H-P's Leak Probe Comes Under Wider Scrutiny

H-P's Leak Probe Comes Under Wider Scrutiny

Justice Department, FBI,
House Panel to Examine
'Pretexting' Inquiry Tactics

By JIM CARLTON in San Francisco and JOHN R. EMSHWILLER in Los Angeles
September 12, 2006;PageA3

The Justice Department has joined a probe of potentially illegal tactics by Hewlett-Packard Co. in investigating leaks by its board of directors.

A spokesman for the U.S. Attorney's Office for the Northern District of California yesterday confirmed that his office and the Federal Bureau of Investigation are probing the "processes employed" in the H-P leak investigation. Separately, a House committee said it is seeking information from H-P about the matter, including the identity of private investigators that H-P has said it used in the investigation, which involved accessing the private phone records of board members and nine journalists.

WHO'S WHO IN THE SCANDAL

See profiles of H-P Chairman Patricia Dunn, former director Thomas Perkins and other key players in the leak-probe controversy.

•Complete coverage

The inquiries were disclosed ahead of the second phase of a closely watched H-P board meeting, which adjourned Sunday and resumed last evening. The directors were expected to discuss the investigation and its potential fallout, including questions about the role of Chairman Patricia Dunn and senior company executives in authorizing and conducting the probe.

The focus of the government inquiries is an H-P investigation that was requested by Ms. Dunn in 2005 and intensified in early 2006. That company probe involved a practice known as "pretexting," in which a person's private phone records are obtained by someone impersonating them.

The Palo Alto, Calif., computer and printer maker has disclosed that it hired a private-investigation firm to carry out the inquiry and the firm, still unidentified, hired a second firm that used pretexting to obtain phone records. Ms. Dunn has said she knew directors' phone records were being scrutinized, but didn't realize those records had been obtained improperly.

According to two people close to H-P, one reason for the board's adjournment Sunday was discussion about whether former director Thomas Perkins should be asked to rejoin the board. Mr. Perkins resigned last spring to protest the investigation of the leaks. Since then, the wealthy venture capitalist has suggested that directors remove Ms. Dunn as chairman and put him back on the board, according to these people familiar with the situation.

"He gets his prestige from sitting on corporate boards" and being an H-P board member was very important to him, one knowledgeable individual said. He was surprised when the board accepted his resignation, this person added.

However, Mr. Perkins's spokesman, Mark Corallo, said, "Tom Perkins will not return, even if asked, to the board of H-P. He remains steadfastly loyal to H-P and is motivated only by the company's best interests." As for Ms. Dunn, she has said she will resign if the board requests it. Both people close to H-P said the board has been cool to the idea of Mr. Perkins returning as an H-P director. It is unclear whether the board will ask Ms. Dunn to resign as chairman, director or both.

California Attorney General Bill Lockyer has said a crime was likely committed in the H-P probe, although his office has yet to determine who committed it. A spokesman for Mr. Lockyer's office yesterday said two potential felonies could be involved -- illegally accessing and using computer data and accessing personal-identification information and using it for illegal purposes, such as illegally accessing computer data.

Each of those crimes carries a maximum of three years in prison and a $10,000 fine. A person could be charged with multiple counts of the same crime, which presumably could happen because numerous individuals had their private records accessed.

The state agency could bring civil suits against individuals. The spokesman said there were various possible statutes under which to bring such actions. For instance, someone could be charged with unlawful business practices. Each violation of that statute carries a $2,500 fine.

FBI Deputy Director John Pistole told the Associated Press that the bureau opened its probe yesterday and was investigating two possible crimes: illegal computer intrusion and wiretapping. Under federal law, improperly obtaining personal phone records could be seen as a violation of the Federal Trade Commission Act, which attempts to protect consumer information. Regulations of the Federal Communications Commission require companies to keep customer information private.

But federal law may not be completely clear.

Late Friday, leaders of the House Judiciary Committee sent a letter to Senate Majority Leader Bill Frist urging him to move legislation stalled in the Senate that would make pretexting a federal crime. That legislation passed the House in April although a similar bill remains stalled there. In the letter, the lawmakers cited a letter by Larry Sonsini, H-P's outside attorney, reportedly suggesting that using pretexting services wasn't clearly illegal.

