Thursday, September 28, 2006

The New York Times

September 28, 2006

H.P. Counsel Resigns as Hearings Open

WASHINGTON, Sept. 28 — Hewlett-Packard’s general counsel, Ann O. Baskins, has resigned from the company, and her lawyer said she will not answer questions at the Congressional hearing scheduled for today.

As Hewlett-Packard’s chief in-house lawyer, Ms. Baskins was one of the key executives supervising the company’s spying operation on its own directors, journalists and others, meant to identify the source of leaks of confidential information to the news media. Revelations about the spying operation prompted the hearing.

The company’s former chairwoman, Patricia C. Dunn, who resigned last week, is expected to testify today. In prepared remarks, she wrote that she worked closely with Ms. Baskins and was in regular contact with those conducting the leak inquiry, but was not supervising the inquiry.

The resignation of Ms. Baskins, who had been with Hewlett-Packard since 1982, follows the departure of two other company executives, Anthony R. Gentilucci, manager of global investigations, and Kevin Hunsaker, senior counsel and director of ethics. Mr. Hunsaker reported directly to Ms. Baskins.

A lawyer for Ms. Baskins, K. Lee Blalack 2nd of O’Melveny & Myers, said “Ms. Baskins always believed that the investigative methods she knew about were lawful, and she took affirmative steps to confirm their legality.”

That stance closely echoed the one taken by Ms. Dunn in her prepared remarks for the hearing today — that she never had reason to believe that illegal methods were used and that she repeatedly sought assurances on that point from those directly involved.

Still, Mr. Blalack said, “Ms. Baskins wishes she had more actively inquired about the methods being used, and taken steps to halt any that were inconsistent with H.P.’s high ethcial standards, such as pretexting.”

Pretexting refers to the use of subterfuge to obtain confidential information, such as impersonating a telephone subscriber to obtain the subscriber’s calling records.

A senior investigator for the company was warning early this year, as the operation entered a crucial phase, that the pretexting techniques being used were “very unethical at the least, and quite likely illegal.”

Saying that the practices, even if legal, “could damage our reputation or worse,” the investigator, Vince Nye, said in an e-mail message, “I think we need to refocus our strategy and proceed on the high-ground course.” Mr. Nye worked in the company’s global security unit.

Why that advice was not followed — and apparently did not reach the top levels of Hewlett-Packard’s leadership — is expected to be a central theme of today’s hearing.

The roles of Ms. Dunn and the company’s chief executive, Mark V. Hurd, in the investigation — the extent of their knowledge, their action or inaction, and the questions they raised or failed to — are expected to dominate the questioning. In addition to Ms. Dunn, several private detectives involved in the matter are expected to testify today.

The company’s investigation, aimed at tracing leaks to the news media from the company’s board in 2005 and early 2006, came into public view scarcely three weeks ago as a result of deep divisions in the boardroom. It is also the subject of federal and state criminal investigations.

Mr. Nye’s e-mail message, obtained by The New York Times from someone with access to documents given to the committee, is the strongest indication yet of internal questions about the operation’s legality.

It was sent on Feb. 7, shortly after a new leak from the board had revived the investigation and at a time when more elaborate forms of surveillance, beyond obtaining phone records, were being considered or carried out.

The message was addressed to Mr. Gentilucci, the head of the company’s Boston-based global investigations unit and a central figure in the operation from its start a year earlier. It is not clear whether or how Mr. Gentilucci responded.

In her prepared testimony, Ms. Dunn wrote that once the board agreed to an investigation of leaks in early 2005, she relied on top Hewlett-Packard officials who referred her to the company’s global security department, which in turn referred her to Ronald R. DeLia, a contractor in the Boston area who had performed investigations for Hewlett-Packard for nearly a decade.

“I did not ‘hire’ the private investigators” involved in the operation, Ms. Dunn said. “They were already under contract to H.P. when the leak investigation was initiated.”

Ms. Dunn called Mr. DeLia’s firm a “captive subsidiary” of Hewlett-Packard and noted that it was used to perform a background check on Mr. Hurd before he was hired, including a report on his health.

Ms. Dunn said that after she learned in the spring of 2005 that the phone records of directors were being gathered, “the clear impression I had from Mr. DeLia was that such records could be obtained from publicly available sources in a legal and appropriate manner.”

She also said that “given that attorneys were unambiguously overseeing” a later, more intense phase of the investigation that employed similar techniques, she had no reason to believe those techniques were inappropriate.

It was not until after the second phase concluded in May 2006 that she began to comprehend the word “pretext,” Ms. Dunn said, adding, “I still do not understand whether it is or is not legal, as opinions vary.”

Ms. Dunn also lashed out at Thomas J. Perkins, a former board member whom she accused of disseminating “false statements about my having organized and conducted an elaborate spying campaign on H.P. directors for no good reason except, to paraphrase, a delusion of paranoia.”

Mr. Perkins resigned from the board in May over the leak investigation, whose findings pointed to a friend and fellow director, George A. Keyworth II, as the source. It was Mr. Perkins’s subsequent inquiries into the investigation’s methods that led to their disclosure this month.

Ms. Dunn’s statement defends the goal of the investigation, and it includes no expression of regret or apology for its handling.

