Hewlett-Packard: Spying, Spying and More Spying

hewlettpackardcorporatespyingpretexting.jpgHewlett-Packard wants to be the tech-company of the future and, unfortunately, that goal may be coming a reality in a way they never planned. Instead of becoming a shining star of new technologies, the company has been plagued by an association with a darker kind of future—a sort of Max Headroom, Robocop-style dystopian future where corporations employ spies to steal confidential, personal and corporate information about competitors, employees and reporters.
The pretexting scandal that led to the departure of the chairman of Hewlett Packard’s board of directors, resignations by senior executives, humiliating public hearings on Capitol Hill and a lawsuit brought by the state of California is by now well known. (A recap: H-P apparently engaged private detectives—to snoop into alleged leaks to the press that seemed to come from board members—who used false pretenses to obtain the phone records of board members and reporters, possibly breaking the law in the process.) This morning, however, Fortune writer Nicholas Varchaver, breaks the news that Hewlett-Packard’s spying may have started long before that famous episode. And, disturbingly, his reporting suggests that the pretexting that made headlines last year might not be the anomaly Hewlett-Packard chief executive Mark Hurd claimed it was.
[After the jump, the nasty lawsuit and the new claims of possible pretexting.)

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Spy Versus Hedge Fund:Liar! Liar! Pants on Fire!

It’s good to know that something things never change. New York Post reporter Roddy Boyd still has some of the best stuff on the business beat. This morning’s New York Post carries his report on Allied Capital’s admission that its investigators illegally obtained the phone records of Greenlight Capital hedge fund manager and long-time Allied critic David Einhorn. And that’s another thing that doesn’t seem to change—embarrassing revelations of pretexting are here to stay.
This is all the more embarrassing because Allied has spent the better part of six years denying it was engaged in pretexting against its enemies.

Allied made the admission when it began to review documents in order to comply with a subpoena it received from federal prosecutors in the District of Columbia. It refused to comment beyond the admission, and said it was complying with all requests.
In a statement, Einhorn said, “The evidence [for pretexting] was clearly always there; [Allied’s] board simply neglected its fiduciary responsibility to supervise the company appropriately. We repeat our call to the board to remove responsible management. We hope that the authorities prosecute this illegal activity vigorously.”

Allied Admits to Spy Job
[New York Post]

Larry Sonsini Ousted As H-P Board’s Ouside Counsel

The pretexting scandal claims another victim, Silicon Valley super lawyer Larry Sonsini. This won’t come as a surprise to anyone who watch Sonsini at the Congressional hearings earlier this year, where he came off as at least a bit evasive. Particularly frustrating was the fact that he seemed to be giving board members advice based on the legal work of Hewlett-Packard’s general counsel. Kind of makes you wonder what part of outside counsel Sonsini didn’t understand.

After the resignation, Mr. Sonsini, in his role as outside counsel, immediately interviewed Mr. Perkins. But he did not find that Mr. Perkins had resigned because of a disagreement with the company, which would have prompted the board to disclose the circumstances to the Securities and Exchange Commission. That has prompted an S.E.C. investigation.
Mr. Perkins also alerted the board to the use of pretexting, calling it illegal. In a response, Mr. Sonsini told him that the pretexting was “within legal limits,” though that opinion turned out to be based on the advice of the H. P. lawyer, now facing charges, who in turn had received the opinion from a Boston lawyer sharing an office with one of H. P.’s private investigators.
The Sonsini firm in late August interviewed people involved in the spying, as well as Mark V. Hurd, the company chairman and chief executive, and concluded again that nothing illegal had occurred. In early September, the company filed a statement to the S.E.C. disclosing the pretexting and stating that it was “not generally unlawful.”
A Congressional subcommittee asked Mr. Sonsini to testify during its investigation of the spying. He was called to testify alongside Ms. Dunn and had to sit in the witness seat for more than five hours, though she got the brunt of the queries. He defended his law firm’s work during the hearing and said that he considered pretexting to be unethical and improper.