"If an attorney of Mr. Sonsini's caliber...believes that pretexting is not already a crime, then the time has come to clearly and unambiguously make such activity illegal," the lawmakers wrote.

On top of whatever federal statutes may have been broken, prosecutors could pile on conspiracy-related charges that could trigger a minimum of five years imprisonment, said Behnam Dayanim, a partner and privacy specialist in the Washington office of the international law firm Paul Hastings.

To put together a case, Mr. Dayanim added, investigators would have to first show records were accessed without proper authorization. Then, they would have to determine how much knowledge each of the parties had that a crime was taking place. H-P might argue that it wasn't aware of what activities were conducted by the private investigators.

The investigators could be asked to cooperate in showing the company was aware of the tactics, in exchange for lighter prosecution, he said. "This isn't a complex case," Mr. Dayanim said. "It will be a matter of proving what was done."

The Securities and Exchange Commission has asked H-P about a disclosure in May regarding Mr. Perkins's resignation. H-P didn't disclose a reason for the resignation, and has said it believes its disclosures about the matter were appropriate. Mr. Perkins has raised questions about that assertion, in view of the fact that he had disagreements with Ms. Dunn and resigned in connection with the investigation.

Mr. Perkins has disclosed that he asked federal prosecutors to look into the probe's tactics, and approached the FTC and FCC. The FCC on Thursday asked AT&T Inc., one of the phone carriers involved in the investigation, about possible improprieties linked to H-P's probe, a person familiar with the matter said.

Meanwhile, House Energy and Commerce Committee Chairman Rep. Joe Barton (R., Texas) and Rep. John Dingell (D., Mich.), the panel's senior Democrat, asked Ms. Dunn to identify firms or people hired to obtain directors' and journalists' phone records. "The committee is troubled by this information, particularly given that it involves H-P -- one of America's corporate icons -- using pretexting and data brokers to procure the personal telephone records of the members of its board of directors and of other individuals without their knowledge or consent," the letter said.

---- Peter Waldman, Amy Schatz and Joann S. Lublin contributed to this article.

Boardroom Fallout
Dunn Resigns as H-P Chairman
Amid Furor Over Phone Probes

CEO Hurd to Take Her Post;
California's Lockyer Warns
Insiders May Be Charged

Role of a Boston Investigator

By PETER WALDMAN and JOANN S. LUBLIN
September 13, 2006;PageA1

Hewlett-Packard Co. named Chief Executive Officer Mark Hurd to succeed its embattled chairman, but the computer maker faced a graver legal threat as California's attorney general said he has enough evidence to bring criminal charges against people at the company.

Mr. Hurd will succeed Patricia Dunn, H-P's nonexecutive chairman, in mid-January 2007. Her efforts to catch boardroom leakers last year led the Palo Alto, Calif., company to hire a contractor that scrutinized the private phone records of H-P's own directors and nine journalists.

H-P has said those records were improperly obtained by outside investigators through the use of "pretexting," or masquerading as the directors and journalists in order to request their records from phone companies. Mr. Hurd and Ms. Dunn apologized for the company snooping yesterday, though Ms. Dunn reiterated boardroom leaks had been a substantial problem for H-P.

In addition, H-P said George Keyworth, a former presidential science adviser and H-P's longest-serving director, resigned from the board. Mr. Keyworth was identified in Ms. Dunn's probe as a leaker of information to the press.

A spokesman for California Attorney General Bill Lockyer, confirming a remark made by Mr. Lockyer in an interview on the NewsHour with Jim Lehrer, said state investigators have "sufficient evidence to bring criminal charges against individuals inside Hewlett-Packard as well as outside the company." In the interview, Mr. Lockyer said: "People's identities were taken falsely, and it's a crime. People accessed computer records that have personal information. That's a crime."

