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H-P's Autonomy Act Attracts Lawsuit

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Over the past two years, Hewlett-Packard Company (HPQ) has seen continued challenges in the form of the departure of its most capable CEO Mark Hurd, the PC market crash and hard drive supply shortages post the Thailand flood. The company now finds itself in the midst of a civil lawsuit filed in the United States District Court by one of H-P’s shareholders.

The accounting irregularities related to the acquisition of U.K-based business software maker Autonomy Corp had the 73-year old tech giant recording a huge impairment charge of $8.8 billion in its fourth quarter 2012 results. Following the announcement, the stock plunged to its 52-week low.

The investor filed the lawsuit alleging that H-P concealed vital facts about the Autonomy deal, including its attempt to cancel the deal prior to its finalization. The investor also alleges that H-P was well aware of the accounting frauds before signing the deal. While this remains to be proved, it does appear strange that such a distortion was overlooked when a huge amount was at stake.

A renowned lawyer firm, Robbins Geller Rudman & Dowd LLP has been appointed to fight the case. The company and some of its senior officials have been charged of violating the Securities Exchange Act of 1934.  The investor plans to seek a damage charge for the loss incurred due to the inflated stock price.

Considering the situation, we believe that H-P could well face several other lawsuits. The positive outcome of the suits will surely put the tech heavyweight in a soup.

Currently, H-P has a Zacks #5 Rank, implying a short-term Strong Sell rating. It competes with Dell Inc. (DELL), which has a Zacks #3 Rank, implying a short-term Hold rating.

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