H.P. Board Cuts Its Ties With Lawyer

DealBreaker Of the Year Candidate: Patricia Dunn

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Our second candidate for DealBreaker of the Year might be a bit unexpected choice—former Hewlett Packard board chairman Patricia Dunn. Just today news broke that Hewlett Packard will have to pay $14.5 million to settle the civil case stemming from the spying scandal that resulted in Patti Cakes stepping down. But the DealBreaker of the Year award is beyond good and evil. Sometimes the world of finance is moved by the forces of light and sometimes by the forces of darkness. This year, Pattie Cakes clearly claimed her place in American corporate history, on the front pages of the business sections and, certainly, all over DealBreaker.
The pretexting story is now very well-known. At least one member of the board of directors of Hewlett Packard was leaking information to the press. The board investigated but the leaks persisted. A second round of investigations was authorized by Dunn, and that’s when the trouble started. The investigators charged with finding the leak lied to telephone companies to obtain the phone records of board members and journalists, and when news of this kind of corporate spying broke, America was scandalized. Hearings on Capitol Hill were called, criminal charges were filed, heads rolled. Dunn’s now jobless and facing possible jail time while she attempts to deal with cancer.
But long before she became known as Pretexting Pattie, Dunn was regarded as one of the woman the most accomplished and powerful women in corporate America. There may yet be more chapters to be written in this American life.
In many ways, Dunn’s story is tragic because she did so many things right. Well, if not right, then according to the books—she was a true believer in the reigning ideology of corporate governance and it was this zeal that was her undoing. This would have been a very different year if not for Patricia Dunn, which is why we’ve made her a candidate for DealBreaker of the Year.
PattieDunn3.jpgValue Added: Other than the pretexting misstep, Dunn’s tenure at the head of Hewlett Packard’s board is considered exemplary. Her downfall also helped teach us two important lessons. First, that there is something wrong with the process-obsessed view of corporate governance. Second, by falling so publicly while Hewlett Packard’s stock continued to climb, we learned that corporate boards may be even less relevant than we thought.
Risk Factors: Dunn’s insistence that she didn’t do anything wrong struck us as, well, a little bit scary. It seemed so far removed from reality. She never seemed to get how frustrating or even insulting her testimony about the pretexting affair was. She gave the impression that no-one had ever challenged her authority. Being in love might mean never having to say you’re sorry. Being the chairman of the board certainly does not.
Should Pattie Cakes be the DealBreaker of the Year? Well, she’s only the second candidate we’ve named (the first was Hank Paulson), so this might be premature. But we invite you to let loose with your inner-most feelings in the comments section below. And if you want to nominate other candidates, please feel free to email us at tips@dealbreaks in Business (If you can use the format we’ve laid out above, all the better. If it’s a hassle, we’ll take ‘em as we get ‘em.) If we use your nomination, you’ll get a free copy of Winning: The Answers: Confronting 74 of the Toughest Question.
Read More About Patrica Dunn:
Patricia Dunn Archives [DealBreaker]
Hewlett Packard Archives [DealBreaker]
Wikipedia Entry [Wikipedia]

Peter Cohan at BloggingStocks has an original take on the Wall Street Journal cover story on Hewlett-Packard spying we linked to earlier. Here’re the money graphs.

There are many levels of irony in this story. Reporters do all sorts of investigations on their subjects. I don’t know how they cultivate their anonymous sources to dig up the details that they report. But my hunch is that while they’re often snoops — peering into places where their targets would prefer they did not — reporters don’t resort to the kind of tactics (pre-trash inspections or monitoring phone calls and IM sessions) to which Tam was subjected.
But I can’t help but think that Tam’s subjects share some of the same fears of being investigated that she must have felt when she began to realize that HP was placing her under surveillance. Her article’s cool, almost tongue-in-cheek tone does not reveal these fears explicitly, instead leaving them to the reader’s imagination.
But I imagine that former HP Chair Patricia Dunn must have felt a similar fear when she realized that someone on HP’s board was leaking to the media. I’m not defending what HP did; I think it’s a 1984-like invasion of privacy for which HP will suffer significant consequences.

We get the point—what’s good for the goose is good for the duck, or whatever. We at DealBreaker certainly aren’t against reporting on reporters. Actually, we’re really into it. But, look, it’s a bit of an understatement to say that “reporters don’t resort to the kind of tactics…to which Tam was subjected.” Uhm, that’s right they don’t. Pretending to be someone you’re not, stealing phone records and attempting to tap into other forms of personal communications are not just things reporters don’t do…they’re things that can, will and have gotten reporters fired from respectable news organizations. This is the equivalent of espionage, not reporting.
Let’s not encourage our paranoid corporate leaders to think that H-P spying is on anywhere near the same moral plane as business reporting.
HP turns the table on the Wall Street Journal [Blogging Stocks]

