Hewlett-Packard Paid $325,000 to Trace Source of Boar

[David Farber <dave () farber net>]

Begin forwarded message:

From: "CONNIE GUGLIELMO, BLOOMBERG/ SAN FRANC"  
<cguglielmo1 () bloomberg net>
Date: October 3, 2006 11:54:29 AM EDT
To: dave () farber net
Subject: (BN ) Hewlett-Packard Paid $325,000 to Trace Source of Boar

Fyi, the House released yesterday all the documents it received from
Hewlett-Packard over the boardroom leak investigation. - connie
Hewlett-Packard Paid $325,000 to Trace Source of Board Leaks
2006-10-03 00:04 (New York)


By Connie Guglielmo
     Oct. 3 (Bloomberg) -- Hewlett-Packard Co. paid private
investigators more than $325,000 to spy on directors and
reporters in a probe that may have used illegal tactics and
eventually cost Chairwoman Patricia Dunn her job.
     Surveillance, including a ``sting'' operation and digging
through trash, was the most expensive item, costing $83,600 over
five months, according to an invoice from Security Outsourcing
Solutions Inc. that was supplied by Hewlett-Packard and released
late yesterday by the U.S. House Energy and Commerce Committee.
     Dunn authorized the probe that led investigators to spy on
directors, two employees and nine reporters as they searched for
the source of boardroom leaks. At one point, Dunn considered
using lie detectors, the documents show. Dunn, General Counsel
Ann Baskins, the company's director of ethics, and the global
security chief all resigned last month for their part in what
Hewlett-Packard Chief Executive Officer Mark Hurd called a
``rogue investigation.''
     ``Cost of catching leaks: $325,000. Cost to company's
reputation: priceless,'' Paul Saffo, a longtime Silicon Valley
researcher and associate professor at Stanford University, said
in an interview. ``Everyone has gotten so hung up on the legality
of this they've forgotten the ethics.''
     Palo Alto, California-based Hewlett-Packard, the world's
second-largest personal computer maker, paid more than $51,000 to
have personal phone records obtained as part of the probe,
according to a May 2 invoice submitted by Ronald DeLia of
Security Outsourcing, a Boston-based firm that oversaw a network
of investigators working to gather information on the company's
behalf. The probe, dubbed Kona II, ran from December 2005 through
April, according to DeLia's bill, which totaled $325,641.65.

                           Indictments

     Hewlett-Packard acknowledged on Sept. 6 that investigators
used fake identities to gain access to call records, a tactic
called pretexting that may be illegal. California Attorney
General Bill Lockyer said he is considering whether to indict
Hewlett-Packard executives and outside contractors over the
probe.
     Hurd said he may have recalled hearing in a July 22, 2005,
meeting that phone records were being obtained off the Web,
according to an interview he had with lawyers for Wilson Sonsini
Goodrich & Rosati on Aug. 25 as part of their review of the
probe. Hurd said he was not aware that pretexting was being used
to obtain phone records, according to a three-page summary of the
Hurd interview.
     The House committee released 700 pages related to the
investigation after Dunn, Hurd, outside attorney Larry Sonsini
and internal security chief Fred Adler spent about seven hours
fielding attacks from lawmakers who chastised the PC maker for
its handling of the probe. Representative John Dingell called it
a ``case study in deceit, dishonesty, improper behavior'' and an
example of ``gross stupidity.''

                         Lack of Oversight

     Hurd, who has admitted not giving the probe the oversight it
deserved, told committee members last week that Hewlett-Packard
terminated its contract with Security Outsourcing after relying
on the firm for about eight years to help with investigations.
     Among the charges from Security Outsourcing was the line
item: ``Multiple Surv. And Sting Activity Palo Alto, Piedmont,
SF, LA, CA & Denver, CO (Note: includes surveillance & trash re-
con of all areas).''
     Background checks on board members, their relatives and
reporters from media outlets including the Wall Street Journal
and Cnet.com cost a further $66,688, according to the bill.
     DeLia also charged $37,535 to ``locate, review and catalog
over 10,000 print and Internet media articles.''