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Yesterday's resignations reflected a tense compromise worked out among some of H-P's disaffected board members, brokered by Mr. Hurd and H-P's outside attorney, Lawrence Sonsini. The compromise addressed the bitter infighting on H-P's board but it failed to deal with many of the questions that lie behind a host of investigations, including Mr. Lockyer's.

Among the welter of questions still unanswered: Besides Ms. Dunn, who knew within the company and the board that personal phone records were being scrutinized? Why didn't that practice raise alarm bells, even if it wasn't clear that the records were obtained via "pretexting"? Why didn't Mr. Hurd, who was given the results of the investigation two months before they were presented to the board in May, kill the probe before it blew up?

An H-P spokesman said Mr. Hurd focused only on the leaker when he first heard the results, not the methods used in the investigation. The CEO found out only in recent weeks that pretexting was involved and that journalists were targeted, and he worked with the board to turn the matter over to outside lawyers for investigation, the spokesman said.

People familiar with the matter said H-P has told them one of the outside investigators it used is Ronald R. DeLia of a small Boston firm called Security Outsourcing Solutions Inc. (See related article.) An H-P spokesman reiterated that the company isn't commenting on who did its investigative work.

The H-P board met by phone Sunday morning and the meeting ended inconclusively after about three hours. The directors couldn't figure out how to satisfy both Ms. Dunn and her two main adversaries -- Mr. Keyworth and Thomas Perkins, a venture capitalist and former H-P director.

Outside the boardroom on Sunday and Monday, negotiations continued among high-powered lawyers representing the principals. The board reconvened Monday night with Ms. Dunn apparently resistant to the notion of her stepping down.

To break the impasse, H-P agreed to issue two statements yesterday. In the first, H-P announced Ms. Dunn's resignation as chairman -- the main demand of the Keyworth-Perkins side. She will stay on as a director after the resignation takes effect in January. Ms. Dunn apologized for the methods used in the leak probe, saying they "went beyond what we understood." She defended the probe itself as an "important investigation that was required after the board sought to resolve the persistent disclosure of confidential information from within its ranks."

The second H-P statement, delayed several minutes yesterday morning as the lawyers haggled over final wording, announced Mr. Keyworth's resignation. It included explicit regrets from Mr. Hurd and Ms. Dunn for violating the privacy of Messrs. Keyworth and Perkins. The two are old friends, and Mr. Perkins resigned from H-P's board in May to protest the leak investigations.

The second statement also described Mr. Keyworth's role in leakinginformation, without H-P authorization, to a reporter with CNET News in January. The statement said H-P's board recognized that Mr. Keyworth was trying to "further H-P's interests." The statement added that Mr. Keyworth often had met with reporters at H-P's request. He was described as "an important member of the H-P family."

H-P announced no action yesterday against Ann Baskins, its general counsel. Her office handled the leak investigation with outside private investigators. She is married to a partner at Wilson Sonsini, the company's outside law firm.

A U.S. House of Representatives committee is seeking information from H-P about the leak investigation, including the identity of private investigators that H-P used.

A spokeswoman for the Federal Bureau of Investigation said yesterday an investigation started by the agency on Monday hasn't determined whether anyone in the case violated federal laws. LaRae Quy, a special agent in the FBI's office in San Francisco, said the investigation is focused on how the confidential information was obtained, not on H-P itself. The FBI normally doesn't discuss ongoing investigations but made an exception because there is "such a national interest," Ms. Quy said. H-P says it is fully cooperating with all the investigations.

FROM TODAY'S PAPER

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Investors didn't seem worried about the remaining questions: H-P's stock rose 1.5%, amid broad gains in the market, and reached a five-year high. Since arriving at H-P, Mr. Hurd has overseen a surge in profit as the computer maker has won market share from rival Dell Inc.

As H-P's board deliberated, it had to wade through a thicket of legal and personality issues. It hesitated to disclose much about the privacy intrusions because of the active investigations by federal and state authorities. Meanwhile, Mr. Perkins and Mr. Keyworth, who is a protégé of the late H-P co-founder David Packard, were adamant that Ms. Dunn step down for triggering the leak probe and acting on the information gained via the privacy violations, people familiar with the discussions said.