Patricia Dunn: Career, HP Spying Scandal, and Indictment

Patricia Dunn was the chairwoman of Hewlett-Packard at the center of the HP pretexting scandal, a 2005–2006 corporate spying case in which investigators she authorized obtained the private phone records of HP directors and journalists by impersonating them to phone companies. She was forced to resign in September 2006, charged with four felonies by the California attorney general, and had all charges dismissed in March 2007 as she was being treated for advanced ovarian cancer. She died in 2011 at age 58.¹

Who Patricia Dunn Was Before HP

Dunn’s path to the HP boardroom was unusual. Born in Burbank, California, in 1953, she lost her father at twelve and worked to support her mother, eventually earning a journalism degree from the University of California, Berkeley, in 1975. She took a temporary secretarial job at Wells Fargo Investment Advisors, the firm that later became Barclays Global Investors, and rose over two decades to become its chief executive and chairman from 1995 to 2002.¹²

Under her leadership, Barclays Global Investors became the largest institutional money manager in the United States, and in 2000 she oversaw the launch of iShares, which helped popularize exchange-traded funds. She was among the first women to run a major U.S. investment management firm. She stepped down from Barclays in 2002 after being diagnosed with melanoma and breast cancer.³

Dunn had joined the HP board in 1998. After the board ousted CEO Carly Fiorina in early 2005, directors named Dunn non-executive chairwoman, and she oversaw the hiring of Mark Hurd as Fiorina’s successor.²

How the HP Leak Investigation Started

The HP board had a leaker. A January 2005 Wall Street Journal article about dissatisfaction with HP’s PC business, and a later CNET piece about a board strategy retreat, both drew on confidential boardroom deliberations shared with reporters by an anonymous insider.⁴ Dunn authorized an internal investigation to find the source.

The first phase, code-named “Kona,” was routed through HP’s security staff to an outside investigator, Ronald DeLia of Security Outsourcing Solutions, who in turn hired a Florida data broker, Action Research Group, run by Joseph and Matthew DePante. That phase did not pin down the leaker. A second phase, “Kona II,” launched in January 2006 after CNET reporters Dawn Kawamoto and Tom Krazit published detail about the board retreat and HP’s acquisition plans. HP’s ethics chief and employment lawyer, Kevin Hunsaker, took over day-to-day operations, reporting to Dunn and General Counsel Ann Baskins.⁵

What the Investigators Actually Did

The core technique was pretexting. Investigators called phone companies, impersonated board members, HP employees, and journalists, and tricked customer-service representatives into releasing detailed phone records.⁶ In at least one case, investigators used the last four digits of a reporter’s spouse’s Social Security number to set up an online account that gave them access to phone records.⁷

The second phase went further. Investigators conducted physical surveillance of board members and their families, reviewed thousands of documents, and obtained personal phone records for at least nine journalists at CNET, the Wall Street Journal, the New York Times, Business Week, and the Associated Press.⁶

They also ran an email sting called “Jacob,” in which they created a fictitious disgruntled HP employee and sent bait emails to Kawamoto in hopes she would forward them to her source and expose the leaker. Dunn referred the decision on that operation to CEO Mark Hurd, who authorized it. Internal discussions also contemplated planting tracking software in a journalist’s email account and placing undercover operatives inside the newsrooms of the Wall Street Journal and CNET.⁵⁸

Phone records eventually identified HP’s longest-serving director, George Keyworth, a former scientific adviser to President Ronald Reagan, as the CNET source. Confronted in May 2006, Keyworth refused to resign; HP announced he would not be renominated, and he formally stepped down on September 12, 2006.⁹

How the Scandal Became Public

Director Tom Perkins, chairman of HP’s Nominating and Governance Committee, had expected the leak matter to stay internal. When the board voted on May 18, 2006, to ask Keyworth to resign, Perkins objected to the process and quit in protest.¹⁰

HP disclosed Perkins’s resignation in a May 22, 2006, Form 8-K but left out the reason. Perkins then pressed for details, learned pretexting had been used, and campaigned to force disclosure. Under pressure from Perkins and SEC staff, HP described the full investigation in a September 6, 2006, filing, and the story went public.¹¹

