Exclusive: HP May Face Civil Charges

The attorney general of California may file civil charges as early as next week against Hewlett-Packard, NEWSWEEK has learned. Those civil charges would likely demand damages of at least several million dollars, says a law-enforcement official with knowledge of the office's plans; the official requested anonymity because of the ongoing nature of the investigations. It is possible as well that HP could settle any possible civil claims before the A.G. goes to court.

The civil charges would be on top of the criminal charges the state filed Wednesday against HP's former chairman, Patricia Dunn, and four others formerly associated with the company. All the charges stem from HP's hacking of the personal phone records of HP directors, HP employees, journalists and others in an effort to discover who was leaking information to the press. The HP scandal erupted Sept. 5 when NEWSWEEK first disclosed a brewing controversy between Dunn and Tom Perkins, a director who resigned in protest over HP's surveillance of the directors and other individuals. Perkins demanded that the reasons for his resignation be disclosed to the Securities and Exchange Commission, which forced HP's hand in making the controversy public. Once that happened, various law-enforcement agencies, including the California attorney general, became involved.

The criminal charges brought by the California attorney general, Bill Lockyer, are all felonies; they carry penalties of up to three years in prison and fines ranging from $10,000 to $25,000. No criminal charges were brought Wednesday directly against HP and, says the law-enforcement official, criminal charges against the corporation are unlikely to come. That's because the A.G.'s office probably has concluded that the indicted employees we're essentially rogue operatives acting outside the company's traditions and practices. (An HP spokesman declined to comment.)

By contrast, criminal charges remain possible against Mark Hurd, HP's CEO and its new chairman, as well as against Ann Baskins, HP's former general counsel who resigned just hours before pleading the Fifth Amendment at last week's a congressional hearing. Charges against Hurd or Baskins presumably would come only if newly discovered evidence implicated them in a way that thousands of documents already in prosecutors' hands thus far have not. Part of the reason that the California attorney general may have announced indictments yesterday was to try to extract cooperation from Dunn and the others charged, in the hope that additional evidence would lead to further indictments inside or outside the company. That's a common prosecutorial technique: a prosecutor may use a possible indictment as a cudgel over a suspect, but nothing is more convincing than an actual indictment and being hauled into court.

Any civil charges brought by the California A.G. could be settled by the corporation, without affecting the criminal charges facing its former chairman and the four others. That's because HP does not control the defense of those now-indicted individuals (though in some instances it may have to pay for some defense costs). But it is possible that the A.G.'s office could seek to reach a wider-ranging settlement of all civil and criminal charges in its jurisdiction. And it could even try to bring a private shareholders' suit against HP—filed last month—into a settlement, as well as any possible civil lawsuits that journalists may be considering against HP for hacking their phone records.

In addition to Dunn, the others charged yesterday were Kevin Hunsaker, a former HP lawyer and its chief ethics officer, as well as three contractors with HP, Ron DeLia, Matthew DePante and Bryan Wagner. Dunn was forced off the HP board of directors late last month. She is currently fighting late-stage ovarian cancer—her third bout with cancer—and will soon begin chemotherapy. (Dunn's lawyer issued a statement Wednesday criticizing the indictment: "These charges are being brought against the wrong person at the wrong time and for the wrong reasons." In a statement Wednesday, DeLia said, "I am innocent of these charges." Hunsaker's lawyer said in a statement: "At no time did he or would he ever authorize or engage in any activity that he thought was illegal." DePante and Wagner have not commented publicly.)

HP, as well as individuals now or formally associated with the company, could face additional charges soon. The U.S. attorney's office in San Francisco is investigating the company, though traditionally federal prosecutors do not like to bring the same charges against individuals that a state has brought. The SEC, FTC and FCC also have investigations underway.