X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Disheveled Ann Baskins stood on September 28 before a congressional committee investigating the Hewlett-Packard Company spying scandal. Baskins’s eyes were puffy, her face wan, her forehead deeply lined, and her usually neatly kept hair was pulled back and askew. Just hours earlier she had made the painful decision to resign as general counsel of the giant computer company. Standing before the committee, she held her right hand in the air and swore to tell the truth. Then, on the first question, Baskins exercised her Fifth Amendment right to remain silent and refused to tell anything. While Baskins sat quietly, former HP chairwoman Patricia Dunn and CEO Mark Hurd told the committee that Baskins was to blame for the mess. They said that she had given them bad legal advice, and that she knew about and permitted the use of “pretexting” � using false pretenses to obtain personal information about others. Even Baskins’s longtime friend and HP’s outside counsel, Larry Sonsini of Wilson Sonsini Goodrich & Rosati, told Congress: “I think the record has become quite clear that who was in charge [of the spying] was the HP internal legal department. They took the responsibility on, rightly or wrongly.” So far, that was the public low for Baskins’s career. In private, the due bills keep rolling in. By mid-November, Baskins and Palo Alto � based HP were facing investigations by the California attorney general’s office, the U.S. attorney in San Francisco, the Federal Bureau of Investigation, the Federal Communications Commission, and the Securities and Exchange Commission. (As yet, Baskins has not been charged with any crimes.) At least one of five shareholder suits against HP accuses Baskins of insider trading and damaging the corporation. There are potential invasion of privacy suits from individuals whose phone records were stolen. And two phone companies have sued the detective agencies used in the pretexting; one of the suits also names as defendants “unidentified companies” and individuals that conspired with the agency to do the pretexting. [For more about hiring private investigators, see "Watching the Detectives.".] By some measure, Baskins has dodged the worst of the fallout. HP ousted Dunn and Kevin Hunsaker, the senior counsel in Baskins’s office who oversaw the spying efforts. The California attorney general has indicted the pair, along with three private investigators, on four criminal counts related to the spying. The AG alleges that Dunn and Hunsaker personally provided home and cell phone numbers to the private investigators. All five defendants pled not guilty and await trial. If convicted on all counts, they each face a maximum of 12 years in prison and $55,000 in fines. Little has been writtenabout Baskins’s role in the spying efforts, but an in-depth analysis of more than 1,500 pages of documents, as well as interviews with people close to the investigation, offers insights into how she let the spying probe spin out of control. The records, which include HP e-mails and interviews conducted by lawyers at Palo Alto � based Wilson Sonsini as part of the company’s internal investigation, were made public by the House committee. In the end, the HP scandal comes down to this: The spying probe became a runaway train. And Ann Baskins was the person in the best position to recognize the danger and stop it. But she didn’t. In fact, the records show that from June 2005 to April 2006, Baskins raised legal questions about the tactics at least six times. But she never pushed for a definitive answer about whether the methods used were, in fact, lawful. Or, more importantly, whether they were unwise and dangerous to the company. In retrospect she could have, and should have, shut down the throttle on this train long before it crashed. “Part of your responsibility as general counsel is to ask hard questions about whether conduct is just technically legal, or arguably illegal, or beyond the fringes of fraud,” says Deborah Rhode, a professor of legal ethics and professional responsibility at Stanford Law School. “She was in the best position to see it and stop it.” Even Baskins concedes that she should have done more. Her attorney, K. Lee Blalack II, says Baskins would not comment for this story. But Blalack says that Baskins fully recognizes that instead of solely focusing on whether the investigation was legal, Baskins also should have questioned whether it was ethical. “She regrets that she did not do so,” says Blalack, a partner in the Washington, D.C., office of O’Melveny & Myers. According to thoseclose to her, it wasn’t like Baskins to fail to ask the right questions. She had deftly managed the legal issues that arose in HP’s $8 billion spin-off of Agilent Technologies, Inc., in 1999. And she won praise in 2002 for her handling of the controversial $22 billion