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Did HP Bilk Its Shareholders?
jfruhlinger writes "About a month ago, HP announced that it was getting out of the PC, tablet, and mobile phone business to focus on software services, at which point, rather predictably, HP's stock plunged. Obviously, HP's leadership had been working on this plan for some time before it was announced, which leads to the question: did they deliberately mislead their stockholders by not being more transparent? That's what a shareholder lawsuit against the company alleges. How the courts treat the suit could have interesting implications for how transparent public corporations need to be about future strategy."
I thought getting information about such things from an insider and then acting upon it was considered insider trading? Has something changed in the last decade and we now operate under the assumption that such knowledge is okay and even required?
Yes.
The dangers of knowledge trigger emotional distress in human beings.
And the alternative to what they did would be "We're exiting the PC, Tablet and Mobile Phone business but we have no plan to make this happen yet, check back later".
Which do you think is worse for the stock price?
And the SEC watches (well, excepting Bernie Madoff). If any of HP's officers is found to have profited using inside knowledge, they will have to give up their profits. And maybe pay a fine as well.
Transparency isn't an issue. Companies plan strategies without informing their shareholders all the time.
Have gnu, will travel.
I somehow doubt he would be suing if the stock price went up.
Do you even lift?
These aren't the 'roids you're looking for.
... where the only winners are the lawyers.
Seriously, if the executive team would have announced it too early, and they changed their mind, there would be a lawsuit. Instead, they announce the new strategy when they're sure they want to do it, and now they get sued because they should have announced it earlier. Besides, how much earlier were they supposed to announce that they were going to ditch WebOS? The day after the acquisition? This just smells like sour grapes from some investors who didn't expect this hit to their short term profit schedule.
Quite frankly, most shareholders should just shut up when it comes to corporate governance. They are generally the main reason that corporations are so focused on the quarterly bottom line anyway. There are some investors who take the long view, but I'm also pretty sure that they are not the ones who sue because the company wasn't forthcoming with major strategic decisions, and the stock price takes a bit of a dive over a few days.
Those who can, do. Those who can't, sue.
HP doesn't care about its investors for the same reason CEOs get pay that is too high and HFT continues. Of-course other reasons for not caring about investors is limited liability that the top management of corporations enjoy because government created this moral hazard in the first place. There shouldn't be such a thing as government provided limited liability to corporations.
But the reality is that in the market that is promoted with all this inflation and destruction of investment and savings, there are no investors, the market is turned into a casino, everybody is gambling on price of stock, not investing into a business for long term.
There should not be any government protections to people, who are investors except that contract law needs to be upheld by courts, that's all there is to it, but with all the government destruction of economy, there is so little competition and so little choice of where to invest, that people are stuck with the current casino, seagull management and gambling.
Can investors sue the Federal reserve for DESTROYING their US dollar denominated savings and investments? After all, the US federal reserve is causing money destruction that is causing the federal reserve notes to lose over 10% of value per year.
You can't handle the truth.
The company is changing strategy. This happens. Companies don't survive when they can't do this. They also don't survive when they have to broadcast to their competition in advance that they MIGHT do something before a decision has been made.
This is nothing short of lunacy. It shows not only how insanely lawsuit happy the US is, but also how paralyzing a public corporate structure has become. It's much better to be a private company these days. You've got far less onerous reporting requirements, far less overbearing regulation, and the freedom to actually do things as a company without facing constant lawsuits.
-- "So they told me that using the download page to download something was not something they anticipated." - Bill Gates
lonesome al gore & upstart jesse ventura both gave up lives of complete american dream comfort (& are paying dearly) to promote the truth. why should we care?
Yeah, we should really feel for these suffering martyrs, who are making a fortune out of their "martyrdom". Al Gore has increased his welath over 10 fold out of his "environmental activism". I am not as familiar with Jesse Ventura's activities, but what I have seen suggests that he, also, is making a fortune out of spreading the word about "conspiracies".
The truth is that all men having power ought to be mistrusted. James Madison
Insider trading regulations are designed so that shareholders are treated fairly (relative to each other) as far as access to information is concerned. As long as the decision to exit the hardware market was kept confidential, no problem. If insiders (or people with access to insiders) traded HP stock with advance knowledge of the plan, that's a different story.
With enough degrees of deniability, it's possible that someone traded HP stock based on 3rd or 4th hand information, at which point they acted on speculation that 3rd or 4th hand information was accurate. Very little can be done about that, and it happens more often than you think.
