Friday, December 8, 2006

H-P Agrees to Civil Settlement Over Pretexting

Hewlett-Packard put some of the pretexting scandal behind it by agreeing to a civil settlement with the California Attorney General's office.  Perhaps most importantly for the company, there is no criminal charge from its internal investigation that involved obtaining the private telephone records of board members, employees, and reporters as part of an effort to track down leaks.  The civil complaint (here) alleges unfair competition by H-P based on the same violations as those charged against five defendants involved in the investigation, including former chairwoman Patricia Dunn.  The civil settlement requires H-P to make a substantial payment and introduce changes in its corporate governance structure.  According to a press release (here) issued by the Attorney General:

The settlement requires HP to pay $13.5 million to create in the Attorney General’s Office a new “Privacy and Piracy Fund” for law enforcement activities related to privacy and intellectual property rights. Additionally, HP will pay $650,000 in civil penalties and $350,000 to cover the Attorney General’s investigation and other costs. The settlement’s corporate governance reforms aim to strengthen in-house monitoring and oversight to ensure compliance with legal and ethical standards, and protection of privacy rights, during any investigations launched by HP or outside firms hired by HP. The “injunctive relief” provisions that impose the reforms will last five years.

Among the changes are a "new independent director will serve as the board’s watchdog on compliance with ethical and legal requirements" and a new Chief Ethics and Compliance Officer.  The company's former chief ethics officer, Kevin Hunsaker, is among the defendants in the criminal case.  The injunction lasts for five years.  Needless to say, H-P has been more than cooperative in trying to resolve a very embarrassing situation.  Not everyone has emerged unscathed, however, as a recent American Lawyer article (here) about Silicon Valley superlawyer Larry Sonsini's involvement in the H-P imbroglio makes clear.   

While the imposition of corporate governance changes by the government has been questioned, the outcome of H-P case is quite similar to what we've seen over the past few years in federal cases in which companies enter into deferred and non-prosecution agreements.  The Department of Justice usually prefers the criminal route, although it has used the civil avenue in health care and procurement fraud cases, and it often works in conjunction with the SEC in securities fraud actions. (ph)

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Wonder if the settlement includes provisions whereby HP and its employees and agents can't "deny" the criminal allegations made against Dunn and others? Has the agreement been published or has it been (shamefully) been left under-seal?

Posted by: Nicholas | Dec 8, 2006 10:36:57 AM

Below are links to the permanent injunction and the settlement agreement. I did not see anything in there about disclaiming criminal liability, although I only did a quick read.

Peter Henning

Posted by: Peter Henning | Dec 8, 2006 11:18:34 AM

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