merger with Compaq Computer Corporation, including the sensitive civil suit brought by the heirs of HP’s founders, who tried to block the deal. Baskins was both a survivor of corporate politics and the very model of a good company soldier. Even during the congressional hearing, Dunn praised Baskins’s commitment to the tech giant, adding, “Ann Baskins bleeds Hewlett-Packard blue ink.” A 1980 graduate of University of California, Los Angeles School of Law, Baskins spent only about a year in private practice. She joined HP in 1982 and slowly worked her way up the ranks. She was named vice president and corporate secretary in 1999 and general counsel in early 2000. Along the way she married Thomas DeFilipps, a Wilson Sonsini partner. Philadelphia attorney Michael Holston, a longtime friend of Baskins, whose firm Morgan, Lewis & Bockius was brought in by HP execs to investigate the spying probe, calls Baskins “a terrific lawyer who did a great job for HP for nearly 25 years. And she is a woman of the highest ethical standards.” But the praise isn’t universal. A former HP in-house lawyer, who requested anonymity because the attorney started a new job, is not surprised that the GC didn’t step in to stop the spying. “Baskins was indecisive and disconnected as a manager,” says the attorney, who declined to elaborate. The beginning of theend for Baskins, 51, came in February of 2005, when Dunn and her allies on the board forced out then � CEO and chairwoman Carleton “Carly” Fiorina. The directors chose Dunn to chair the board. On April 1 Hurd became CEO, but someone had leaked news of his appointment to the press a few days earlier. An irate Dunn hired a Boston-based private investigator named Ron DeLia to search for the leaker. (The California attorney general later accused Dunn of providing DeLia with the home, office, and cell phone numbers of various HP directors and managers.) Records show that Dunn initiated those first spying efforts � without Baskins’s knowledge � on April 19. Dunn named the spy probe Project Kona because she was vacationing in Hawaii at the time. (Neither Dunn nor her lawyer, James Brosnahan, a senior partner at Morrison & Foerster in San Francisco, returned calls for this story. DeLia also declined to comment through his attorney, John Williams, of Manchester, Williams & Seibert in San Jose.) Why did Dunn act on her own at first? Records suggest she may have done so because HP’s internal corporate politics were roiling. Dunn suspected everyone, including Baskins, as a possible leaker. And Baskins noted in the Wilson Sonsini interviews that her working relationship with Dunn and the board was “strained” by all the distrust at that time. Dunn brought Baskins into the loop two months later. On June 14, according to e-mails and congressional testimony, DeLia e-mailed a seven-page report to Dunn that discussed the phone record searches and used the word “pretexting.” Dunn forwarded a copy to Baskins the same day. This e-mail is the earliest mention of Baskins’s involvement in any document that has so far been made public. Dunn told DeLia that Baskins would join them in a teleconference call the next day to discuss the report. During that June 15 call, DeLia told the two women that telephone records were obtained by ruse from a telecommunications carrier, and he explained the word “pretexting” to them, according to the complaint filed by the attorney general’s office. Baskins made sketchy, handwritten notes referring to “pretexting.” According to an affidavit attached to the AG’s complaint, “DeLia recalled that Baskins was curious about pretexting and concerned about its legality, and had asked DeLia whether it was lawful. DeLia replied that he was aware of no laws that made pretexting illegal, and was aware of no criminal prosecutions for such activities.” Asked in later interviews why she didn’t challenge the pretexting when she first learned it involved acts of deceit, Baskins said that Dunn hadn’t asked for her opinion. Her relationship with Dunn was such, Baskins added, that “you answered what you were asked” and no more. E-mails show that pretexting continued through August 2005. That’s when Anthony “Tony” Gentilucci, the manager of HP Global Security investigations and a member of the spy team, reported that the probe still could not find the leaker. But his final report offered helpful suggestions for future spying efforts. He advised engaging “HP legal [department in order] to invoke the attorney-client privilege”; assigning an attorney to direct the investigation; and conducting all future briefings “verbally and keeping written work product to a minimum.” With that advice, Baskins put the issue behind her � or so she thought. A new leak occurredin January 2006. A story on CNET Networks, Inc., a technology news service, reported confidential information about a potential HP acquisition. At