As a Slashdotter, you may be thinking, "Who cares about HP? How can I profit from insider shenanigans without being an insider and risking the wrath of the SEC?"
1. Monitor the options trading activity for a limited number of stock symbols where you suspect insider trading.
2. Build a database that is continuously updated with both option and stock pricing and volume.
3. Watch for a condition in which options activity and volume moves out of sync with the underlying stock. This doesn't prove insider trading, but if insiders are going to cheat, this is the easiest way for them to make a quick buck.
4. Use the options activity as a leading indicator on the stock.
5. Profit!!!!
I am not a financial advisor. This is not financial advice. Your actual mileage may vary.
Both "short answers" are wrong. It's not that clear cut.
If HP's execs decided that they'd bail out of the hardware markets in January, but told their shareholders otherwise during the quarterly meetings in an attempt to keep up their stock price while they sold their own shares, then the shareholders have a case against them. If, however, leaving the hardware markets was merely one of many strategies being considered, and they didn't reach their final decision until recently (perhaps after the bombing of their tablet) then I'd say they acted in good faith.
That's what we have trials for. The lawyers will pour through HP's emails and memos and figure out whether or not important info was intentionally withheld. While it may be a bit of a pain in the ass for HP, and expensive to boot, it's a necessary evil if we want to find the truth of the matter.
i read about lawsuits like this all the time, rarely do i read how they win a lot of money. there is no law that says a company has to reveal every single strategic idea they research
Yep. Technically for lying to the feds. If she had just said, "Sorry, I did it. Here's the money back", she would have stayed out of the Big House.
Have gnu, will travel.
A company listed on a stock exchange is duty-bound not to be misleading to shareholders, existing or potential. That includes both what is announced and what is omitted.
This is covered both by the management's fiduciary duties and specified rules (which really merely seek to clarify to an extent the over-riding fiduciary duties). So yes, if they knew with confidence a product was going to tank, they are obliged to report it. There are "class test" ratios which specifically trigger some announcements although really these are considered the upper limit, a public company listed on a main market is expected to be considerably more forthcoming than that.
As ever, commercial considerations can get in the way - announcing things can leave long term shareholders even worse off - but then if there's any notion that you're hiding things from shareholders then you're doing it wrong. It's THEIR company and they are the ultimate boss.
Had they made the announcement earlier, the same thing would have happened to whoever owned the stock then (mostly the same people). Stock prices take the future into account. Even if they had said "there's a possibility that we'll stop making PCs," it would have gone down nearly as much, and then the rest of the difference as soon as it was official.
That being said, if the decision makers were selling all of their stock while knowing this (and the public not knowing it), then that's a different story. I didn't see anything pointing to this in either of the articles that I briefly skimmed.
Undoing the damage that Fiorina did is expensive. Why anyone would buy HP right now is beyond me. Once they cut all the crap and pare back down to what they do best (HP UX, printers, pcs, servers, networking, and related software) yea invest. Anything HP is doing beyond this is fat that needs to be trimmed to get the company back in shape.
Long term, they are doing their shareholders a favor. If you are day trading and just lost a bunch of cash, well, that's part of the game.
Don't kid yourself. It's the size of the regexp AND how you use it that counts.
Wait a second - people are faulting HP from diagnosing a problem and then (god forbid) taking time to put together a business plan and roll out the anouncement of said business plan?!? God forfend! No, instead they should continue on their pre-annointed course, never deviating, regardless of market conditions. (Iceberg dead-ahead? Pshaw. That's not what we decided three weeks ago!) Any major company-shaping (or company-shaking) decision + short-term loss in stock value = Law suit. My reasonably large company takes many bold positions/reinventions as the industry changes. Companies like mine get sued all the time. They are all frivolous (just like this one). They all allege massive insider conspiracies (just like this one). They allege you-made-a-decision-a-certified-moron-wouldn't-make (just like this one). The only news here is who is doing publicity for the law firm - they are apparently good at their job and maybe should be hired in the future. Otherwise, what a joke - carry on.
I don't care. I got a Touchpad for $99!
whee ;-)
sudo eat my shorts
Soulskill and jfruhlinger learn from the best.
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
Is actually what is being discussed here. Executive should be able to act in the best interest of the company without having to reveal items that could negatively effect said plans.
Being forced to reveal everything you have *planned* to what is effectually the competition would pretty much destroy businesses that compete with each other.
