Tuesday, October 26, 2010

HP Sued by Shareholders Over Kickback, Foreign Bribery Claims


Directors at Hewlett-Packard Co., the world’s largest computer maker, were sued by shareholders over claims they permitted or encouraged violations of federal kickback and foreign bribery laws.

From 2007 to 2009, HP violated the federal anti-kickback law by paying government vendors “influencer fees” to win contracts to design information technology systems, according to the complaint filed in federal court in San Jose, California. The company is also under investigation for possible violations of the U.S. Foreign Corrupt Practices Act.

Current and former directors at HP “consciously condoned HP’s illegal and unethical marketing practices,” according to the Oct. 19 complaint. The misconduct has “put the company at risk of having its U.S. government contracts rescinded,” the shareholders claim, adding that HP sales to U.S. agencies from 2007 to 2009 totaled more than $880 million.

The case relies in part on HP’s announcement in August that it agreed to pay $55 million to settle a Justice Department probe of whether the company overcharged taxpayers through a General Services Administration contract. That settlement also resolved a False Claims Act lawsuit, first filed by a whistleblower and joined by the government, alleging that the company paid kickbacks.

While the U.S. made HP aware of its illegal marketing practices in “late 2006/early 2007,” the directors allowed the unlawful conduct to continue until Dec. 31, 2009, according to the shareholder complaint.

The complaint also cites HP’s disclosure last month that the Justice Department and U.S. Securities Exchange Commission joined a probe by the German Public Prosecutor’s Office examining whether the Palo Alto, California-based company engaged in bribery overseas.

“It is painfully obvious that HP’s board has not and will not act as a disinterested and independent check on illegal corporate action, and that to remedy this misconduct, HP’s shareholders need to bring suit,” according to the complaint.

The case seeks to recover the False Claims Act fines and repayment of the salaries paid to the directors serving from 2007 to 2009.

HP spokeswoman Mylene Mangalindan didn’t immediately return a call seeking comment. John McCool, an outside spokesman for the company, said HP is reviewing the complaint.