HP Settles Civil Lawsuit in “Spying” Case

Hewlett-Packard agreed to pay $14.5 million to settle a civil case brought against it by the California Attorney General’s office related to the company’s internal investigations of its board members. The lion’s share of the settlement will be used to establish a Privacy and Piracy Fund that will help state prosecutors fight consumer privacy and piracy violations. Felony criminal charges are still pending against five people involved in the scandal, in which company investigators were accused of impersonating board members, employees, and journalists in order to obtain personal phone records.

Also as part of the settlement, HP will make several changes to its corporate governance structure: A new independent director will be the board’s watchdog with regard to ethical and legal requirements. Both the chief ethics and compliance officer and chief privacy officer will receive greatly expanded duties. The company will also establish a new Compliance Council that reports to the CEO, the board, and the audit committee.

“The Hewlett-Packard incident has helped shine a national spotlight on a major privacy protection problem,” said Attorney General Bill Lockyer. “With its governance reforms, this settlement should help guide companies across the country as they seek to protect confidential business information without violating corporate ethics or privacy rights. And the new fund will help ensure that when businesses cross the legal line they will be held accountable.

“Fortunately, Hewlett-Packard is not Enron. I commend the firm for cooperating instead of stonewalling, for taking instead of shirking responsibility, and for working with my office to expeditiously craft a creative resolution.”

The civil complaint filed by the AG’s office alleged that HP used “false and fraudulent pretenses” to obtain confidential information. The victims included HP employees, board members and their families, and reporters and their families. It also accused HP of willfully and knowingly accessing, and without permission using, computerized telephone account data belonging to the victims. HP was also accused of violating California’s identity theft statute by willfully obtaining personal identifying information about the victims, then using that information for illegal purposes.

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