Spy scandal touches HP cast of characters

Directors and reporters' phone records hacked

September 09, 2006|By David Streitfeld, James S. Granelli and Joseph Menn | David Streitfeld, James S. Granelli and Joseph Menn,Los Angeles Times

SAN FRANCISCO -- One is the daughter of Las Vegas performers who entered the business world as a secretary and rose to the top of a major investment company.

Another is a legendary financier married briefly to the country's best-selling romance novelist and who lately became a novelist himself, with markedly less success.

The third is a top nuclear physicist and former White House science adviser who liked to tell people he met on airplanes that he made earthquakes for a living.

All are at the center of a broadening criminal probe and corporate scandal that has Silicon Valley wondering what went wrong at Hewlett-Packard Co., the iconic company that for decades was considered such an upstanding corporate citizen that "the HP Way" became a type of shorthand for honesty and fair dealing.

HP has been rocked by allegations that some members of the board of directors hired private investigators to spy on other board members as well as nine reporters covering the company known for its computers, printers and calculators. Phone records apparently were obtained through false pretenses and fake e-mail addresses.

"Somewhere along this chain of people that were involved in the spying, laws were broken," California Attorney General Bill Lockyer said this week, adding that anytime a prosecutor makes that finding, a prosecution is likely.

Silicon Valley, where the super-smart and the super-rich move in small circles, is watching the drama explode with amazement.

"I don't think anybody would believe this if you cast it as fiction," said Michael Perkins, author of the Silicon Valley novel A Cool Billion. "Fiction, as Mark Twain said, has to stick to possibilities." (Perkins is not related to former director Thomas Perkins.)

Corporate boards have been much criticized in recent years as clubby, back-scratching, rubber stamps for the all-powerful chief executive. The HP board seems more akin to a group of quarreling mobsters or perhaps just squabbling children.

Private investigators

Here's the story so far: Patricia Dunn, the board chairwoman, thought one of her fellow members was leaking secret deliberations to the press. Steamed, she arranged in January for private investigators to trace the source. George Keyworth, the physicist, was implicated but refused to resign.

Yesterday, Dunn said that several of her fellow board members want her to remain on the job despite a criminal investigation into her efforts to plug the leak.

"I serve at the pleasure of the board," Dunn told the Associated Press in an interview. "I totally trust their judgment. If they think it would be better for me to step aside, I would do that. But a number of directors have urged me to hang in there."

Thomas Perkins, the financier, quit the board in May. Portrayed at the time as routine, the resignation actually resulted from his anger over what he called "the likely illegality" of the leak investigation. His phone records, he complained to the board, were among those hacked.

To underline the irony, a fourth board member is Lawrence T. Babbio Jr., vice chairman and president of Verizon Communications Inc., the nation's second-largest phone company. As Perkins noted in a letter to the HP board that became public this week, Verizon has filed fraud lawsuits against persons and companies who impersonate others to get phone records.

HP spokesman Ryan J. Donovan wouldn't disclose the names of the reporters who were hacked or the identities of the investigation companies. Lockyer also declined to name the companies, saying he wanted his agents to be able to conduct interviews of people involved "without TV cameras being in their office."

The Wall Street Journal reported that one of its staff writers, Pui-Wing Tam, was among those whose records were obtained. CNET news.com, a technology news Web site, said its reporters Dawn Kawamoto and Tom Krazit were also victimized. The New York Times said call records of reporter John Markoff also were accessed.

HP's Donovan said the company was "dismayed" that the reporters' phone records were viewed without their knowledge. "We are in the process of sharing information with the [California attorney general]," he said.

The expectation among analysts this week was that Dunn, who joined the HP board in 1998 and became chairwoman in February 2005, may not keep her position.

"It's probably likely that they will reshuffle," even if board members escape liability for the actions of their outside investigators, ThinkEquity analyst Eric Ross said.

The furor is marring what should have been a celebratory time at HP.

After recovering from a blistering proxy fight over its $19 billion acquisition of rival Compaq Computer Corp. and a subsequent performance slump that cost high-profile chief executive Carleton "Carly" Fiorina her job, HP has been on the mend.

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