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Judge rules investors can sue Meg Whitman and HP over Autonomy

Shareholders claim that chief and company misled them about Autonomy's health

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HP and its chief Meg Whitman will have to face claims from a shareholder class action lawsuit alleging the exec and her firm knew statements from Autonomy's management were misleading before the acquisition.

US District Judge Charles Breyer ruled that investors can go ahead with claims against the company and Whitman, saying that statements made by them about Autonomy were likely misleading.

He said that from 23 May, 2012, when a whistleblower from Autonomy's senior leadership raised concerns with HP's general counsel, at least some of the people at the top of the company must have had doubts about the deal. Such top people, of course, would have included Whitman, a board member at the time the deal was struck and CEO in 2011, when the acquisition went through.

On the day, during a conference call for the second quarter, Whitman spoke about Autonomy's weak performance and again in press interview in June.

"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 said in his decision.

The case stems from HP's acquisition of Autonomy for over $11bn back in 2011. Last November, HP announced a writedown of $8.8bn on the deal and then swiftly accused the British firm of fraud, saying that the company and its management were guilty of "accounting improprieties".

HP eventually said that hundreds of millions of dollars of Autonomy's pre-acquisition revenue had been improperly recorded, that key documents were missing and that it had substantially overpaid for the software firm.

Judge Breyer said in his ruling that when the company filed quarterly earnings in September 2012, just a few months before announcing the writedown, its statement that the fair value of Autonomy "approximated the carrying value" was also misleading, since it knew at the time there was a good chance it had overpaid.

"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," he said.

However, he dismissed the shareholders' claims against former HP chief Leo Apotheker, former Autonomy head Mike Lynch and three other execs, on the grounds that the lawsuit failed to adequately show that they knowingly or intentionally misled investors.

The ruling doesn't attribute any guilt or innocence at this stage, it only allows that the investors have a strong enough case to proceed. ®

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