Hurd’s and Dunn’s urging, Baskins quickly launched a new spy probe, dubbed Kona II. Baskins assigned Hunsaker, a six-year HP veteran and her senior counsel, to run it. He reported back to Baskins every other day, and to Dunn and Baskins together once a week, according to records. On January 23, Hunsaker e-mailed HP security that he was heading the new leak probe, at Baskins’s request, “in order to protect the attorney-client privilege in the event there is litigation or a government inquiry of some sort.” Baskins also asked Hunsaker to further explore the legality of pretexting. This was the second opportunity, after initially learning about the technique from DeLia six months earlier, that Baskins had to demand in-depth research by an expert in criminal law. But that didn’t happen. Instead, on January 30 Hunsaker sent the now-infamous e-mail to Gentilucci, asking, “How does Ron [DeLia] get cell and home phone records? Is it all aboveboard?” Gentilucci replied that ruses are common in investigations. He said pretexting has been used in a number of probes, and “has not been challenged,” although phone company employees could be held liable. His e-mail concluded: “I think it’s on the edge, but aboveboard.” Hunsaker responded with four words that have haunted him ever since: “I shouldn’t have asked.” Then Hunsaker, in an e-mail, sought DeLia’s assurances about the spying tactics. Again DeLia, as he had done in Kona I, insisted in e-mails that pretexting was lawful. Michael Pancer, Hunsaker’s attorney, says Baskins did nothing illegal here, and neither did his client. Pancer, a solo practitioner in San Diego, says Hunsaker would not comment for this story. But Pancer defends pretexting. “This [board leak] was a serious problem, and Kevin’s ethical duty was to take every legal step necessary to help his client,” Pancer says. In interviews with the Wilson Sonsini lawyers, Hunsaker explained how, at Baskins’s urging, he researched the issue of pretexting. He said he did about an hour’s worth of online reading. If he had looked at the Web sites of the Federal Trade Commission or Federal Communications Commission � and there is no record that he did � Hunsaker would have seen that those agencies have a serious problem with pretexting and consider it illegal. In fact, the FTC at the time was investigating five private eye companies for pretexting. FTC lawyers sued the five companies for “unfair and deceptive practices” in May. In addition, more than ten states, as well as Congress, were considering specific legislation to outlaw pretexting. Several states have since made pretexting a crime. Hunsaker admitted in the Wilson Sonsini interviews that he knew about a Verizon Communications Inc. privacy suit against an online company for pretexting. Actually, Verizon had filed two such privacy suits in 2005 against pretexters, and that fact also was available online. There is no record that anyone at HP thought to call the GC of Verizon or any other phone company to ask them about pretexting. Ironically, the president of Verizon is Lawrence Babbio, Jr., who sits on HP’s board of directors. But no one asked Babbio for his thoughts on pretexting. (Hunsaker would later say they did not pretext Babbio’s phone records.) So, steeped in blissfulignorance, the HP spy team kept on pretexting until February 7, when the method faced its only real challenge. That’s when two HP security employees, who were members of Hunsaker’s spy team, saw some of the detailed phone records being collected. Former law enforcement officers, they went to their supervisor and questioned the legality and ethics of obtaining personal phone records. The supervisor confronted Hunsaker, who promised to relay their concerns to the “executives sponsoring this investigation” before proceeding or using the data. There is no record available of whether Hunsaker kept his promise. Whether spurred by her own doubts or others’, Baskins in early February ordered Hunsaker to undertake “a full process check” on the investigation, including the legality of its methods. This was yet another chance to ask the tough questions and to demand an outside counsel’s opinion. Instead, she again turned to Hunsaker, who again merely asked DeLia to reassure them on the law. To answer the question this time, DeLia, according to his Wilson Sonsini interview, turned to his outside attorney, John Kiernan, with whom he shared office space. Kiernan told DeLia that pretexting was not a crime. The attorney, a partner at Boston-based Bonner Kiernan Trebach & Crociata, wouldn’t comment for this story. But in the Wilson Sonsini interviews, Kiernan said that neither HP nor DeLia had ever hired him to research the issue. He had based his quick comments to DeLia on a study done a year earlier by a law student who was clerking in his office. The clerk, Valerie Kloecker, is now an associate with