HP admits pretexting, CA subpoenas, SEC awaits explanations
By Richard Koman for SiliconValleyWatcher
Earlier this week it came out that HP Director Thomas J. Perkins had resigned over an internal leak investigation organized by Chairwoman Patricia Dunn and conducted by an outside investigator. In its SEC filing yesterday, HP confirmed all of the developments that had been reported in the press:
- Perkins resigned over the investigation.
- Director George Keyworth was fingered as the leaker and was asked to resign, which he refused to do.
- Keyworth will not be renominated to the Board.
- The investigation involved pretexting, in which investigators lied to phone companies about their identity in order to get access to directors' records, including Perkins'.
- The California Attorney General is investigating the legality of the investigation.
- The SEC is inquiring into why HP originally reported that Perkins did not give a reason for his resignation.
SEC inquiry. By law, a company must supply the SEC with information whenever there is a change in its Board. On May 22, HP reported Perkins' resignation but didn't provide any reason for it, saying he hadn't given a reason. But in today's filing, the company tells a different story:
The Chairman of the Board, and ultimately an internal group within HP, working with a licensed outside firm specializing in investigations, conducted investigations into possible sources of the leaks of confidential information at HP. Those investigations resulted in a finding that Dr. George A. Keyworth II, one of HP’s directors, did, in fact, disclose Board deliberations and other confidential information obtained during Board meetings to the media without authorization. At a Board meeting on May 18, 2006, after Dr. Keyworth acknowledged that he had leaked confidential information, the Board, after deliberation, asked Dr. Keyworth to resign his position as a director, which he declined to do. It is at that meeting that Mr. Perkins resigned from the Board after expressing personal frustration with the Chairman of the Board relating to the handling of the matter with the Board. He stated that he objected to the matter being brought before the full Board and that he believed the Chairman had agreed that he and she would handle the matter privately. The Chairman disputed Mr. Perkins’ assertion, explaining that she was complying with advice from outside counsel on the appropriate handling of the matter. At the time, Mr. Perkins confirmed he did not have any disagreement with HP on any matter relating to HP’s operations, policies or practices.
That sure sounds like it was pretty clear what the reason for the resignation was and the original statement that no reason was given is disingenuous at best. The SEC is looking for an answer to this question.
HP also has received a comment letter from the staff of the Securities and Exchange Commission’s Division of Corporation Finance with respect to its May 22 Form 8-K regarding Mr. Perkins’ resignation. HP intends to respond to the SEC staff that it believes its disclosures in the May 22 Form 8-K with respect to Mr. Perkins’ resignation were accurate and complete at the time of filing and were based upon Mr. Perkins’ actions and representations prior to such time concerning the reasons for his resignation.
Was pretexting a crime? On June 19, Perkins asked for information about how the investigation was conducted and asserted that investigators' phone and email inquiries were “probable unlawful conduct, improper board practices, breakdowns in corporate governance," according to the New York Times. Yesterday, HP confirmed that investigators used pretexting but that the company had been assured by the investigator that nothing illegal transpired.
HP informed Mr. Perkins that no recording or eavesdropping had occurred, but that some form of “pretexting” for phone record information, a technique used by investigators to obtain information by disguising their identity, had been used. Mr. Perkins, although no longer a director, then requested that HP conduct an inquiry into the propriety of the techniques used to conduct the investigation. ...
After its review, the [Nominating and Governance] Committee determined that the third party retained by HP’s outside consulting firm had in some cases employed pretexting. The Committee was then advised by the Committee’s outside counsel that the use of pretexting at the time of the investigation was not generally unlawful (except with respect to financial institutions), but such counsel could not confirm that the techniques employed by the outside consulting firm and the party retained by that firm complied in all respects with applicable law.
The California Attorney General's office officially launched an investigation into the matter, issuing subpoenas, the Mercury News reports.
`I have no settled view as to whether or not the chairwoman's acts were illegal, but I do think they were colossally stupid,'' Attorney General Bill Lockyer told the Mercury News in an interview. ``We'll have to wait until the investigation concludes to determine whether they were felony stupid or not.''
Perkins' lawyer thinks they were:
``The facts are not totally in,'' Viet Dinh said. ``But one thing that is clear is pretexting to get personal records is illegal under federal law and California law. Any lawyer who thinks that lying to get private telephone records is legal needs to evaluate his bar license.''
That's a shot across the bow at Larry Sonsini, reports the Times.
[The pretexting] was revealed in an e-mail response when Mr. Perkins directly asked Larry W. Sonsini, the chairman of Wilson Sonsini, about the investigative methods.
The Wilson Sonsini investigation concluded that the use of pretexting “was not generally unlawful.” But the law firm could not say whether the consulting firm that Hewlett-Packard hired, or the subcontractors it used, “complied in all respects with applicable law.”
And says the time, the issue has caused a rift between Perkins and Sonsini:
A Wilson Sonsini lawyer, Boris Feldman, accused Mr. Perkins of discussing internal Hewlett-Packard deliberations with others last month. The lawyer went on to demand that he name those he spoke to and what documents he gave them.
Mr. Perkins’s response was just as rough. Mr. Dinh, who had served from 2001 to 2003 as assistant United States attorney general for legal policy, helping to draft the Patriot Act, accused the law firm of conflicts of interest. He accused the company of “sanitizing” the minutes of the board meeting in which Mr. Perkins resigned. He told the company that Mr. Perkins was a victim of possible fraud, identity theft and misappropriation of personal records.
“We have good reason to believe that H.P. and/or its agents were responsible for these activities,” he said in a letter to the company.