PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
Investigators working on behalf of Hewlett-Packard (HPQ) masqueraded as telecom employees to obtain phone records of Verizon Communications (VZ) customers, BusinessWeek has learned.
Verizon is cooperating with California Attorney General Bill Lockyer, who is investigating methods used by agents working on HP's behalf to uncover the source of company leaks to news outlets.
The victimization of Verizon and its customers puts Verizon Vice-Chairman and President Lawrence T. Babbio in a difficult position. Babbio sits on HP's board and has been a vigorous defender of Chairwoman Patricia Dunn, who launched a controversial probe into corporate leaks to the news media. Babbio has publicly praised Dunn's determination to identify the source of the leaks. Verizon also provides telecom services to Hewlett-Packard.
But as president of Verizon, Babbio has aggressively fought to defend customers from "pretexters," filing civil lawsuits against individuals and cooperating with law enforcement on criminal cases. Eric Rabe, senior vice-president for media relations at Verizon, declined to comment on any facet of the HP investigation. He says Verizon has "zero tolerance" for any intrusion into customer privacy. "We work side by side with law enforcement and certainly would in any case involving pretexting," Rabe says.
SECOND TELECOM AFFECTED. Pretexters—also known in the vernacular as "phone phreakers" or "social engineers"—misrepresent their identities to convince the telecom system to cough up confidential information about phone customers. In the Hewlett-Packard case, tech-savvy gumshoes used Social Security numbers and other information to bluff their way into obtaining the confidential records of phone company customers. Among the individuals targeted were HP directors and employees, plus nine journalists who reported on the company—including three BusinessWeek writers (see BusinessWeek.com, 9/8/06, "BW Writers Targeted by HP").
Several AT&T (T) customers, including former HP board member Thomas Perkins and several journalists, were among the individuals whose records were obtained by pretexters working on Dunn's probe. The revelation that Verizon customers were targeted as well doesn't necessarily mean that the practice was more widespread than HP has acknowledged. AT&T also is cooperating with investigators.
Congressional lawmakers have been studying the pretexting phenomenon for seven months, and now they, too, are putting Hewlett-Packard under their scrutiny. On Sept. 14, a panel of the House Energy and Commerce Committee sent letters asking Dunn and three others to testify before House investigators. Rep. Ed Whitfield (R-Ky.), chairman of the Oversight and Investigations Subcommittee, has scheduled a hearing for Sept. 28.
EXECS CALLED TO TESTIFY. In addition to Dunn, Whitfield has summoned to testify HP Vice-President Ann Baskins; HP outside counsel Larry W. Sonsini, chairman of Wilson Sonsini Goodrich & Rosati; and Ronald DeLia, managing director of Security Outsourcing Solutions, a company linked to the investigation. The subcommittee has asked HP for all documents and correspondence relating to the company's investigation into media leaks. The first set of documents is expected to be delivered on Sept. 18.
HP spokesman Michael Moeller said the company is cooperating with lawmakers but declined to say whether Baskins or Dunn would appear at the hearing. DeLia could not be reached for comment. A spokesman for Sonsini declined to comment.
The Justice Dept. and Securities & Exchange Commission also are looking into Hewlett-Packard's activities after former board member Perkins last month alerted the agencies to Dunn's investigation and the use of pretexting by the company's investigators (see BusinessWeek.com, 9/6/06, "Perkins Goes Up Against HP—Again"). In May, Perkins resigned from the board in protest of Dunn's methods. He went public with his concerns last month. Board member George Keyworth, identified by Dunn as having spoken to the media without going through proper corporate channels, resigned on Sept. 12 and is negotiating a settlement with the company. Dunn will step down from the chairman's seat in January, to be succeeded by CEO and President Mark V. Hurd.
SHAREHOLDER LAWSUIT. The scandal hasn't yet had an effect on the company's stock price, but the first shareholder lawsuit was filed on Sept. 14 by class-action king William S. Lerach, founding partner of Lerach Coughlin Stoia Geller Rudman & Robbins in San Diego. The derivative complaint, filed by shareholder Juliet Worsham in Santa Clara County Superior Court on behalf of the company, accuses Dunn, Baskins, the HP board, and Hurd of "gross mismanagement," breaching fiduciary duty, wasting corporate assets, and abusing control. Faced with numerous federal and state investigations, "HP is unable to protect itself or remedy the wrongs inflicted upon it," the complaint states, because the corporation remains under the control of "the primary wrongdoers" and continues to receive legal advice from Sonsini and Baskins, both of whom have "substantial conflicts of interest" and who also might be implicated in "the commission of the unlawful conduct or covering it up."
The complaint paints HP's board and its "conspirators" as "colossally stupid" and asks the court to impose a host of good-governance practices on the company. Among the shareholder demands are changes in company bylaws that would require HP's chairman to be a non-executive director and permit shareholders to nominate at least three candidates for election to the board. The lawsuit also asks for unspecified punitive damages and legal fees.
Woellert is a correspondent in BusinessWeek's Washington bureau
Printer-Friendly Version