'HP Not Enron' A.G. Says in Settlement Deal

UPDATED: Payment of $14.5 million in 'pretexting' scandal will also fund new privacy protection for state.

UPDATED: California's attorney general Bill Lockyer Thursday announced a unique, $14.5 million settlement of its civil lawsuit related to the Hewlett-Packard leak probe investigation that resulted in federal indictments and Congressional hearings.

Lockyer announced that HP will finance a new law enforcement fund to fight violations of privacy and intellectual property rights as part of the settlement agreement. The AG said HP also agreed to adopt certain corporate governance reforms as part of the settlement.

"The Hewlett-Packard incident has helped shine a national spotlight on a major privacy protection problem," Lockyer said in a statement. "With its governance reforms, this settlement should help guide companies across the country as they seek to protect confidential business information without violating corporate ethics or privacy rights. And the new fund will help ensure that when businesses cross the legal line they will be held accountable.

Lockyer's statement did ease up on HP a bit. "Fortunately, Hewlett-Packard is not Enron. I commend the firm for cooperating instead of stonewalling, for taking instead of shirking responsibility, and for working with my office to expeditiously craft a creative resolution."

Mark Hurd, HP chairman and chief executive officer, said in a statement that the company is pleased to settle the matter with the attorney general and that it's committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility.

"There was no finding of liability against HP as part of the settlement, which includes an injunction and agreement that the California Attorney General will not pursue civil claims against HP or against its current and former directors, officers and employees."

Most of the funds, $13.5 million, will help the attorney general's office establish a new "Privacy and Piracy Fund" for law enforcement activities related to privacy and intellectual property rights. HP will also pay $650,000 in civil penalties and $350,000 to cover the AG's investigation "and other costs."

The Fund will be used by the AG and local prosecutors to investigate and prosecute violations of privacy and intellectual property rights. The AG and local prosecutors will split up to $1 million of the Fund each year for their activities.

Under the settlement, HP's chief ethics and compliance officer (CECO) will have expanded oversight and reporting duties. The CECO will be responsible for reviewing HP's investigation practices and making recommendations to its Board of Directors by July 31, 2007 on how to improve those practices.

Another key element of the settlement will see HP beefing up the ethics and conflict-of-interest components of its training programs. The redesign will be directed and monitored by the CECO, HP's Compliance Council, an independent director and chief privacy officer.

HP's former ethics officer, Kevin Hunsaker, resigned in the wake of the scandal. Jon Hoak, a former NCR general counsel, was named vice president and chief ethics and compliance officer in October to replace him.

The settlement also calls for HP to create a separate code of conduct for outside investigators it hires that addresses privacy and business ethics issues. Several private investigators hired by HP in the leak investigation scandal are under indictment for their use of pretexting, a technique to acquire phone records by falsely assuming the identiy of someone else.

In October, the attorney general indicted former HP chairwoman Patricia Dunn, Hunsaker and three private investigators on felony charges. Those indicted later pleaded not guilty.

HP had named nine people who were subjects of the leak probe, which included the use of "pretexting" to obtain personal phone records without authorization.

The company apologized to the journalists, which included reporters from The New York Times, Wall Street Journal and CNET. That number as details of the probe revealed even HP employees were investigated.

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