                           Stolen Laptop

     Hewlett-Packard paid more than $9,600 for work related to
recovering a laptop computer owned by board member George
Keyworth, who resigned in September after acknowledging he was
the source of some leaks.
     Keyworth's laptop was stolen while he was on vacation in
Italy, and DeLia, in a Feb. 3 e-mail to Hewlett-Packard's
internal security team, said he had spoken with local police to
ask for help in trying to recover the machine.
     ``We will also contact the local criminal element and inform
then there is a reward, no questions asked, for the return of the
laptop,'' DeLia said in his message to Kevin Hunsaker, Hewlett-
Packard's director of ethics, and Anthony Gentilucci, then global
security chief. Hunsaker and Gentilucci led the Kona II
investigation.
     At the urging of director Tom Perkins, whose complaints
about the methods of investigation forced Hewlett-Packard to go
public, Dunn considered using lie detectors. She commissioned a
report on polygraphs, which concluded it was inappropriate to use
such tactics, according to a memo from the company's law firm
dated Aug. 21, which cited an interview with Dunn.

                         Didn't Tell Board

     Perkins then backed off, according to Dunn's statement to
the lawyers. Dunn didn't tell the rest of the board that lie
detectors had been considered and rejected.
     Hewlett-Packard declined to comment, said spokesman Mike
Moeller, one of two employees investigated and later exonerated
as part of the probe. (Costs to conduct background checks on
Hewlett-Packard's media relations department were $6,435.)
     E-mails, presentations and other documents show that
Hewlett-Packard investigators followed directors and their
families and sent at least one phony e-mail to a reporter with a
tracing device designed to determine whether she forwarded the
message to her board informant.
     Investigators also considered sending staff posing as
administrative help and cleaning crews to spy on newsrooms, the
documents show.
     The e-mails showed a growing hubris among investigators as
the detectives got closer to nailing Keyworth as the leaker.

                          `We're Goin' In'

     ``Strap on your helmets fellows, we're goin' in!!!''
internal investigator Vince Nye said in a Feb. 9 e-mail to fellow
Hewlett-Packard investigator Fred Adler as Kona II activities
accelerated.
     The documents also showed a anxiety as publicity escalated
following the company's Sept. 6 announcement.
     ``This thing is taking on a life of its own, articles are in
the tabloid stage, not sure I will survive after the steam roller
runs me over,'' Gentilucci said in an e-mail to Kevin Huska, who
is responsible for global security, on Sept. 7.
     Dunn herself expressed concerns before the company made the
probe public.
     ``Now that the proverbial sewage appears to be hitting the
fan, that effort seems na‹ve and doomed from the start,'' she
wrote to board members Aug. 17.
     One benefit the company did get from DeLia's probe: a cheap
rate that was half what DeLia typically charges clients,
according to his invoice.
     All DeLia's hours ``are billed at a discount rate of $65.00
per hour vs. normal rate of $125.00 per hour,'' his bill states.
Based on DeLia's charge of $58,529.98 for his personal time spent
managing the case, including daily meetings with Hewlett-
Packard's legal staff, the investigator spent 900 hours on the
case.

--With reporting by Ian King, Rochelle Garner and Jonathan Thaw
in San Francisco and Christopher Stern in Washington. Editor:
Palazzo (jto)

Story Illustration: To view a graph of the company's stock
performance, click on {HPQ US <Equity> GP <GO>}. For copies of
Hewlett-Packard documents related to Kona I and Kona II, see
{HPQ US <Equity> CN CRL <GO>}.

To contact the reporter on this story:
Connie Guglielmo in San Francisco at (1)(415) 743-3582 or
cguglielmo1 () bloomberg net

To contact the editor responsible for this story:
Emma Moody at (1) (212) 617-3504 or emoody () Bloomberg net.

[TAGINFO]
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#<698734.251583.1.0.7.4.25>#
-0- Oct/03/2006 04:04 GMT

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