Fault Lines
21 October 2017

Ex-HP CEO Mark Hurd Wins Fraud Suit Arising Out of Sexual Harassment

February 3, 2017 (Fault Lines) – Don’t fish off the company pier. It’s an old adage that has proven to be quite sage. Clinton carrying on with an intern got him impeached and censured. Clarence Thomas’s alleged advances towards Anita Hill nearly doomed his nomination to the Supreme Court and still haunt him. Mark Hurd left his position as CEO of Hewlett Packard because of his entanglement with an HP contractor.

In 2007, HP hired reality TV star and Playboy model Jodie Fisher to be a hostess at several HP events in California. Fisher later claimed that Hurd specifically sought her out. There are no shortage of attractive women that go to California to be an actress, model, musician, or whatever. And there’s not enough work to go around for all of them. So, a lot of aspiring models or actresses get gigs being the pretty face at corporate events and promotions.

Fisher was paid $30,000 to appear at six events, plus other benefits like first-class travel. We all have to pay the bills somehow. It appears that Hurd was a bit of a time-management nut. To that end, it seems Fisher was there, at least in part, to make sure Hurd didn’t spend too long talking to the wrong person at HP events. The purpose of these events was for Hurd to sell HP to CIOs of other companies. How Fisher facilitated these sales is entirely unclear. But the checks cleared.

The problem for some of these women is that some men confuse hostesses with prostitutes. These corporate positions generally are not like the hostesses at Baylor, or Louisville, or Rutgers, who were allegedly used to sexually entice prospects to play sports for the university. But Hurd, while married, began pursuing a relationship with Fisher. Fisher, unlike Monica, was not interested in Hurd. But Hurd was undaunted.

The next time they met, Hurd invited Fisher up to his room, fondled her breasts, and asked her to stay the night. Hurd tried to save face by saying he was never rejected and getting at least a hug to chase his breast fondling. Undaunted, he continued to pursue her, telling Fisher she was lucky to be pursued by Hurd because other women like Sheryl Crow were crazy about him. And he had women in New York and San Francisco. Seems like a swell catch.

Fisher probably sniffed out his desperation pretty quickly. If Hurd were the Silicon Valley version of Leonardo DiCaprio, then he’d probably not be married and be with Sheryl Crow. But HP was paying the bills and presumably she wasn’t getting many other phone calls for jobs. So, she kept working for HP. And Hurd kept trying to get in her pants.

The next time they met, he went to her room and forcibly kissed her. He wasn’t Trump enough to grab her by the pussy. So, he tried other tactics over the next two years. He passed her inside information. Hurd showed her his ATM balance of one million dollars. He then suggested he’d take care of her, if she’d go away with him. Hurd apparently wanted to pay for what the Louisville recruits were getting from their hostesses.

When Fisher’s publicist asked for more money for the extra dinners, Hurd demanded the publicist be fired. So, he kept using HP’s money for his ‘girlfriend experience’ with Fisher. And HP kept hiring her to appear at domestic and international events until 2009. At an event in Boise, Hurd tried one last time to force her into having sex. But Fisher ran away to her room and never worked for HP again.

Seven months later, Fisher was forced to move to New Jersey (the horror) and retained Gloria Allred to sue Hurd. You might wonder why Allred did not have Fisher file a police report. Allred is an old hand at this. She knows that a criminal case will be a he said/she said affair with a high standard of proof. Plus, the prosecutor is in control, not the victim’s lawyer. A civil action will usually leave the victim of a well-heeled offender better off than a criminal case.

It seems that this letter was the first time that many inside HP became aware of these events to sell to CIOs. Eventually, Hurd, probably really HP, settled with Fisher, left HP with a $12 million dollar parachute, and was quickly hired by Oracle. Not bad for nearly raping a woman and assaulting her multiple times on the company’s time and dime. Although Oracle supposedly concluded, before hiring him, none of Hurd’s conduct rose beyond a misdemeanor, which still suggests he possibly committed a crime.

