2 lawmakers query CEO on HP stock

Times Staff Writer

Two members of Congress want Hewlett-Packard Co. Chief Executive Mark V. Hurd to explain why he sold $1.37 million worth of stock shortly before the Silicon Valley icon disclosed the corporate spying scandal.

U.S. Reps. John D. Dingell and Bart Stupak, both Michigan Democrats, said in a letter to Hurd that his Aug. 25 exercise of stock options came on the same day that company lawyers questioned him about his role in the spying.

Together with other securities scandals, the congressmen wrote, the transaction raises questions "about whether executives are cashing in while in possession of potentially damaging material facts that shareholders do not know."

Dingell, the incoming chairman of the House Energy and Commerce Committee, and Stupak gave Hurd until Dec. 21 to respond.

"This is not a new matter," said Emma Wischusen, a spokeswoman for the Palo Alto computer and printer maker. "We look forward to responding to the committee's inquiry."

HP explained in October that executives had a three-week window every three months to buy and sell stock, starting a day after quarterly earnings are released, according to a San Jose Mercury News story. For that quarter, the window opened Aug. 18, and executives collected gains of more than $15.5 million, the newspaper said.

Hurd is credited with turning around HP and keeping the company's stock price strong during the public airing of the spying scandal in September, including a hearing before Dingell's committee. Analysts worried he could be hurt if he couldn't explain the transaction adequately. And that, in turn, could hurt the company.

HP shares fell 16 cents Wednesday to $39.67.

Washington insiders say a letter from Dingell, more than other committee chairs, implicitly carries a threat of further questioning and possibly more hearings if he doesn't believe he is getting complete answers.

"This sure looks bad" for Hurd, said technology analyst Rob Enderle of Enderle Group in San Jose. "Every time something like this happens, it reduces the credibility of the guy."

He noted that Hurd came out of the spying scandal nicked but fairly clean. HP disclosed in early September that it had used "pretexting" -- gaining private phone records by subterfuge -- to try to find out who was leaking boardroom information to the media. Chairwoman Patricia C. Dunn and three HP executives resigned. She and four others also face state criminal charges.

Last week, the company agreed to pay $14.5 million to settle a lawsuit brought by California Atty. Gen. Bill Lockyer. The suit accused the company of violating business laws by using pretexting in the internal investigation.

Two weeks ago, investors sued Hurd and some directors, accusing them of selling $38 million worth of HP securities in the weeks before the company disclosed the spying campaign in a Sept. 6 filing with the Securities and Exchange Commission.

Although Dunn ordered and oversaw the spying, Hurd admitted that he knew some of the details and approved the use of a ruse to lure a reporter to reveal her source.

"Even if he comes out of this OK, you don't get many more of these before people begin to believe there's fire under all that smoke," Enderle said.

On Aug. 25, Hurd exercised options on 100,000 shares, selling them in 10 uneven blocks at $35.20 to $35.44 a share.

Hurd could have sold the securities at any time since April 1, when they vested, said Stephen Diamond, a lawyer and corporate governance professor at Santa Clara University. "He knew as much about the spying in August as he knew in April, so why sell on Aug. 25?"

He said securities law prohibits top executives from buying or selling stock if they have material information that hasn't been disclosed publicly. The exception is for preexisting plans, and many executives have set up regular timetables for exercising the stock options they receive.

But Hurd hasn't established a track record, Diamond said. That could be because he's been in the job only since April 2005, he said.

Experts said Hurd could have a solid explanation.

"This may well be the first chance he had to sell without having material information that wasn't disclosed, and he may well have thought that the spying was not a big deal at the time," Diamond said.



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