Saturday, January 20, 2007

H-P CEO Denies "Bullet-Dodging" in Options Exercise

Hewlett-Packard CEO Mark Hurd responded to a letter from House Energy and Commerce Committee Chairman John Dingell questioning his exercise of H-P stock options in August 2006, right before the "pretexting" used in the company's internal investigations of leaks became public.  Chairman Dingell raised the issue of whether Hurd's sale of shares from the options exercise was "bullet-dodging" to avoid the hit to his stock and options holdings from the negative publicity generated by the pretexting, particularly in light of the fact that Hurd sold the shares the same day that he was interviewed as part of the company's internal investigation of the leak inquiry.  While the timing appeared suspicious, an earlier post (here) noted that the company's stock increased after Hurd's sale, so that if he was dodging a bullet he may have actually taken one instead.  The Committee released Hurd's response (here), which was dated December 21, 2006, as an attachment to a letter to SEC Chairman Cox from Chairman Dingell, dated January 19, 2007, asking for an update on any SEC case or investigation once it is concluded. 

In his letter, Hurd states that he did not pick the actual sale date of August 25, that it was simply when the process of exercising the options and selling the shares took place after he received clearance to sell them during a window when company executives are permitted to engage in such transactions.  He asserts, "My August trade was not a case of 'bullet-dodging.'  That trade represented less than 5% of my vested and unvested HP stock options and involved less than one-third of the options I could have exercised and sold at the time."  In other words, he's saying that "if I was going to dodge a bullet, I would have gotten everything out of the way that I could."  Hurd did not trade ahead of a drop in the stock price, and it is unlikely he could have anticipated the firestorm that the pretexting triggered, even if he should have.  Once again, there may not be much smoke here, much less any fire. (ph)

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