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SEC Reviews Hewlett-Packard Tactics in Leak Probe

MICHELE NORRIS, Host:

Today computer maker Hewlett-Packard disclosed to regulators that it has been spying on its own board of directors. In a filing with the Securities and Exchange Commission, HP confirmed that it secretly gathered telephone records of board members while investigating leaks to the news media. The company's tactics have prompted an informal inquiry by the California Attorney General's Office.

NPR's Scott Horsley has the story.

SCOTT HORSLEY: HP said in its filing today it's been worried about news leaks since 2005. That goes back to the stormy tenure of former CEO Carly Fiorina. In January of last year, a front page story in the Wall Street Journal revealed detailed information about a strategy session Fiorina held with board members. HP spokesman Mike Moeller says after Fiorina was fired in February, the company hired a lawyer to investigate who was talking.

MIKE MOELLER: We were concerned with regards to confidential information making its way into the pages of various newspapers and online news outlets and launched some investigations to identify where those leaks were coming from.

HORSLEY: Interviews with board members failed to uncover the leak so HP went further, hiring a specialized investigative firm which then hired a third party to obtain director's phone records. Moeller says that investigation revealed that Board Member George Keyworth had leaked confidential information without authorization.

MOELLER: You know, nobody's above those rules, whether you're a director, an officer or an employee.

HORSLEY: Four months ago, HP asked Keyworth to resign from his seat on the board. He refused. But another board member, Thomas Perkins, did resign. And Perkins, who's a pioneering venture capitalist in Silicon Valley, later began complaining about HP's investigative tactics.

In response, HP hired another lawyer to essentially investigate its investigation. It turns out that HP's original spies got directors' phone records by disguising their identities, a process known as pretexting. Marc Rotenberg, who heads the Electronic Privacy Information Center, says it's become a common practice.

MARC ROTENBERG: Essentially it's someone who's pretending to be someone they're not. They call up the phone company and they say, I'm trying to find my last month's bill. I seem to have misplaced it. Could you please fax it to me at this number? Now the big problem, of course, is that with telephone service the current billing statements are extremely detailed. It's a list of basically everybody you called over the past month.

HORSLEY: HP says while pretexting is not generally illegal, it could not confirm that all the tactics used in its probe were above board. California's Attorney General says he's now investigating whether HP might have run afoul of two state laws. Rotenberg says federal law is not as hard on pretexting, although federal regulators are looking into possible changes.

ROTENBERG: We've been pushing the Congress this year to address the problem of pretexting. They've really not understood quite how significant the issue is but I think the members of the board of directors of Hewlett-Packard today certainly appreciate the importance.

HORSLEY: HP's spokesman wouldn't comment on whether the episode had left bad feelings among the remaining board members. Ralph Ward, who publishes a newsletter called Boardroom Insider, sees this as a sign of newly independent directors, still trying to find their way.

RALPH WARD: Everyone is aware that board squabbles, board leaks, board politicking were a big part of what led to the downfall of Carly Fiorina so you have a number of people involved saying okay, well, we need to stopper up that situation and make sure things like that don't happen again. And it sounds like they got burned in the process of trying to do that.

HORSLEY: HP says it's adopting new controls to make sure any future investigations are both legal and ethical. The company also says the original leaker, George Keyworth, will not be nominated for another board term.

Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

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Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.