Kiernan’s firm and also wouldn’t comment. But on the basis of Kiernan’s snap opinion, DeLia e-mailed Hunsaker, saying that “right now” (February 2006) there were no state or federal laws prohibiting pretexting. DeLia’s e-mail went on to say there “is a risk of litigation.” And added: “Note: the Federal Trade Commission has jurisdiction.” There is no record available to show whether Hunsaker relayed this “risk of litigation” to Baskins, or whether he bothered to check with the FTC. Apparently satisfied with whatever Hunsaker did tell her, Baskins let the probe continue. On March 10 Hunsaker sent an 18-page draft report to Dunn, Baskins, and Hurd. It connected board member George “Jay” Keyworth II to the leaks, and said the investigation was still ongoing. It did not mention the word “pretexting,” but said on page three that “the investigation team obtained, reviewed, and analyzed HP and third-party phone records to identify calls made to or from reporters or other individuals of interest.” A footnote added: “It should be noted that, with respect to non � HP phone records, the investigation team utilized a lawful investigative methodology commonly utilized by entities such as law firms and licensed security firms in the United States to obtain such records.” Shortly before Dunn and Baskins were to discuss the report with Hurd at a March 15 meeting in Los Angeles, Baskins apparently grew uneasy. She asked Hunsaker to talk with outside counsel about pretexting in case Hurd had questions. Again, Baskins had a chance to demand a written opinion from an outside criminal lawyer. But once more, she relied on Hunsaker, who asked Gentilucci to call DeLia’s lawyer, Kiernan. This time Kiernan had a paralegal respond to HP. The paralegal gave Gentilucci an “update in which she said she could not find additional lawsuits or criminal charges to indicate that pretexting was (had become) illegal.” Hunsaker reported back to Baskins that he had confirmed the legality of pretexting with outside counsel. On March 15 Baskinsand Dunn told Hurd that the probe concluded that Keyworth, a noted physicist, was the leaker. Before they confronted Keyworth, the executives decided to consult Larry Sonsini, who would later tell Congress that he was asked in mid-April only to look at “the sufficiency of evidence.” Sonsini said he wasn’t asked for, and didn’t offer, any opinion about pretexting at this time. E-mails between Baskins, Dunn, and Hunsaker indicate that Baskins shared Sonsini’s comments with them during an April 15 conference call. The records do not indicate what Sonsini said, but two incidents the following week suggest that Baskins was growing more cautious. First, Hunsaker was moved out of HP’s legal department to become director of ethics. His lawyer, Pancer, calls it a promotion for his hard work. In an e-mail to his spy team, Hunsaker says simply that he’s “no longer a member of the HP legal department.” His new title was “director of ethics and SBC [standards of business conduct] compliance,” and he would report to a senior vice president in marketing. In the other incident that hints at Baskins’s fears, she asked Hunsaker once again to discuss the legality of pretexting, this time in a memo. On April 24 Hunsaker e-mailed a one-page copy of his note to Gentilucci and DeLia. The e-mail says it was prepared “per Ann Baskins’ specific request.” The note explains that the phone records were obtained using pretexting. To confirm the legality of pretexting, the memo cites three efforts. First, Hunsaker “conducted some preliminary legal research and determined that [pretexting] is not unlawful.” Second, DeLia contacted the agency he subcontracted to do the pretexting, and the company said its methods “were not unlawful.” Third, Gentilucci contacted attorney John Kiernan, whose firm “had conducted extensive research on this issue, and that the practice of pretexting . . . is not unlawful.” Hunsaker concludes: “As a result, the investigation team is confident that all phone records information . . . was obtained in a lawful manner.” After reading this memo, was Baskins as confident? If not, she could have tried to derail this runaway train a final time before the report went to the board. But she didn’t. At HP’s May 18 board meeting, the directors were told that Keyworth was the leaker. When the board voted 6 to 3 to ask Keyworth to resign, director Thomas Perkins angrily quit in protest. Throughout June and July, Perkins, a high-profile Silicon Valley venture capitalist, challenged the legality of the investigation and demanded answers from Baskins and Sonsini. Sonsini replied with his now oft-quoted e-mail: “I am sure Ann Baskins looked into the legality of every step of the inquiry and was satisfied that it was conducted properly.” That wasn’t enough for Perkins, who made the entire mess public in late July. He told the attorney