Risk & Compliance

SEC Probe of HP Is Formal

Profits are up, but so is the scrutiny of "pretexting."
Stephen TaubNovember 17, 2006

Hewlett-Packard says the Securities and Exchange Commission has elevated its probe into a formal investigation to look at the processes used to explore certain internal leaks of confidential information to members of the media. In addition, the computer maker has received a request from the Federal Communications Commission for records and information relating to those leak investigations.

HP says it is responding to the request and is cooperating fully with all inquiries. The announcements of the latest probes came in a regulatory filing accompany the company’s fiscal fourth-quarter earnings report, which showed a quadrupling of profits from a year ago. “We do not believe this represents an escalation or broadening of the investigation and are continuing to cooperate fully,” HP spokesman Ryan Donovan told the Associated Press.

The company, however, did not disclose the investigation in its press release that detailed the quarterly results. The inquiry is related to events that led to the departure of former chairman Patricia Dunn, who on Wednesday pleaded not guilty to four felony identity theft and fraud charges, according to the AP.

Earlier, HP disclosed that it is the subject of various governmental inquiries by the SEC, the Attorney General of the State of California, the Committee on Energy and Commerce of the U.S. House of Representatives, and the U.S. Attorney’s Office for the Northern District of California. Further, the company noted that it is the subject of five stockholder derivative lawsuits allegedly based on the activities of the leak investigations. Four of the suits were filed in California and one was filed in Delaware.

In addition, HP said its directors have appointed a special litigation committee consisting of two independent board members authorized to investigate, review, and evaluate the facts and circumstances asserted in the derivative suits and to determine how HP should proceed. The company also announced that Wachovia CEO Ken Thompson will be joining the board. He is the ninth member of HP’s board and its seventh outside director.

Altogether, five individuals, including Dunn, have been similarly charged for their roles in the investigation, which include using the controversial ploy of “pretexting,” the AP points out. This essentially involves impersonating another person to illegally obtain his or her phone records. Others charged are former HP ethics chief Kevin Hunsaker and private investigators Ronald DeLia, Matthew DePante, and Bryan Wagner.