman misled investors about the financial health of a British software maker that HP acquired in 2011.
Allowing the lawsuit against Whitman and HP to proceed, U.S. District Judge Charles Breyer of the Northern District of California cited a May 2012 conference call with investors where Whitman referred to Autonomy Corp. as "a terrific product." The CEO did not mention that an Autonomy insider had warned HP's general counsel about the Cambridge, England-based company's questionable accounting practices.
Whitman was not obligated to comment about the company, much less explain its performance, Breyer noted. But when she did, her explanations were incomplete, he said.
"Once Whitman decided to speak on the topic, she 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 wrote.
"Context matters," added the judge. "Whitman's May 23 comment was on an investor conference call to accompany HP's filing of SEC Form 8-K announcing financial results for the second quarter of 2012. Whitman's qualitative comments on that call provided crucial context for investors and analysts seeking to understand the SEC filing."
Breyer's order also found fault with HP's September 2012 10-Q Securities and Exchange form. Asserting that Autonomy was still a valuable asset, HP failed to disclose a very real possibility that it had overpaid.
"This filing went too far," he wrote.
Breyer, however, found insufficient evidence to implicate other current and former HP executives. The veteran judge dismissed class allegations against former HP CEO Leo Apotheker, current CFO Catherine Lesjack, senior vice presidents James Murrin and Shane Robison, HP chair Raymond Lane and Autonomy founder Michael Lynch, who served as an HP vice president.
A spokesman for HP, which is represented by Marc Wolinsky of Wachtell, Lipton, Rosen & Katz, declined to comment on Breyer's order. Meg Whitman's attorney, John Dwyer of Cooley, did not immediately respond to an interview request.
In a lawsuit filed last year just days after HP wrote down more than $8 billion of the $11 billion it had paid for Autonomy, plaintiffs accused HP, Whitman and the other executive defendants of hiding that company's fraudulent accounting practices from investors until November 2012—several months after HP allegedly learned of Autonomy's shaky finances. The plaintiffs are represented by Kessler Topaz Meltzer & Check.
While Breyer dismissed plaintiff claims against other defendants, he found Whitman's statements about Autonomy after May 2012 to be actionable and misleading. According to media reports, a high-ranking Autonomy insider informed HP's general counsel of shady accounting that May. At a hearing last week on then-pending motions to dismiss, plaintiff lawyer Ramzi Abadou drew attention to Whitman's public statements about Autonomy following that whistleblower's alleged disclosure.
Breyer's order relies heavily on those statements.