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Summary

  • Recently, HPQ announced a settlement of $108 million for charges brought by the SEC on bribery of foreign governments to obtain contracts for their computer products.
  • The company’s general counsel assured prosecutors that the wrongdoing was performed by a small group of people, who are no longer with the company.
  • Investors should monitor HPQ more carefully following this corruption; however, given HPQ’s strong fundamentals, should wait to take profits unless further misdeeds are revealed.

HP Settles Problem

Hewlett Packard (NYSE:HPQ) has been one of the top names in computer technology for decades. The company's ability to supply quality products at popular prices has made it a favorite in the United States and around the world.

Recently, the company announced the settlement of $108 million for charges brought by the U.S. Department and Securities and Exchange Commission on bribery of foreign governments to obtain contracts for their computer products.

Department of Justice/SEC Claims

Unfortunately, it was not just one claim of bribing a foreign government for business contracts that got HP into difficulty. It appears to have been a systemic strategy of doing business in a number of countries around the world.

In Russia, HP was found to have paid over $2 million to a governmental official to allow them to continue their multi-million dollar contract with a federal prosecutor's office. Much the same thing was done in Poland, where HP handed out $600,000 in a combination of money and gifts to help them win a contract with their national security office.

The Settlement Deal

The company fully cooperated with the DOJ and SEC during the investigation. In return for the $108 million, the Department of Justice agreed to put off prosecution of the company's Polish unit on the charges. They also signed a non-prosecution agreement against the company's Mexico division.

However, it became clear during the investigation that HP had put aside a slush fund for bribe money, as well as shell companies to lauder funds. Anonymous e-mail accounts and prepaid phones were used to make contact with officials to arrange the deals.

HP Attempts To Move Forward

Clearly, HP did not come out of the process smelling like a rose. Whatever poor decisions had been made in their eagerness to secure these contracts, the company is taking specific steps to resolve the matter and put it behind them.

The company's general counsel John Schultz assured prosecutors that the wrongdoing was performed by a small group of people, who are no longer with the company. Despite these assurances, investors are wondering what other information may crop up to shear off profits and undermine the company's reputation.

Should Investors Move On As Well?

HPQ stock has been strong thus far in Q1 2014 (see chart below), receiving two significant rating upgrades from Deutsche Bank and Barclays in the past two months.

(click to enlarge)

(Yahoo! Finance)

While this recent news is certainly troubling, investors should hope Mr. Schultz's statement concerning a localized, now removed, group of wrongdoers is true, and that corrupt practices have not spread throughout the company.

While shareholders should thus be more critical of HPQ, we recommend waiting to take profits unless further misdeeds are revealed.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: A Bit Of Rot Beneath Hewlett Packard's Shiny Surface