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December 7, 2006

HP settles spying case for $14.5m while Dunn awaits trial

Hewlett-Packard Co dodged a prolonged PR nightmare by announcing yesterday it would pay just $14.5m to settle a civil case with California over allegations of unlawful spying on reporters and its directors during an internal probe of boardroom leaks to the media.

By CBR Staff Writer

However, two former HP executives and three contractors involved in the probe still face felony charges in an ongoing criminal case with the state. They are former HP board chair Patricia Dunn and former counsel Kevin Hunsaker, who both resigned over the scandal, and independent private investigators hired by HP. They have all pleaded not guilty to four felony counts, including identity theft and conspiracy, and are currently awaiting trial.

But HP has cleared its name, at least within the law. Its settlement resolves allegations that it used false pretenses to unlawfully access phone records, in a questionable practice known as pretexting.

In addition to pretexting, HP has previously also admitted to physically surveilling at least two people and sorting through the trash of at least one person in order to find information about the leaks. The revelations were viewed as the bitter end of the so-called HP Way by many in Silicon Valley, where HP was once viewed as a bastion of integrity and respect among employers.

HP’s internal probes eventually outed HP director George Keyworth as the leaker and he retired soon after the story broke in mid-September.

As part of its settlement deal, HP also will adopt corporate governance reforms to ensure its future internal investigations are conducted within the lines of state law.

Fortunately, Hewlett-Packard is not Enron, said California attorney general Bill Lockyer, in a statement. I commend the firm for cooperating instead of stonewalling, for taking instead of shirking responsibility, and for working with my office to expeditiously craft a creative resolution.

The settlement amounts to little more than a slap on the wrist for HP, which reported a $1.9bn profit for its most recent fiscal quarter.

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Most of the $14.5m fine would finance a new law enforcement fund to fight violations of privacy and intellectual property rights.

HP issued a statement outlining the internal processes and controls it must set up and maintain for five years, as part of the deal. The company already has met a few those requirements, including hiring a chief ethics and compliance office, whom HP named in October, as well as an investigative practices expect, hired in September, to ensure future probes don’t skirt the law.

HP must also set up a compliance council to create policies for the general operations of HP’s ethics and compliance programs. And it has to overhaul its annual training requirements for everyone involved with internal investigations.

We are pleased to settle this matter with the Attorney General and are committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility, said HP chief executive Mark Hurd, in the statement.

Other HP execs, including former general counsel Ann Baskins and former global security manager Anthony Gentilucci, also resigned over the scandal but do not face criminal charges. They were subpoenaed in late September by a US congressional committee as part of its investigation into HP’s use of pretexting.

The private investigators facing criminal charges are Ronald DeLia, managing director of Security Outsourcing Solutions, Matthew Depante, manager of information broker Action Research Group, and Bryan Wagner, an investigator at Action Research Group.

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