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Lockyer Charges 5 in HP Scandal

Times Staff Writers

The former chairwoman of Hewlett-Packard Co. and four others were charged with felonies Wednesday for their roles in a clandestine probe to root out the source of boardroom media leaks at the Silicon Valley icon.

California Atty. Gen. Bill Lockyer filed four felony counts against Patricia C. Dunn, who resigned last month from HP’s board after ordering a cloak-and-dagger investigation that included obtaining private phone records through subterfuge, tailing HP directors and sending computer spyware to a reporter.

Also charged were Kevin T. Hunsaker, the former HP ethics officer who oversaw the investigation; Ronald DeLia, the Massachusetts private investigator who carried it out; Matthew DePante, who worked at his father’s Florida data-brokering company, which provided confidential phone records; and DePante’s co-worker, Bryan Wagner of Colorado.

Notably, though, HP Chief Executive Mark V. Hurd was not accused of wrongdoing -- a fact that sent the company’s shares to a six-year high as Wall Street hoped the saga was drawing to a close.

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In a complaint filed in Santa Clara County Superior Court, Dunn and the others are accused of using false pretenses to obtain confidential information from a public utility, gaining unauthorized access to computer data, identity theft and conspiracy to commit each of those crimes.

If convicted, the five could each face as many as 12 years in state prison and $65,000 in fines.

Dunn, DeLia and DePante denied the charges Wednesday. Hunsaker’s lawyer, Michael N. Pancer of San Diego, didn’t return phone calls. Wagner could not be reached.

An HP spokesman said the company would continue to cooperate with state and federal investigators, but had no further comment Wednesday.

Unlike the accounting manipulation in previous scandals at Enron Corp. or WorldCom Inc., the HP case highlighted the precarious nature of personal privacy in the Internet age and raised questions about the heavy-handed tactics of big corporations.

“Privacy issues have been put in a light that simply has not existed before,” said James Post, a Boston University business professor and lawyer. “That’s what makes this a landmark case. This is going to be the reference point for decades in the clash of personal privacy and the corporate need to know.”

Lockyer said at a news conference that the state took privacy crimes seriously and that “those who crossed the legal line must be held accountable.”

The scandal has riveted Silicon Valley since it was revealed Sept. 5. In the weeks that followed, Lockyer, the FBI, a congressional panel and the Securities and Exchange Commission launched their own investigations into the Palo Alto company once considered so strait-laced that the “HP Way” was synonymous with honesty and fair dealing.

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“The irony is that this is a well-run company with an outstanding code of ethics and an enviable record in law compliance,” said defense lawyer Jan Handzlik, a former U.S. prosecutor. “That’s another reason why this behavior is such an aberration.”

For investors, the chief worry was that the revelations might taint Hurd, the low-profile chief executive recruited last year to turn around HP’s flagging fortunes after the firing of CEO Carly Fiorina.

Lockyer and his attorneys said Wednesday that the investigation “remains active” and other people could be named in related future criminal complaints. He said that, to date, his investigation had uncovered “no evidence that Mark Hurd engaged in criminal conduct.”

“I think they could put the whole board in jail and Wall Street would not care,” said Daniel Morgan, a portfolio manager at Synovus Investment Advisors. “Until Hurd is implicated in some sort of criminal charges that would prevent him from continuing to lead the company, the stock market has distanced itself from the boardroom soap opera.”

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But that soap opera may well end up defining the professional career of Dunn, the daughter of Las Vegas performers who rose from bank secretary to chief executive of mutual fund manager Barclays Global Investors. Dunn, 53, resigned that post in 2002 after she was diagnosed with breast cancer.

Dunn is scheduled to begin chemotherapy treatment Friday for advanced ovarian cancer, said a person familiar with the situation.

An HP board member since 1998 and chairwoman since 2005, Dunn launched the investigation into boardroom leaks in the spring of 2005, saying she believed that the time for “gentlemanly” tactics was over. Dunn was infuriated that details of board discussions appeared in several media outlets.

An inquiry earlier that year by HP’s outside legal counsel, prominent Silicon Valley lawyer Lawrence W. Sonsini, “was very professional and noninvasive -- the kind of approach you would use with a board you expected to get honest answers from,” Dunn told attorneys reviewing the probes this summer.

