Oct. 4 (Bloomberg) -- Hewlett-Packard Co. ex-Chairwoman Patricia Dunn and four others were charged with conspiracy and fraud by California's attorney general in the first prosecution stemming from a probe of illegally obtained phone records.

An internal inquiry into boardroom leaks at Hewlett-Packard, the world's second-largest personal computer maker, has been the subject of an investigation by California Attorney General Bill Lockyer. Dunn, 53, authorized the internal probe, which used fake identities to obtain the private phone records of board members and journalists, a tactic called pretexting.

The charges, filed today in state court in San Jose, are another black eye for Dunn, who has said she relied on investigators and isn't responsible for their conduct. Hewlett- Packard Chief Executive Officer Mark Hurd, who said he wasn't aware investigators were using pretexting, wasn't charged. The Palo Alto-based company is also being investigated by the Justice Department and the U.S. Securities and Exchange Commission.

``One of our state's most venerable corporate institutions lost its way as its board sought to find out who leaked confidential company information to the press,'' said Lockyer. ``In this misguided effort, people inside and outside HP violated privacy rights and broke state law.''

Dunn's lawyer said earlier today that his client has advanced ovarian cancer and will undergo chemotherapy this week.

Hunsaker, DeLia

Also named in the complaint were Kevin Hunsaker, the company's former director of ethics and the executive who ran the internal probe, outside investigator Ronald DeLia of Security Outsourcing Solutions Inc. and Bryan Wagner and Matthew Depante, two private detectives hired on the company's behalf. Lockyer said the investigation is continuing.

``Patricia Dunn and Kevin Hunsaker were the key actors in the decision processes that led to pretexting,'' said James Post, a professor of management at Boston University. ``The chair of the board must be the No. 1 advocate for ethical standards.''

The five defendants were charged with conspiracy, wire fraud, illegal use of computer data and identity theft, court papers said. If convicted, they each face up to 12 years in prison. The maximum fine for conspiracy to commit identity theft is $25,000. The other counts carry maximum fines of $10,000.

As part of the conspiracy charge, prosecutors claimed Dunn gave DeLia home, cellular and office telephone numbers for Hewlett-Packard board members. DeLia allegedly told Dunn and then-General Counsel Ann Baskins on June 15, 2005, that the telephone records were obtained by ``ruse from the telecommunication carrier,'' prosecutors said.

Voluntary Surrender

Lockyer said he will seek to arrange the voluntary surrender of Dunn and Hunsaker. He said he was aware of reports that the former chairwoman is undergoing treatment for cancer and said he hopes she beats the disease.

Dunn's illness has no impact on her guilt, Lockyer said at a press conference today in Sacramento.

The attorney general, the state's top prosecutor, said he has no evidence of wrongdoing by Hurd. Arrest warrants are being sought for the other defendants, said Robert Anderson, chief deputy attorney general.

Lockyer's charges come less than a week after Dunn and Hurd, 49, faced a congressional committee that put the computer maker at the center of a national debate over privacy abuses.

The charges show ``prosecutors are beginning to move forward to address the violations that occurred,'' said U.S. Representative Ed Markey of Massachusetts, ranking Democrat on the House Telecommunications committee, in a statement today.

Congressional Inaction

Markey criticized what he called the lack of Congressional action to increase the penalties for pretexting in order to obtain phone records, and to outlaw purchases or sales of the Social Security numbers used to obtain access to such records or other personal information.

House Republican leaders have refused to take up proposed legislation approved by the Energy and Commerce Committee in each of these areas, Markey claimed. Kevin Madden in House Majority Leader John Boehner's office confirmed a vote hasn't been scheduled.

Representative John Dingell, a Michigan Democrat, called Hewlett-Packard's actions a ``case study in deceit, dishonesty'' and ``probably criminal'' behavior.

James Brosnahan, a lawyer for Dunn, of Orinda, California, said his client will fight the charges.

`Wrong Reasons'

``These charges are being brought against the wrong person at the wrong time and for the wrong reasons,'' the lawyer said in a statement. ``They are the culmination of a well-financed and highly orchestrated disinformation campaign.''

