Appeals Court Rules that HP To Face Legal Action for Alleged Shareholder Fraud by Inflating Sales

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A US appeals court on Tuesday revived a lawsuit alleging HP Inc defrauded shareholders by secretly using unprofitable tactics to boost sales of its printing supplies in 2015 and 2016.

The 9th US Circuit Court of Appeals reversed a judge’s ruling dismissing the lawsuit as filed too late. Investors say they did not discover the alleged fraud until the US Securities and Exchange Commission fined HP $6 million (roughly Rs. 49 crores) over its sales practice disclosures in September 2020.

Darren Robbins, an attorney for the pension fund leading the case, said the opinion will help investors.

“By their very nature, misrepresentations inhibit investors from discovering corporate misconduct,” he said. A spokesperson for HP did not immediately reply to a request for comment.

The SEC said in 2020 that some HP regional managers used incentives to accelerate sales they expected to materialize in later quarters. It also said sales managers sold steeply discounted supplies to distributors known to resell HP products outside their own territories, “cannibalizing” sales from local distributors and violating company policy.

The SEC said HP did not timely disclose to investors how these practices, which occurred in 2015 and 2016, were reducing margins and boosting inventories at the Palo Alto, California-based technology company.

The company did not admit or deny the SEC’s findings. Investors sued weeks after the SEC settlement, alleging HP and its top executives defrauded investors by hiding the impact of the practices until 2016.

On June 21, 2016, HP announced a plan to reduce inventories in its distribution channels, and projected it would reduce net revenue from supplies by $450 million (roughly Rs. 36.9 lakhs) over two quarters. Its share price fell 5.4 percent the next day.

US District Judge Jeffey White in Oakland, California, dismissed the case in March 2022, saying investors should have sued within two years of when the statements were made.

Circuit Judge Jay Bybee wrote for the San Francisco, California-based appeals court that White had overlooked shareholders’ claim that the SEC settlement “put HP’s prior statements in a new context, revealing that ostensibly innocuous statements were actually intentional misrepresentations.”

The case is York County v. HP Inc. et al., 9th U.S. Circuit Court of Appeals, No. 22-15501.