The Securities and Exchange Commission today announced charges against technology company HP, Inc. for misleading investors by failing to disclose the impact of sales practices undertaken in an effort to meet quarterly sales and earnings targets. HP has agreed to pay $6 million to settle the charges.
According to the SEC, regional managers at HP used a variety of incentives to accelerate, or “pull-in” to the current quarter, sales of printing supplies that they otherwise expected to materialize in later quarters from early 2015 through the middle of 2016, in an effort to meet quarterly sales targets. Managers in one HP region sold printing supplies at substantial discounts to resellers known to sell HP products outside of the resellers’ designated territories, in violation of HP policy and distributor agreements. The SEC finds that HP failed to disclose known trends and uncertainties associated with these sales practices. Additionally, HP failed to disclose that its internal channel inventory ranges, which it described in quarterly earnings calls, included only channel inventory held by channel partners to which HP sold directly and not by channel partners further down the distribution chain, thereby disclosing only a partial and incomplete picture of HP’s channel health.
According to the SEC, HP changed its go-to-market model in part to address these undisclosed sales practices and undertook a channel inventory reduction that reduced its net revenue by approximately $450 million during the third and fourth quarters of 2016.
“Investors are entitled to accurate disclosures of business trends that are likely to have a material impact on a company’s future revenues or operating profits,” said Melissa Hodgman, an associate director in the SEC’s Division of Enforcement. “HP’s failure to disclose the foreseeable negative impact of its use of pull-ins and other sales practices created a misleading and incomplete picture of the company’s financial condition.”
The SEC’s order finds that HP violated the antifraud, reporting and disclosure controls provisions of the federal securities laws. Without admitting or denying the SEC’s findings, HP consented to a cease-and-desist order and to pay a $6 million penalty.
The SEC’s investigation was conducted by W. Bradley Ney, Sarah Hall and Max Polonsky with assistance from accountant Jamie Wohlert, and supervised by Lisa Robertson. 