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But Sonsini’s approach of questioning each board member individually never identified a culprit, and the leaks continued. So Dunn pressed for tougher measures, according to internal HP documents released by a congressional committee investigating the probe.

“Dunn was aware that reporters’ cellphones were being looked at, and thought this was standard,” according to summaries of her interviews. “Her understanding was that since HP had tried and failed to uncover the source of the leaks the ‘gentlemanly way’ by having Sonsini speak to the directors, more aggressive measures were required, so long as they were undertaken in compliance with the law.”

Lockyer’s complaint alleges that Dunn understood that investigators were using ruses to obtain phone records and even provided the home and cellphone numbers of fellow directors so their call logs could be viewed.

“These charges are being brought against the wrong person at the wrong time and for the wrong reasons,” said Dunn’s lawyer, Jim Brosnahan. “Throughout her entire career, she has stood for corporate process, responsibility and service. As her many supporters fully expect, she will fight these charges with everything she has.”

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Lawyers not involved in the case said Lockyer might have a difficult time proving his case, particularly because the act of surreptitiously obtaining private phone records hadn’t been outlawed specifically.

The practice of impersonating customers to obtain phone records will become a criminal offense in California when a bill signed into law last week by Gov. Arnold Schwarzenegger takes effect Jan. 1. Violators will be punished by $2,500 in fines and as long as a year in jail. The law will not apply retroactively to the HP case.

Some existing laws, such as the state’s identity theft statute, require that defendants act willingly, to show they had criminal intent, said Robert Weisberg, a Stanford University criminal law professor. Others, including the wrongful use of computer data, state that defendants have to act knowingly, a lesser standard.

To what extent Dunn, Hunsaker and others could defend themselves by saying they relied on the advice of lawyers is unclear. Defense lawyer Handzlik said Lockyer might have a “very difficult” time proving what Dunn and Hunsaker knew.

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“A lot of corporate executives are saying that they realize now that the things they did could be considered fraudulent, but they relied on the advice of lawyers,” Weisberg said. “A court could say that even if statutes could be stretched to cover this situation, it will allow Dunn to claim that she didn’t know it was wrong because she was relying on the advice of counsel.”

In the HP case, the advice appears to come from DeLia’s lawyer, John Kiernan of Boston. In congressional hearings and from other details that have been released, there is no indication that Hunsaker or anyone else independently verified Kiernan’s contention that the investigatory tactics used in HP’s probe were legal.

“Even though HP has eminent lawyers of the highest skill and character advising it on daily basis, it did not bring them in to run and review this operation,” Handzlik said. “It all seems kind of strange.”

james.granelli@latimes.com

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marc.lifsher@latimes.com

jim.puzzanghera@latimes.com

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Granelli reported from Los Angeles, Lifsher from Sacramento and Puzzanghera from Washington.

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(BEGIN TEXT OF INFOBOX)

Back story

The scandal over Hewlett- Packard Co.'s spying on directors, reporters and others erupted publicly Sept. 5, and the company disclosed the next day that it had used possibly illegal tactics to find out who was divulging boardroom information.

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Former HP Chairwoman Patricia C. Dunn had launched two investigations. The first, in 2005, was inconclusive, but a second one overseen by HP’s in-house lawyers was started in January. That probe led in May to longtime director George A. Keyworth II, who was asked to resign.

Keyworth admitted providing information but insisted that it wasn’t sensitive or secret, and refused to resign at the time. He did resign last month, after the probe was made public. Fellow board member Thomas J. Perkins, however, was angry with Dunn and the tactics used in the investigation. He resigned during the May board meeting, storming out in protest.

Perkins’ complaints led to state and federal criminal probes. Those revealed that outside investigators compiled dossiers on directors, nine reporters and their families, obtained Social Security numbers, created online telephone billing accounts in the targets’ names to get phone records and tailed Keyworth and one reporter. They even went through trash to try to find evidence.

Along the way, reports and correspondence kept HP executives apprised of much of the tactics used. On Sept. 22, Dunn resigned, insisting that she never knew the extent of the methods used in the investigation.

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Source: Times research


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