HP, Calif. Settle Spying Lawsuit

By Ellen Nakashima
Washington Post Staff Writer
Friday, December 8, 2006

California's attorney general announced a $14.5 million civil settlement with Hewlett-Packard over its corporate spying scandal yesterday and said in an interview that he was exploring a possible settlement of criminal charges against the firm's former chairman.

Patricia C. Dunn was ousted as chairman in September after the HP ethics and spying scandal became public. California Attorney General Bill Lockyer filed fraud and conspiracy charges against her in October, a day after Dunn learned that she had suffered a relapse of ovarian cancer.

Lockyer said he has been talking to Dunn's attorney, James Brosnahan, about a potential settlement. "I'm sympathetic to her health problems," Lockyer said in an interview, adding that there was "nothing yet that would indicate that settlements are likely."

Brosnahan did not return a reporter's call yesterday.

The civil settlement involved a lawsuit the state filed against the computer giant in Santa Clara County Superior Court. Under the agreement, HP will pay $13.5 million to create a "privacy and piracy" fund to help state and local law enforcement fight privacy and intellectual property violations. The rest of the money will go to damages and to pay for the investigation.

HP also agreed to strengthen in-house monitoring to ensure that future investigations launched by HP or its contractors will comply with legal and ethical standards and protect privacy rights. HP further agreed to hire an independent director, expand the duties of its chief ethics officer and chief privacy officer, beef up staff ethics training and create a compliance council to set policies for ethics programs.

"This settlement creates a template for other companies seeking to protect confidential business information without violating corporate ethics or privacy rights," Lockyer said.

The scandal broke in September when HP acknowledged in a Securities and Exchange Commission filing that investigators probing internal HP leaks to the media had gained access to board members' personal phone records by impersonating the board members, a practice known as pretexting. HP's investigators also conducted physical and electronic surveillance of board members and reporters, according to HP documents.

Pretexting violates a California criminal law banning the use of "false and fraudulent pretenses" to obtain confidential information from a phone company, Lockyer's office said. California civil law also considers criminal acts unlawful business practices, which was the basis of the state's civil action.

The civil settlement does not affect the criminal charges brought against Dunn and four others, including former HP chief ethics director and senior legal counsel Kevin Hunsaker, who resigned as the scandal unfolded; Boston security consultant Ronald R. DeLia; and private investigators Bryan Wagner of Littleton, Colo., and Matthew Depante of Melbourne, Fla.

Lockyer commended HP yesterday for "cooperating, instead of stonewalling" the investigation.

Mark V. Hurd, HP's chairman and chief executive, hailed the deal. "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," he said.

Staff researcher Richard Drezen contributed to this report.

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