corporatespying.jpgWe’ve said it before but we’ll say it again. Hewlett-Packard’s out-of-control investigation into leaks from its board of directors reads like something out of science fiction. The Corporation employing its own secret agents, tapping into the records and stealing the trash of directors and reporters.
Except that the future is now. As it turns out, corporate spooks are real and we’re just now learning how far they’ll go. In fact, there’s still a lot to learn, as this creepy story by WSJ reporter Pui-Wing Tam shows. The creepiest (and we’re sorry to keep repeating “creepy” but it seems exactly right) part of the story is that even Hewlett-Packard seems not to know what its agents did to Tam. Either that or they aren’t telling.
A couple of weeks ago we wondered aloud whether it really made sense to file criminal indictments against Hewlett-Packardites and their spies. We’ve got a gut reaction against criminalizing business executives. But in this case, it seems more and more evident that a criminal prosecution is the only way we’re going to get to the bottom of this thing. And find out how low that bottom really is.

A Reporter’s Story: How H-P Kept Tabs On Me for a Year
[Wall Street Journal]
[On a slightly more upbeat note: we sometimes like to drop in obscure graphics on our posts, and this one is no exception. Bonus points for whoever leaves the first comment explaining where the picture is from and what it has to do with corporate spying.]

Pattie Dunn’s Weirdly Unsatisfying Response To Critics

PattieDunn3.jpgThe Wall Street Journal has given over the lead spot on its editorial page today to Pattie Dunn. Fair enough, since it has run editorials by Dunn critics. And it’s a bit daring of Dunn to go ahead and publish after she’s been indicted on felony counts. In fact, we were so impressed by her unwillingness to take the usual “radio silence” while criminal charges are pending tact, that we found ourselves actually rooting for her while we read the piece.
“Come on, Pattie! You can do it! Convince us that you didn’t do anything wrong here,” we said to our newspaper, causing folks on the subway to give us a little extra room.
But she couldn’t do it. Here’s the gist of her argument: “I asked the right questions of the right people at the right times.” In other words, it’s all somebody else’s fault. She did everything right. This is frustrating because clearly something went badly wrong with the investigation, and no one seems willing to take responsibility.
We won’t go into all the details right now about what seems wrong with her account. But we’ll mention a couple. Here’s one that grabbed us: even though Dunn was actually at the congressional hearings she doesn’t seem to get that people are tired of the circular blame passing that so frustrated the lawmakers. She quotes a “prominent outside attorney” as saying “the process was well done and within legal limits.” But if she means Larry Sonsini, he’s already on record as saying he was relying on Hewlett-Packard’s inside lawyers to make this judgment. So bringing him into it here just confuses matters.
Then there is this whopper: “As a result of the extraordinary negative publicity from these episodes, the board as me to step down as chairman and director.”
There are at least three things wrong with this. First, by calling the press attention to the pretexting scandal “extraordinary negative publicity” she seems to imply that it was unduly negative or that undue attention was paid to the “episodes.” So she still doesn’t get that this was a big deal.
Second, she says the board asked her to step down. Why didn’t she take the initiative when it became clear to everyone else in the world that it was going to be impossible for her to remain chairman?
Third, she says the board asked her to step down because of the publicity from the episodes, rather than the pretexting episodes themselves. This may even be true but it’s not helpful to Hewlett-Packard. It shows that they might still believe that it was all just bad press that was the problem and not the pretexting, privacy invading investigation itself. Or, as Dunn put it in another press account, it was a “disinformation” campaign that toppled her rather than the excesses of the leak investigation she set in motion.
The H-P Investigation [Wall Street Journal]

Which company formerly known as “Morgan Stanley Dean Witter Discover & Co” fulfilled its legacy as anti-Semites and flew the Gulfstream V to Koln Bonn Airport over the (holiday) weekend?
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Which allegedly secretive group of hedge funds founded by Stevie Cohen took the company Gulfstream IV and V to Norman Y Mineta San Jose Int’l and Aspen Pitkin Co Sardy Field, respectively?
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Which hedge fund manager/director of the National Fish and Wildlife Foundation mixed it with some stewardesses (we’re guessing = good enough) on his Cessna 560 en route to North Eleuthera (Bahamas) Airport?
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Which tri-state area based stock exchange got a crazy craving for piñatas and took its Gulfstream IV down to Taos Regional yesterday afternoon?
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