---- Booth was a patriot ----
If one has to announce something that's going to hammer down the stock, it stands to reason that one time must be the first announcement. Following just behind that like the second law of motion are the lawsuits due to same. HP probably took the usual precautions and made the usual decisions in how to announce it. Best done off hours and suddenly, rather than hinting at it.
Those Bastards!
True. Or maybe sue for making a bad decision (if it turns out to be bad). Or sue them for not doing it sooner (if it turns out to be good).
Because that would be a criminal case. See Crazy Eddie. There is a case where the defendants released information that was false to pump up the stock price as they dumped their stock.
http://en.wikipedia.org/wiki/Crazy_Eddie
Here, HP is being charged with being incompetent. (I have not seen anybody saying that the HP management dumped their stock – let me know if I am wrong.)
Part of the issue here is that this type of suit has a bad reputation. It’s not just Monday quarterbacking. Much like patent suits, there are a lot of lawyers trying to shake down fat corporations. And, like patent suits, the majority have are not valid. Which is kind of sad, because when a real legitimate case comes along it gets associated with all of the other scummy cases.
He spoke very publicly, and he appeared to be disclosing plans known inside HP. The implication of what he said is, "Don't buy anything from HP", and the stock market read it that way.
In my opinion, HP's steady downward slide began before CEO Lew Platt. It continued with the amazingly inept Carly Fiorina.
In our business we've had problems with HP laptops and printers, due to what appeared to us to be sloppy practices. We have a laptop owned by a friend that failed because of the bad nVidia video chip; it was arranged that few people got compensated. HP has sometimes made drivers for old HP hardware not available.
List of HP CEOs (Taken from Wikipedia): Patricia C. Dunn, Robert Wayman, Michael Capellas, Lewis E. Platt, John A. Young, Carly Fiorina, Mark Hurd, Rahul Sood, Leo Apotheker. See the article, How HP CEO Leo Apotheker Is Running HP Into the Ground, in foolish slide-show format.
Apparently Mr. Apotheker is abandoning the PC hardware business because he is uncomfortable with it. He was previously CEO of SAP, a software compnay.
I shouldn't feed the trolls but...
But the reality is that in the market that is promoted with all this inflation and destruction of investment and savings, there are no investors...
Really? There were approximately 2 billion shares traded on the New York Stock exchange today. No investors? Really?
There should not be any government protections to people, who are investors except that contract law needs to be upheld by courts
100% of the point of corporations is to protect investors from liability due to the actions of the corporation in order to encourage them to utilize their capital in productive ways. That is THE fundamental feature of a corporation. Without such liability protection the only organizations that can realistically raise substantial amounts of capital are sovereign nations and governmental bodies. Basically you are saying that we should do away with the entire modern economy and go back to something vaguely akin to feudalism.
Can investors sue the Federal reserve for DESTROYING their US dollar denominated savings and investments?
No. That is a stupid question with an unsubstantiated premise and no evidentiary support.
After all, the US federal reserve is causing money destruction that is causing the federal reserve notes to lose over 10% of value per year.
Compared to what? Currency only has value in relation to something else so what is the something else you are comparing to?
if the stock value went up because investors were relieved that they were getting out of the pc business, nobody would be complaining. if hp thinks this is a good strategic move (and it's worked out ok for ibm), why isn't this viewed as positive news?
A public company exists for one reason -- to protect and increase the value of the company for its shareholders.
That is utterly wrong.
A public company exists for whatever reason it chooses to exist for. Shareholders can decide if the reason chosen is one the think will make the company grow or shrink, and invest accordingly. In some cases an investor may well put money into a company knowing it will not make a return, because they believe in what the company is doing and simply wish to continue funding that work.
A company should be able to change anything and everything about itself at the drop of a hat, and shareholders cannot say boo about it. You might be annoyed when the company changes direction to someplace you do not want to follow - that's when you sell, as many have in the case of HP. Should investors get bailed out every time any company makes a dumb choice? I don't think so.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Not HP vs. Shareholder, but people who shorted some stock sueing the company because it's value went up.
That would be hilarious.
FTFY. I guess the silver lining is "everyone else gets a jolly good laugh."
This sort of thing happens every time some company makes decisions or changes direction in a way that negatively effects stock price. I doubt the case will have any legal repercussions unless some judges get adventurous. Then it'll be news.
http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817
New Economic Perspectives
True, but HP said, effectively, "We're stupid!" Would you buy a printer from a company like that?