The story of HP’s investigation and the backstory to Hurd is fascinating to read but most of it is not particularly germane here. But the investigation did turn up irregularities in Hurd’s expense reports.

This led stockholders to sue HP for securities fraud. The SEC investigated Hurd, but it seems nothing came of it. Hurd took over HP during a particularly difficult time in its history, including a shareholder suit that HP later settled. Part of his pitch was that HP would be among the most ethical companies. Persistent sexual harassment and fraud are not part of being an ethical officer. The real gripe was HP lost half of its $100 billion dollar value since the scandal erupted. Pensions have to pay the money out eventually, so they sought whatever they could get back.

Unfortunately for the pensions, their civil fraud case never got far. This is how the Ninth Circuit described the claim:

Here, the issue is relatively narrow—whether shareholders may bring a claim for securities fraud when a CEO and Chairman violates the corporate code of ethics after publicly touting the business’s high standards for ethics and compliance.

It’s not Madoff-type misconduct, but you have to do the best with the facts you have. The plaintiffs made noise about the promises HP made to investors after their last suit:

Apparently as a result of the 2006 scandal, HP intensified its promotion of ethical behavior within the company. With Hurd at the helm, HP reinforced the importance of its corporate code of ethics, the Standards of Business Conduct (“SBC”). Through congressional testimony, press releases, investor briefings, and public letters to employees, Hurd took many opportunities to proclaim HP’s integrity and its intention to enforce violations of the SBC. HP, its stockholders, and Wall Street insiders viewed Hurd as one of HP’s most valuable assets, seeing his leadership as the 2006 scandal’s silver lining.

Shareholders filed multiple derivative claims in the wake of the 2006 scandal, all of which were settled together in 2007. HP made some promises regarding business ethics as part of the settlement, including: appointing a “Lead Independent Director,” tasked with implementing and enforcing the SBC; appointing a “Chief Ethics and

Compliance Officer” to report SBC violations; appointing an “Ethics and Compliance Committee” to oversee HP’s policies and procedures regarding compliance and ethics; improving ethics and compliance training programs; and strengthening the SBC, particularly in regard to whistleblowing.

The plaintiffs did all this because they needed to prove HP made a material representation or omission connected the sale of a security that they relied on to their determent. The Ninth Circuit agreed with the trial court, concluding that the alleged statements were neither false nor material.

In the eyes of the Ninth Circuit, plaintiffs could prove neither that a false state or omission occurred nor was any such statement material. The SBC was merely aspirational and not objectively verifiable as a fact would be. The Court concluded that to hold otherwise could convert all broad statements about the ethics of a company into actionable securities violations.

The plaintiffs’ last hope was that Hurd’s failure to disclose his sexual harassment and misuse of HP funds would allow the suit to proceed. But the Ninth Circuit dashed that too.

HP was allowed to use aspirational statements, and Hurd was allowed to withhold that he was failed to meet those standards. Again, aspirational statements were held distinguishable from factual statements. Although not addressed by the Court, there was a serious question of whether the Hurd’s failure to rat himself out was really the cause of the stock’s value loss, rather than the Board’s decision to fire him.

Fisher seemingly elected to pursue only a civil remedy and forego a criminal remedy. The pension plans seemingly only had a civil remedy against HP, after the SEC took no action against Hurd or HP. As a result, Hurd suffered no apparent loss for his misconduct and possible criminal actions. Sure, he had to give up some stock options, but Oracle likely made him whole on the back end.

Punishment for criminal acts is supposed to be committed to the state, rather than based on the wishes of those involved. Here, the criminal justice system was avoided. While that may benefit Fisher, the shareholders of Oracle, and the former employees of HP, Hurd escaped a criminal investigation that he would have likely faced as a less wealthy suspect.

If the public truly has an interest in prosecuting crime, then their interest was not likely not vindicated here. Perhaps the prosecution would have concluded that the case could not be proved beyond a reasonable doubt. But Hurd avoided all of it, and  regardless of what happens, it will never be an adequate substitute for having a meaningful criminal investigation in the first place.

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