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Originally published Friday, September 29, 2006 at 12:00 AM

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E-mail warned bosses HP probe should stop

Lawmakers diving into the spying scandal at Hewlett-Packard came up with a seemingly damaging e-mail: An HP investigator had warned higher-ups...

The Associated Press

WASHINGTON — Lawmakers diving into the spying scandal at Hewlett-Packard came up with a seemingly damaging e-mail: An HP investigator had warned higher-ups that the company's boardroom-leak investigation was possibly illegal and likely threatened the computer maker's reputation.

Even so, in a hearing that lasted all of Thursday, the House Energy and Commerce Committee got few answers about how the warning went unheeded as HP investigators impersonated people to obtain their phone records, snooped through trash and surveilled reporters and directors.

Former Chairwoman Patricia Dunn, who resigned last week, told the panel she had been assured phone records had been obtained lawfully from public sources.

Current Chairman and CEO Mark Hurd said he should have detected that inappropriate methods were being used, but failed to do so.

Perhaps the committee's best chances to find out how the Silicon Valley icon descended into tawdry tactics were squandered when 10 people — including at least two recipients of the e-mail warning — asserted their Fifth Amendment right against self-incrimination, refusing to answer questions.

That group included General Counsel Ann Baskins, who resigned Thursday shortly before she was expected to testify.

Lawmakers expressed outrage that HP, the nation's 11th-biggest company by revenue, would find itself in such an ethical quandary.

"It's a sad day for this proud company," said Rep. Diana DeGette of Colorado, the panel's senior Democrat. "Something has really gone wrong at this institution."

Other lawmakers said the situation was reminiscent of the Enron debacle, in which top management claimed not to know of serious wrongdoing that ultimately brought down the company.

Rep. John Dingell, D-Mich., summoned the ghosts of Watergate.

"We have before us witnesses from Hewlett-Packard to discuss a plumbers operation that would make Richard Nixon blush were he still alive," Dingell said.

Rep. Ed Whitfield, R-Ky., chairman of the committee's investigative panel, demanded to know why, with many high-ranking HP executives and attorneys involved in the inquiry, "no one had the good sense to say, 'Stop.' "

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Committee members asserted there was actually one such stop sign: a February e-mail from HP senior investigator Vince Nye to his superiors.

"I have serious reservations about what we are doing," Nye wrote. "I am requesting that we cease this phone-number gathering method immediately and discount any of its information."

Kevin Hunsaker, until recently the company's chief ethics officer, and Anthony Gentilucci, who left as HP's global investigations unit in Boston, would have been expected to explain their reaction to the memo had they not taken the Fifth on Thursday.

The committee also had sought testimony from Ronald DeLia, the operator of the detective firm hired by HP.

Besides the House inquiry, federal and California prosecutors are investigating whether company insiders or outside investigators broke the law.

California Attorney General Bill Lockyer has said he has enough evidence to indict HP insiders and contractors. And the Securities and Exchange Commission is pursuing a civil inquiry.

HP's outside lawyer, Silicon Valley power broker Larry Sonsini, who appeared with Dunn, insisted that contrary to recent news reports, he never took the position that pretexting was legal.

He also testified that he and his firm were "not involved in the design or conduct of the investigations."

HP shares have been largely unaffected during the investigation.

Investors are most concerned about the fate of Hurd, who is credited with turning around the company's performance in his 18 months as CEO.

The shares gained 58 cents to close at $35.97 Thursday.

"The biggest question facing HP right now is whether Mark Hurd comes out of these hearings with his credibility intact," said James Post, a Boston University professor specializing in corporate governance. "And his credibility is going to hang on how good a job he does handling all these tough questions. I doubt if he has ever been through something like this before."

Hurd apologized for the investigatory tactics but denied having direct knowledge of the methods.

"If Bill Hewlett and Dave Packard were alive today, they'd be appalled," he said, referring to the company's revered founders. He pledged to "redefine our company."

Earlier, Dunn blamed bad advice from others in the company, including Baskins. "I deeply regret that so many people, including me, were let down by this reliance" on such advice, Dunn told the panel.

She stumbled at turns and corrected herself when asked how much she knew of the shady tactics, including when she learned investigators had used pretexting.

But while saying she was unaware of the details, she repeatedly defended the probe as necessary to stem serious leaks of confidential information.

"I dispute having ever understood or being told that the fraudulent use of identity was ever a part of this investigation," Dunn insisted.

She noted that she was pretexted as well.

The probe targeted every member of the board, HP investigator Fred Adler testified. Pretexting also was used in previous investigations by the company.

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