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The sensational revelation that Hewlett-Packard Co. engaged in “pretexting” to gain access to directors’ and reporters’ phone records has not just created damaging headlines for the Silicon Valley company, but made it a target of a criminal investigation. Larry Sonsini, the company’s long-time outside counsel, stated in The Wall Street Journal on Thursday that although he told the company after the fact that the practice was “within legal limits,” he was just relying on the opinion of an inhouse lawyer. Questions about the seamy practice of pretexting may be outside the normal scope of practice for a corporate lawyer. Questions about securities laws governing the disclosure of board activities, however, should be bread and butter matters for someone like Sonsini. For that reason, the handling by Sonsini and his partners of the disclosure that followed the resignation of Tom Perkins from the board raises perplexing questions about their judgment. Although Perkins resigned on May 18, it was not until this past Wednesday, Sept. 6, that the company amended its 8-K filing to give more detail about the director’s action. In that filing, the company also revealed that it had received a comment letter from the SEC asking for more information about Perkins’ resignation. “We engaged in a 3-1/2 month effort to get Hewlett-Packard to come clean about Tom Perkins’ reasons for resigning,” says Perkins’ lawyer, Viet Dinh, a professor at Georgetown University Law Center. Perkins abruptly quit during an HP board meeting after another board member, George Keyworth, was asked to resign. A company investigation had identified Keyworth as the source of past press leaks. (Keyworth refused to resign, but the company has not renominated him for the board.) According to Dinh, Sonsini was not present at that board meeting, but Sonsini soon after called Perkins to discuss his resignation. What was said in that phone call is disputed. According to Sonsini( .pdf), Perkins told him that he had no disagreement with the company or the board, but did have issues with chairwoman Patricia Dunn, who ordered the leak investigation. Dinh says this is not correct. “Tom Perkins disagrees with Mr. Sonsini’s recollection” of the phone conversation. “Recollections may differ, but any reasonable person would recognize that 90 minutes of heated discussion [in the boardroom] are not just over personal issues.” Under federal securities law, if a director resigns because of a disagreement with the company over its operations, policies or practices, the company must describe the disagreement. In an 8-K filing made on May 22, Hewlett-Packard announced that Perkins had resigned, without giving any reason.
PRETEXT IN CONTEXT

Follow all the coverage of Hewlett-Packard’s boardroom spying scandal � and the continuing legal fallout.

If there was any confusion about Perkins’ resignation, he made his sentiments clear in an Aug. 14 letter to the board (.pdf). In that two-page letter, which was copied to Sonsini, he stated that he resigned to protest the “questionable ethics and the dubious legality” of the methods used to investigate the leaks. He also stated that he considered the 8-K to be defective because it didn’t describe the circumstances of his departure. Under securities law, if a director sends the company a letter regarding his resignation, the company must file it with the SEC within two business days. Why HP chose not to do so isn’t yet clear. Instead, HP General Counsel Ann Baskins sent a letter Aug. 16 (.pdf) to Perkins and Sonsini citing Sonsini’s version of his discussions with Perkins. Based on that, she said, “it would be inappropriate to amend the 8-K at this time because it was accurate when filed.” The next day Dinh wrote to Baskins in a letter copied to Sonsini and the directors. He contended that, regardless of what the parties remember about that board meeting, the company should have filed the Aug. 14 letter with the SEC. He accused the company of a “willful attempt to evade the company’s obligations.” The next volley came from Sonsini’s partner, litigator Boris Feldman. Feldman reiterated in an Aug. 22 letter that the 8-K was correct at the time it was filed, but he did not address Dinh’s argument that HP was required to disclose Perkins’ Aug. 14 letter. Feldman also demanded to know whom Perkins might have discussed internal HP deliberations with. Dinh raised the stakes Aug. 23 by accusing Wilson Sonsini of having a conflict of interest, in part because of “Mr. Sonsini’s key participation in the events at issue.” Returning to the disclosure issue, he wrote: “It simply defies legal and common sense to suggest that, by HP’s unilateral fiat, 90 minutes of vigorous disagreement leading to the resignation of a senior board member did not happen or can be ignored.” At some point, Perkins contacted the SEC, according to The Wall Street Journal. On Sept. 6, the day the story broke in the Journal, HP filed an 8-K with more details about Perkins’ resignation and admitting the use of the pretexting by an outside contractor. Ryan Donovan, a spokesman for HP, said the company believed its disclosure was adequate based on what it knew at the time of Perkins’ resignation. As for the company’s duty to disclose the Aug. 14 letter, Donovan said he needed to look into that issue and did not get back by press time. At Wilson Sonsini, Feldman referred questions to HP. Sonsini did not return a call. Firm spokeswoman Courtney Dorman returned a call to take questions, but did not call back with a response from the firm. Charles Elson, the director of the Weinberg Center for Corporate Governance at the University of Delaware, says the HP board should have disclosed the circumstances of Perkins’ resignation immediately. “Clearly it’s something an investor would find important,” he says. Elson also believes the law required that HP disclose the Aug. 14 letter within two days. He says it’s immaterial that Perkins wrote his letter to the board two months after his resignation. “In my view, the letter should have been disclosed, under the spirit of the rule.” He adds, “This is about as bad as it gets,” referring to the whole controversy surrounding Hewlett-Packard. Susan Beck is a San Francisco-based senior writer for The American Lawyer. Her e-mail address is [email protected].

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