In his own prepared testimony, Mr. Hurd portrays Ms. Dunn as having taken a more engaged role in the operation, saying she “enlisted the professional services” of Mr. DeLia.

Mr. Hurd’s statement largely reiterates the account he offered in announcing Ms. Dunn’s resignation last Friday. He says he was present at two meetings to discuss the operation while it was under way, and was consulted at another point about the use of a bogus e-mail message to try to detect a reporter’s source.

“While many of the right processes were in place, they unfortunately broke down, and no one in the management chain, including me, caught it,” he said.

Just how those processes broke down is likely to be a topic of pointed questioning by members of the House Energy and Commerce Committee.

Among the documents sent to the committee is an 18-page report from Kevin T. Hunsaker, senior counsel and director of ethics at the company, after the investigation’s conclusion in May that summarizes the findings and makes clear that private phone records were obtained — adding in a footnote that the effort involved “a lawful investigative methodology commonly utilized.” It was sent to Mr. Hurd, the company’s board, and Ms. Baskins, the general counsel.

“These folks still in the company need to come clean,” said Greg Walden, the Oregon Republican who is vice chairman of the panel’s investigations and oversight subcommittee, which is convening the hearing.

Five additional witnesses, all said to have been engaged in obtaining phone records, were subpoenaed Wednesday to appear at the hearing.

The five are Bryan Wagner of Littleton, Colo.; Darren Brost of Austin, Tex.; Charles Kelly of CAS Agency in Villa Rica, Ga.; Cassandra Selvage of Eye in the Sky Investigations in Dade City, Fla.; and Valerie Preston of InSearchOf Inc., in Cooper City, Fla. Congressional staff members said they did not know if any would answer questions.

The five are believed to be at the end of a long investigative chain that stretched from Hewlett-Packard’s headquarters in Palo Alto, Calif., to its own investigators in Boston, through Mr. DeLia’s firm, Security Outsourcing Solutions, and on to Action Research Group, a data broker in Melbourne, Fla., that is said to have hired the actual pretexters.

The hearing is scheduled to begin at 10 a.m. and stretch into the evening. It is expected to be covered live by C-Span 3, a government affairs cable network.

The hearing will begin with a panel of witnesses who are expected to invoke their Fifth Amendment right against self-incrimination.

Lawyers for two of those subpoenaed — Mr. Gentilucci, the manager of global investigations, and Mr. Hunsaker, the senior counsel — said their clients had not decided whether to answer questions.

Mr. DeLia, the author of several reports on the investigation given to company officials, has also been subpoenaed, but it is not clear how he will respond. His lawyer could not be reached for comment.

A second panel will include company officials who were involved in the investigation, including Ms. Dunn; Ms. Baskins; and Fred Adler, a security investigator; it will also include Larry W. Sonsini, the company’s outside counsel, and Joseph DePante, the owner of Action Research Group, the Florida investigative firm.

A third session will include only Mr. Hurd, at his request, in part because he wanted his role to seen as separate from other H.P. officials.

Sitting separately, however, carries its own risks. He will face more questions than if he shared the panel with others, since each committee member gets 10 minutes to ask questions at each panel.

HP's General Counsel Latest to Fall in Scandal

From Associated Press

8:59 AM PDT, September 28, 2006

PALO ALTO, Calif. — The general counsel of Hewlett-Packard Co. announced her resignation today, shortly before the company's former chairwoman told Congress she was never advised that HP's spying probe involved illegal tactics.

Ann Baskins had been with HP for 24 years, including the past six as the company's top in-house lawyer. She had been scheduled to testify to a House committee as well, but she invoked her Fifth Amendment right against self-incrimination and did not answer lawmakers' questions.

"Ms. Baskins always believed that the investigative methods that she knew about were lawful, and she took affirmative steps to confirm their legality," her attorneys told the House Energy and Commerce committee in a letter today. "Ms. Baskins repeatedly sought and obtained assurances from a senior HP counsel that the techniques about which she knew were entirely lawful."

Baskins' resignation follows the same decision last week by Chairwoman Patricia Dunn, who along with CEO Mark Hurd was going before the House committee to explain how the company came to obtain information about board members suspected of leaking information to journalists. Two other directors have also resigned.

Baskins managed "worldwide legal matters including patents and licenses, litigation and regulatory compliance," according to her biography on HP's Web site. As corporate secretary, a title she was given in 1999, she was also responsible for shareholders' meetings, "board of directors' formalities," corporate governance and shareholder records, according to her biography.

After joining HP in 1982 as a lawyer, she was named a senior attorney in 1985 and corporate counsel in 1986. She held several other positions before being named general counsel in January 2000. She graduated from Stanford University and earned her law degree at the University of California, Los Angeles.

"Stepping down was a very hard decision for her, but by doing so she has put the interests of HP above her own and that is to be commended," Hurd said in a statement about Baskins' resignation.

"I want to thank Ann for 24 years of outstanding service and devotion to HP. She began her career here shortly after law school and worked her way up to serve as the company's top lawyer, earning along the way a reputation for hard work and integrity."

As part of Baskins' severance, she must forfeit all her restricted HP stock but will take away retirement payments totaling $1.78 million. The agreement also gives Baskins until Nov. 22 to cash in 465,858 HP stock options -- worth $3.66 million as of Wednesday.