HP Inc. has agreed to pay US$6 million as part of a settlement with the U.S. Securities and Exchange Commission (SEC) over charges that it misled investors by failing to disclose the impact of sales practices designed to boost ink sales in Asia Pacific and Japan.
“We are pleased to have resolved this matter, which involves historical disclosures from nearly five years ago,” said an HP spokeswoman. Besides paying the $6m penalty, HP agreed to a cease-and-desist order but neither admitted nor denied the SEC findings.
The SEC said HP had misled investors about the impact of sales practices that were meant to help reach revenue and earnings targets in 2015 and 2016.
HP regional managers used incentives to accelerate ink sales that the company had expected to materialize in subsequent quarters, it said. In one region, tactics included selling printing supplies at discounts to resellers known to sell outside of their designated territories, which violated HP’s policy and distributor agreements.
“The practice had occurred on a small scale in APJ for years and came to be included in APJ’s budgeting process,” the SEC said in a statement. “To engage in the A Business [grey market], sales managers in APJ provided HP product to resellers and brokers within their region at higher than normal discounts, knowing they would sell the goods through a network of firms into the Middle East. In some instances, the discounts were in excess of forty percent.”
Despite the risk that these sales practices could negatively impact HP’s operating profit in future quarters, HP did not disclose to the market during the relevant time period that its use of the pull-ins and grey sales were causing decreased margins and increased channel inventory, the SEC said.
“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, associate director in 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.”
Read the full SEC statement here.
