Friday, September 22, 2006
The situation at Hewlett-Packard threatened briefly to turn into a nasty fight as California Attorney General Lockyer announced that the company was no longer cooperating in the investigation of "pretexting" so he had "instructed my lawyers this morning to paper the place with subpoenas." Wilson Sonsini has bowed out -- or been eased out -- as H-P's primary counsel on the criminal investigation, replaced in that role by Morgan, Lewis & Bockius, which was first retained when the federal and state criminal investigations began in early September. A Bloomberg article (here) notes that H-P maintains that it is still cooperating, and a spokesman for Attorney General Lockyer acknowledges that the dispute has been settled. It may have been that the new lead counsel took a different approach that might have at least temporarily slowed the production of records and witnesses for interviews, at least until Morgan Lewis gets a more complete read on the situation. Attorney General Lockyer's threat does show the danger a company faces if it does not cooperate, or displays any reticence in its response to requests from criminal investigators. The "paper the place with subpoenas" threat may well have been a hollow one, however, because it is hardly in the government's interest to issue broad document subpoenas that will produce much more chaff that it would ever want and slow down the process as the company engages in a thorough and painstaking review for all potentially relevant records.
H-P CEO Mark Hurd, whose name is appearing more and more in e-mails involving the internal investigation of leaks that included the "pretexting" that is the heart of the criminal investigations, has gone on the offensive. A company press release (here) states that he has offered to appear before the House Energy & Commerce subcommittee on September 28 that is scheduled to hear from chairwoman Patricia Dunn, general counsel Ann Baskins, and Larry Sonsini. He may be seeking to take control of the situation by making himself the focus of the subcommittee's questioning, rather than a lame duck chairwoman and two lawyers who may have problems with revealing information protected by the attorney-client privilege. In addition, Hurd will hold a press briefing about the various investigations of H-P, which now includes an SEC request for information. The company's press release (here) quotes Hurd, "What began as an effort to prevent the leaks of confidential information from HP’s boardroom ended up heading in directions that were never anticipated."
That statement contains an interesting admission about an investigation that was rather successful in revealing the identity of the leaker as a member of the board. It only became a problem when former board member Tom Perkins challenged the company's disclosure of his reasons for resigning from the board, which was in protest of the methods used to investigate the leaks. Had Perkins not spoken up, H-P may well have viewed its conduct as both a successful effort at managing a restive board of directors and perfectly ethical. Is the unanticipated direction the firestorm that has developed in only a couple weeks after an otherwise successful internal investigation? Could it perhaps be the revelation of the lack of control over the investigation when the reason to put lawyers -- including the company chief ethics officer -- in charge of it was to prevent this very sort of breakdown in the process? It can't be a very pleasant time for Hurd, and the outlook may not improve much in the short term. (ph)