Shortly after Lo Apotheker became CEO of HP, he decided to acquire Autonomy Corporation at acost of

Shortly after Léo Apotheker became CEO of HP, he decided to acquire Autonomy Corporation at acost of over $11 billion. His decision met with strong resistance from HP executives, including CFO Catherine Lesjak. But he persisted. The day after HP announced the acquisition, its stock price dropped 20 percent. 

A week before the Autonomy deal was to close, the board of directors replaced Apotheker as CEO with Meg Whitman. She sought to terminate the Autonomy acquisition but was told that the United Kingdom's takeover rules made that impossible. Here is the timeline of events thereafter:

October: The Autonomy acquisition closed. Over the next few months, HP learned that Autonomy's earnings and growth numbers were inaccurate. 

February of the following year: In a conference call with investors, Lesjak attributed HP’s weak revenue numbers to “acquisition-related integration costs and accounting adjustments.”

May 23: 

Whitman learned that a senior executive at Autonomy (referred to as “Whistleblower No. 4”), was warning of serious accounting improprieties. HP hired PricewaterhouseCoopers to investigate. 

Lesjak told analysts that HP's “second-quarter operating profit for software was unfavorably impacted by acquisition-related integration costs.” She was not asked about, nor did she choose to comment on, Autonomy's performance.

On the same call, Whitman said: “When Autonomy turned in disappointing results, HP actually did a fairly deep dive to understand what had happened here. And in my view, Autonomy is a terrific product. There is an enormous demand for Autonomy.” 

June 5: During a press interview, Whitman stated about Autonomy:

“In my view, this is the classic case of scaling a business from startup to grownup. Going through that barrier of a billion dollars in sales is not easy because you can't run the organization at $1.5 billion the same way you did at $500 million. You just can't. And for many entrepreneurs, processes and discipline are dirty words, and you have to have those things, especially within the context of HP. I know exactly how this world works. I have every confidence that Autonomy will be a very big and very profitable business.”

August 22: On a conference call, Whitman said, “Autonomy still requires a great deal of attention and we've been aggressively working on that business.”

September 10: HP's Form 10-Q reported that: “At the time of the Autonomy acquisition in October 2011, the fair value of Autonomy approximated the carrying value.” 

Fifteen months later, on November 20: The PriceWaterhouseCoopers investigation was complete. HP announced that Autonomy had been a fraud. It wrote down the investment by $8.8 billion. HP's stock dropped another 12 percent. 

Shareholders filed suit alleging that the Whitman, Lesjak, and HP had committed fraud under §10(b). The defendants filed a motion to dismiss, arguing that they did not have the requisite scienter.

Questions:

1. Did the defendants have scienter?Did they act either intentionally or with deliberate recklessness?

2. What is scienter?

3. What is required for a defendant to be found liable under Rule 10b-5?