Probe of Data Leaks at HP Ignites Controversy

Company says 'pretexting' used to investigate board members, reporters

A furor erupted last week over Hewlett-Packard Co.'s acknowledgment that private investigators probing media leaks from the company's board of directors had accessed the personal phone records of some board members and of nine reporters who cover HP.

The California attorney general's office said it had launched an inquiry into the events at HP to determine whether any state laws were broken as part of Chairman Patricia Dunn's covert effort to unmask the director who leaked information about a strategy meeting to the press.

In a filing submitted to the U.S. Securities and Exchange Commission last Wednesday, HP confirmed that the external investigators in some cases had used "pretexting" -- a controversial method of obtaining an individual's telephone calling records by pretending to be that person.

In the past two years, at least 10 states have passed laws imposing sanctions on pretexting, said Joseph Sanscrainte, an attorney at Bryan Cave LLP in New York. California's state legislature recently passed a bill that would outlaw the practice; Gov. Arnold Schwarzenegger has until month's end to decide whether to sign or veto the bill.

HP said in its SEC filing that Dunn had told the investigators she hired to check the leaks lawfully and that HP's outside counsel had advised it after reviewing the situation that pretexting wasn't generally illegal at the time it was employed.

However, the counsel also told HP he couldn't confirm that the investigators had "complied in all respects with applicable law," according to the filing. The company said it would cooperate fully with the state attorney general's office on its inquiry.

On Thursday, HP sent the attorney general a list of nine reporters whose telephone records were also obtained by the investigators. An HP spokesman said company officials were "dismayed that the phone records of journalists were accessed without their knowledge."

HP's best course of action is "complete transparency," said C. Hunter Wiggins, a partner at Chicago-based law firm Sonnenschein Nath & Rosenthal LLP. "Admit that it was a business blunder -- but it's essentially an internal issue -- and do everything they can to discourage prosecutions."

The brouhaha stemmed from the sudden resignation of Silicon Valley venture capitalist Thomas Perkins from HP's board in May. At the time, HP provided no reason for his resignation. But according to last week's SEC filing, Perkins resigned because of what HP described as his "personal frustration" with Dunn's handling of the leak probe.

Perkins, though, viewed his resignation as a matter of disagreement with HP's policies -- which meant HP was required to disclose the reasons for his departure to the SEC. In June, Perkins -- whose personal phone records were allegedly accessed via pretexting -- asked HP to investigate the propriety of such techniques. Later, he sent a letter to the company's board threatening to go public about his reasons for resigning if HP didn't update its original SEC filing about his departure.

In last week's 8-K filing, HP said it thinks the May disclosure of Perkins' resignation was "accurate and complete at the time of filing."

The probe of the board-level leaks revealed that George Keyworth, an HP director since 1986, had been disclosing confidential information about board deliberations and other matters to the media, the company said. At the May 18 board meeting at which Perkins resigned, Keyworth acknowledged that he had leaked information and was asked to step down, which he refused to do, HP said.

Keyworth's time on the board may be drawing short, though. HP said in the SEC filing that at a meeting on Aug. 31, the board voted not to nominate him for another term because of his conduct.

Martens writes for the IDG News Service.

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Copyright © 2006 IDG Communications, Inc.

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