John Kiernan, a lawyer for DeLia, 56, of East Sandwich, Massachusetts, didn't return a call seeking comment. Michael Pancer, a lawyer for Hunsaker, 41, of Menlo Park, California, declined to comment.

Richard Preira, attorney for Depante, 27, of West Melbourne, Florida, didn't return calls or e-mails seeking comment. Wagner, 29, didn't return voicemail messages left at his home in Littleton, Colorado.

The company said in a statement that it's continuing to cooperate with state and federal investigators, and declined further comment.

Shares of Hewlett-Packard fell 17 cents to $37.85 at 7:27 p.m. in trading after the close of the New York Stock Exchange.

The shares have remained unaffected by the scandal after analysts and investors said customers will likely continue to buy the company's PCs.

`Tempest in a Teapot'

``This doesn't have much to do with the actual running of the company. It's more of a tempest in a teapot,'' said Barry James, who oversees $1.8 billion as chief investment strategist at James Investment Research in Dayton, Ohio, including 495,000 Hewlett-Packard shares. ``The market has moved on.''

At least six investigators in Massachusetts, Florida, Colorado and Georgia hired by Hewlett-Packard faked the identities of directors, employees and reporters who were the subject of the leak inquiry in an effort to obtain their telephone records.

The company also sought the phone records of former CEO Carly Fiorina and Hewlett-Packard's outside attorney, Larry Sonsini, name partner of Palo Alto-based Wilson Sonsini Goodrich & Rosati.

Hewlett-Packard's internal investigation, started last year to learn who leaked boardroom discussions to reporters, became a scandal in the weeks following the company's Sept. 6 disclosure that some of the tactics used may have been illegal. Company Director George Keyworth resigned last month after admitting he was the source of some of the leaks.

`Rogue Investigation'

In recent weeks Dunn, Baskins, Hunsaker and Anthony Gentilucci, the company's global security chief, have all left the company because of their involvement in a probe that CEO Hurd called a ``rogue investigation.''

When interviews with board members in early 2005 failed to pinpoint the source of the leaks, Dunn turned to contractor DeLia and his company, Boston-based Security Outsourcing, which used pretexting to download phone records from AT&T Inc. A Florida- based firm and another in Littleton, Colorado, were also involved in obtaining phone records, according to a review by the Energy and Commerce committee.

Hundreds of telephone calls were gathered using pretexting for two current Hewlett-Packard employees, seven former or current board members or their families and nine journalists or their family members, Michael Holston, a lawyer hired by Hurd to review the company's conduct, said on Sept. 22.

33 Months

According to the court papers filed today, pretexting in the case compromised over 24 different individuals' telephone, fax and cellular accounts. During 33 months of call monitoring, there were approximately 1,750 calls made from all of the numbers.

Social Security numbers for targets of the probe were used to obtain the phone records, said Holston of Philadelphia-based Morgan, Lewis & Bockius. Gentilucci, who resigned last week, provided at least one employee's number to DeLia, Holston said. Baskins and Gentilucci are cooperating with Lockyer's probe, Anderson, his deputy, said.

Hunsaker, a six-year Hewlett-Packard veteran, invoked his Fifth Amendment right against self-incrimination at a hearing in Washington on Sept. 28, as did Gentilucci, Baskins, DeLia and other investigators called to testify.

In a Jan. 30 e-mail exchange between Hunsaker and Gentilucci, Hunsaker learned how pretexting worked from Gentilucci, who described the tactic as ``on the edge.''

Hunsaker replied ``I shouldn't have asked.''

Spyware

Hewlett-Packard also followed directors at their homes and on vacation and planted spyware on one reporter's computer. Investigators considered sending staff posing as administrative help and cleaning crews to spy on newsrooms, according to documents supplied by Hewlett-Packard and released by the House committee on Oct. 2.

Dunn has portrayed herself as a victim of investigators who kept her out of the loop and corporate legal experts who misled her about the legality of the tactics used. Company e-mails show she received regular updates from Hunsaker, the documents show.

The case is People v. Dunn, Santa Clara County Superior Court in San Jose, 06-1027481.

To contact the reporters on this story: Joel Rosenblatt in California state court in San Jose at jrosenblatt@bloomberg.net.

Last Updated: October 4, 2006 23:06 EDT