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Business Impact

Hewlett-Packard settles SEC claim over director's resignation tied to spying scandal

SAN FRANCISCO (AP) – Hewlett-Packard Co. has settled federal securities charges alleging the company illegally concealed the reason a director resigned just before its boardroom spying scandal erupted.

The Securities and Exchange Commission and the Palo Alto-based technology giant separately announced the settlement Wednesday.

The SEC found that HP violated mandatory disclosure rules in the way it announced venture capitalist Tom Perkins’ May 2006 resignation from the board.

The agency filed settled administrative charges Wednesday. The settlement does not include a fine or admission of guilt by HP, only an agreement by the company not to violate the SEC’s reporting requirements in the future.

”HP acted in what it believed to be a proper manner,” Michael Holston, HP’s executive vice president and general counsel, said in a statement. ”However, we understand and accept the SEC’s views and are pleased to put this investigation behind us.”

Perkins quit in protest of the spying tactics used to ferret out the source of boardroom leaks to the media. HP disclosed the resignation in a regulatory filing but did not mention the reason Perkins quit.

The SEC found the departure stemmed from a dispute over the company’s corporate governance and handling of sensitive information, thus requiring HP to include a reason in its regulatory filing on the matter.

”The company viewed this as a personal dispute between a director and the chairman and opted to stay silent about the disagreement,” said Marc Fagel, associate regional director of the SEC’s San Francisco office. ”But the failure to make the required disclosures deprived investors of important information about the management of the company by its board of directors.”

After he left, Perkins mounted an aggressive campaign to force HP to reveal the reason he quit. HP did just that in September, also admitting that detectives employed a shady surveillance tactic known as ”pretexting” to unearth the confidential phone records of board members, journalists, HP employees and their family members.

The revelation touched off a firestorm over HP’s corporate governance procedures and led to criminal charges against former Chairwoman Patricia Dunn that were eventually dropped, a $14.5 million settlement between HP and the state of California, congressional hearings, and the conviction of a private detective on federal identity theft and conspiracy charges.

The federal criminal probe is ongoing.

HP has been largely unfazed by the scandal. The company’s operations are going gangbusters under Chief Executive Mark Hurd, and its stock price has jumped more than 25 percent since the tactics were disclosed in September, creating an additional $20 billion in shareholder wealth.

HP’s stock rose 5 cents to $45.63 on Wednesday.

In further evidence of its technological strength, HP also said Wednesday it has landed a seven-year contract from NASA worth up to $5.6 billion to provide desktops, workstations and other products to federal government agencies.

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