Hurd Asked to Explain Cashout of Options

Mark Hurd, President and CEO of Hewlett Packard, speaks to the media in a Palo Alto, Calif. file photo from Sept. 22, 2006. Computer maker Hewlett-Packard Co. still has more cost-cutting ahead, even after a massive restructuring that began last year and sliced the work force by 10 percent, Hurd told analysts Tuesday. (AP Photo/Benjamin Sklar, File) (Benjamin Sklar - AP)

SAN FRANCISCO -- The congressional panel investigating Hewlett-Packard Co.'s boardroom spying probe has demanded that CEO Mark Hurd explain $1.37 million worth of options he exercised just before the scandal became public.

Hurd's cashout Aug. 25 _ before HP disclosed the spying tactics in a Sept. 6 regulatory filing _ did not appear to be part of a prescheduled program, the panel's ranking members, Reps. John Dingell and Bart Stupak, both Democrats from Michigan, said in a letter to Hurd publicly released Wednesday.

The activity came the same day Hurd was questioned by HP's outside attorneys investigating the circumstances surrounding the ill-fated effort to ferret out leaks by board members to the news media, the letter stated.

The congressmen asked Hurd to explain the reason for the transaction, seeking an answer on "whether executives are cashing in ('bullet dodging') while in possession of potentially damaging material facts that shareholders do not know."

Dingell and Stupak also asked in the letter to "please inform us whether any other HP officers or directors engaged in similar transactions during this period."

He was given until Dec. 21 to comply with the request. He testified Sept. 28 before the Committee on Energy and Commerce's Subcommittee on Oversight and Investigations.

HP said in a statement that it would comply with the panel's request.

Hurd and seven other HP executives and insiders cashed out options between Aug. 21 and Sept. 5. The company has previously said the transactions were unrelated to the scandal.

They fell within a three-week window each quarter when executives are allowed to sell shares after earnings are announced, HP said.

On Aug. 25, Hurd exercised options on 100,000 HP shares, about 6 percent of the total stock compensation package he received at the time of his hiring. The August sale netted him a profit of about $1.37 million, according to the filings.

The cashouts have also prompted attorneys who are suing top HP executives and directors over the scandal to add insider-trading claims to the lawsuit in California on behalf of all HP shareholders.

HP's stock price has remained relatively buoyant throughout the scandal, though the uproar has led to a purging of its top ranks and felony charges against two ousted HP insiders _ former Chairwoman Patricia Dunn and former ethics chief Kevin Hunsaker _ and three outside investigators, Ronald DeLia, Matthew DePante and Bryan Wagner.

They have all pleaded not guilty in Santa Clara County Superior Court to charges of identity theft and fraud for their roles. Their lawyers are scheduled to return to court Jan. 17.

Investors have largely applauded HP's efforts to move beyond the scandal, including the company's agreement last week to pay $14.5 million to settle a civil lawsuit brought by state Attorney General Bill Lockyer alleging unfair business practices related to the probe.

However, the FBI, the Securities and Exchange Commission, federal prosecutors and other agencies are still looking into the shady practice investigators used to impersonate HP directors and journalists to secretly obtain their confidential phone logs.

On Wednesday, HP shares lost 16 cents, to close at $39.67 on the New York Stock Exchange. The stock has risen since about 9 percent since Sept. 5 _ the day before the scandal was disclosed _ when it closed at $36.46.