September 13, 2006 11:54 pm

HP spy scandal extends to employees

Private investigators working for Hewlett-Packard’s board spied on two employees in addition to board members and journalists in an attempt to uncover a boardroom leak, it was revealed on Wednesday.

The news came as the California attorney-general’s office said charges in the case could be filed within a week.

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Patricia Dunn, HP’s chairman, said in a message to employees on Tuesday that investigators hired to ferret out a boardroom mole had used questionable tactics on “certain directors, two employees and a number of individuals outside the company including journalists”.

The message, which was obtained by the FT on Wednesday, marks a further blow to HP, which has been struggling to repair the damage the scandal has caused to its reputation among employees and stockholders.

Revelations that HP’s spies posed as board members and journalists in order to obtain private telephone records have prompted investigations by state and federal authorities and US lawmakers.

The investigators were hired to uncover the source of leaks about the board’s deliberations over the future of Carly Fiorina, who was ousted as chief executive last year.

On Tuesday, in an attempt to defuse the crisis, HP announced that Ms Dunn would step down as chairman in January. She will be replaced by Mark Hurd, chief executive, but will remain a director at the company.

In her message to employees, Ms Dunn said she apologised “personally, deeply and sincerely to everyone affected” by the scandal.

“This matter has caused HP and me major distress and embarrassment,” she said.

California’s top prosecutor has said he has enough evidence to charge people both inside and outside HP in connection with the case. Although a spokesman said charges could come within a week, he declined to set a specific timeframe.

“Once you believe you have evidence, that’s by no means the end of the game in terms of pulling the trigger,” the spokesman said.

HP declined to identify the employees whose telephone records were accessed as part of the board’s investigation.

Executives believed to have been most directly privy to boardroom discussions include Ann Baskins, the company’s general counsel and secretary.

As head of HP’s legal department, Ms Baskins was also ultimately in charge of making sure that the leak investigation ordered by Ms Dunn was carried out.

In May, Tom Perkins, a longtime HP board member, resigned in protest after he learned about the investigators’ tactics.

Ms Dunn has sought to distance herself from the investigators hired on her watch, saying she had not been in a position to ask questions about the investigators’ tactics because she was a subject of the probe herself.

Ms Dunn said she had been assured that the techniques used in the mole hunt were “not only fully legal but fully compliant with HP’s standards”.

Concerns that board members and executives could become caught up in the legal fallout of the spying scandal sent HP shares down 1.5 per cent on Wednesday to $36.37.

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