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The RecorderSeptember 15, 2006 It was Thursday afternoon and the press was sweating: For three days no one new had decided to go after Hewlett-Packard’s board of directors for their recent descent into public ignominy. Not to fear, though: At about 4 p.m., plaintiffs lawyer William Lerach joined Congress, the California attorney general, the San Francisco U.S. Attorney, and federal regulators. Representing an HP shareholder, Lerach filed a suit accusing board members and executives of breaching their fiduciary duty for a litany of reasons, including their ongoing use of top Silicon Valley lawyer Larry Sonsini. Lerach’s complaint is the latest result of a mess that began early this year when HP board Chairwoman Patricia Dunn initiated a probe in which an investigator lied to access private phone records of other directors and several journalists. And while it’s not yet clear how state Attorney General Bill Lockyer or U.S. Attorney Kevin Ryan will proceed — Lockyer has said he has enough evidence to bring state charges, while Ryan’s office met with HP lawyers on Monday — Lerach’s claims are quite explicit in the derivative suit he filed in Santa Clara County Superior Court in California. The lead partner at Lerach Coughlin Stoia Geller Rudman & Robbins argues in the suit that 10 HP board members and executives — including Dunn and General Counsel Ann Baskins — should be forced to pay damages to the company. Lerach wrote that the defendants “breached their fiduciary duties to HP, committed gross mismanagement, abused their control of HP, and have engaged in a gross dereliction of their duties, as well as corporate waste and attempted enrichment” by seeking to solidify their positions within the company by investigating board members Thomas Perkins and George Keyworth. The scandal first became public last week when The Wall Street Journal reported on Perkins’ ongoing attempt to get HP to admit that he left the company in protest of the investigation. In that probe, a contractor — Boston-based Ronald DeLia, according to the Journal and Lerach’s complaint — used pretexts to access the board members’ phone records to find out who was leaking information to reporters. HP spokesman Ryan Donovan wouldn’t comment on the suit Thursday. “We normally don’t comment on any kind of pending suits,” he said. Lawyers at Morgan, Lewis & Bockius representing HP in the federal investigation couldn’t be reached by press time. But Lerach had plenty to say. “It looks like a case of internal board warfare a little bit, and you don’t necessarily think of that as a derivative suit,” he said. But since the matter blew up publicly, he added, it’s become very expensive for the company to handle. Lerach said that, like most derivative cases, his suit is largely focused on getting better corporate governance protections in place. “But money should not be deemed insignificant,” he said. “There’s going to be a great cost to this scandal. It ought to be borne by the individuals responsible.” One part of the mess Lerach says is particularly troubling is the board’s ongoing reliance on GC Baskins and Sonsini, who Lerach says advised the firm on the leak probe, the subsequent investigation of that probe, and recent board meetings discussing how to deal with the aftermath. “Throughout the investigation, the controversy surrounding this investigation, HP’s SEC disclosures regarding this investigation and its aftermath, the HP board has continued to rely upon the advice and counsel of Baskins, the in-house general counsel of HP, despite the fact that she was personally involved in structuring and implementing the investigation which utilized illegal tactics,” the complaint says. Lerach also wrote that “Wilson Sonsini and Sonsini are conflicted and would be key witnesses and possible defendants in any ultimate legal action,” so the board should have sought independent counsel. A Wilson Sonsini spokeswoman did not return a call for comment by press time. Lerach said Thursday that state derivative cases tend to move slowly, and he’s not yet sure who is representing HP in the case. “I bet you it won’t be Wilson Sonsini,” he said.

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