general’s office, the SEC, and others about the investigation, including the pretexting. He also told the SEC he objected to how HP had portrayed his resignation in an 8-K filing. Now facing a public outcry, HP in August asked Sonsini’s firm to conduct an internal “investigation of the investigation.” Partners Steven Schatz and David Berger conducted phone interviews of the participants � including four separate interviews with Baskins, and seven with Hunsaker. (Schatz said that no one at the law firm would comment for this story.) Baskins was allowed to sit in on several of the interviews, and even to participate in Kiernan’s interview. By the time the interviews were finished in late August, Baskins had to know she was in trouble. In her interviews with the lawyers, she was often evasive. For example, when asked about a July 2005 meeting on Kona I, Baskins “reported that her calendar does not show any meeting in mid-July of 2005.” Baskins used a lot of “I don’t recall” answers, and contradicted herself several times in different interviews, especially about her knowledge of pretexting and about her role in Kona I and Kona II. The Wilson Sonsini report on August 30 concluded that “all persons involved” acted in good faith, but that “certain errors in judgment were made.” While the use of pretexting at the time “was not generally unlawful,” the report said the subcontractors may have used Social Security numbers while pretexting, “which more likely than not violates federal law.” The report did not fault Baskins or Hurd, who “reasonably relied” on Hunsaker’s assurances. But Baskins stillwasn’t off the hook. The scandal snowballed through September, and HP hired another outside law firm, Morgan Lewis, to do a second internal investigation. The company also filed a new document with the SEC, outlining the spy probe and admitting that it had spied on at least two HP employees, seven members of its board, nine reporters, and their relatives. That’s when the dominoes started falling. Morgan Lewis came up with undisclosed, and what Hurd called “disturbing,” findings about the spying operation. Dunn immediately resigned. Gentilucci and Hunsaker were also forced out. Baskins offered her resignation, but Hurd at first refused it. Then the law enforcers and regulators opened their investigations. And Congress got into the act by demanding that Baskins and others at HP appear before the House subcommittee. The subcommittee had introduced a bill making pretexting a federal crime in January, and used HP to make its point for passage on national TV. Baskins flew to the hearing on an HP corporate jet, along with her second attorney, Cristina Arguedas, a partner in Arguedas, Cassman & Headley in Berkeley. At the time, Baskins’s lawyers were urging her to take the Fifth Amendment and not testify. But Baskins knew that the general counsel of HP could not refuse to answer Congress’s questions and still keep her job. Early on September 28 Baskins made the agonizing decision to resign and not testify. In a letter to the congressional committee, Baskins’s lawyers wrote, “Given the current environment, Ms. Baskins simply has no choice” but to refuse to testify. (Baskins left the company with a $3.6 million severance package.) Baskins may not be criminally liable for her role in Kona II. But some legal experts say that her ethical decisions were not beyond reproach. One critic is Rhode, the Stanford law professor, who looks at the psychology of what she calls “a moral meltdown.” Rhode points out that this wasn’t misconduct spurred by greed or self-dealing. In Baskins’s case, she was reacting to what she viewed as unethical behavior � a board member’s leak � and probably felt that she had a right to do whatever necessary to track down the leaker. “These [Baskins, et al.] were individuals who felt they were morally justified,” according to Rhode. One GC who has overseen investigations for his Fortune 500 media company says that beyond the legal and the ethical issues, Baskins failed to ask the crucial question: “How will all this affect the company if it shows up on page one of The New York Times?” In Baskins’s defense, Blalack argues that she was supervising more than 250 lawyers, and more than 600 employees globally. Under those circumstances, Blalack says, Baskins often had to rely on assurances from her subordinates. “Ms. Baskins asked for and received multiple assurances [from Hunsaker] that these investigative techniques were lawful,” he insists. In the end, Baskins’s downfall came because of what she decided not to see. Susan Hackett, senior vice president and general counsel of the Association of Corporate Counsel, argues that it is unfair to expect GCs “to see around corners.” But the unfortunate truth is, when it came to the legality of spying, Baskins had blinders on.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.