Dunn’s Resignation and Congressional Testimony

HP had planned for Dunn to step down as chair in January 2007 while staying on the board. As the scope of the pretexting came out, that timetable collapsed. On September 22, 2006, she resigned at the board’s request, and Hurd took over as chairman while continuing as president and CEO.¹²

In her statement, Dunn said she had followed proper processes and had not chosen the investigators or their methods. “Unfortunately, the people HP relied upon to conduct this type of investigation let me and the company down,” she said.¹² General Counsel Ann Baskins resigned six days later.¹³

On September 28, 2006, Dunn testified before the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations, where lawmakers compared HP’s conduct to Watergate and Enron. “I do not accept personal responsibility for what happened,” she told the subcommittee, “but I am very sorry for what happened.” She testified she had relied on company experts for assurances that the investigation was legal. Hurd told lawmakers, “Eventually, the buck stops with me,” while saying he had authorized the Jacob sting but was unaware of the pretexting. Ten other witnesses, including Baskins, Hunsaker, DeLia, and Matthew DePante, invoked their Fifth Amendment rights.¹⁴

Criminal Charges Against Dunn

On October 4, 2006, California Attorney General Bill Lockyer filed felony charges in Santa Clara County Superior Court against Dunn, Hunsaker, DeLia, Matthew DePante, and Action Research Group employee Bryan Wagner. Each faced four counts: fraudulent wire communications, wrongful use of computer data, identity theft, and conspiracy, with a maximum of three years in prison per count.¹⁵

On March 14, 2007, Judge Ray Cunningham dismissed all charges against Dunn. A spokesman for Attorney General Jerry Brown, who had succeeded Lockyer, said the decision reflected Dunn’s “level of involvement in the pretexting scheme” and her health; she was being treated for advanced ovarian cancer.¹⁶¹⁷¹⁸

Wider Fallout and New Privacy Law

HP paid $14.5 million in December 2006 to settle a civil suit by the California attorney general, with $13.5 million earmarked for a state Privacy and Piracy Fund, $650,000 in civil penalties, and $350,000 for investigation costs. The company also agreed to add an independent director for ethical oversight, create a Compliance Council, and submit to five years of internal monitoring.⁶

The SEC separately found that HP had violated Section 13(a) of the Securities Exchange Act and Rule 13a-11 by omitting the real reason for Perkins’s resignation from its May 2006 filing. The May 2007 cease-and-desist order imposed no fine and required no admission of guilt.¹⁰

The case prompted new privacy law. California Governor Arnold Schwarzenegger signed legislation in September 2006 specifically banning pretexting and the online trade in phone records, effective January 1, 2007.¹⁹ At the federal level, President George W. Bush signed the Telephone Records and Privacy Protection Act of 2006 into law on January 12, 2007, codified at 18 U.S.C. § 1039. It made obtaining confidential phone records by fraud a federal crime, with penalties of up to $500,000 in fines and ten years in prison.²⁰

Final Years

Dunn’s health shadowed the entire episode. She had been treated for melanoma and breast cancer around 2001 and 2002, undergoing three lumpectomies and radiation. In 2006, roughly three weeks before the pretexting scandal became public, she had surgery for Stage 4 ovarian cancer.²¹³

According to the Los Angeles Times, Dunn feared she “would not live long enough to clear her name.” She died of ovarian cancer at her home in Orinda, California, on December 4, 2011, at age 58, survived by her husband William Jahnke, three children, two siblings, and ten grandchildren.³

1
The New York Times. Patricia C. Dunn Dies at 58; Led Hewlett-Packard During Spying Case
2
UC Berkeley Haas School of Business. Patricia Dunn, Former Haas Board Member and CEO Barclays Global Investors, Passes Away
3
Los Angeles Times. Patricia Dunn Dies at 58; Former HP Board Chairwoman
4
The Guardian. HP Chief Fights to Clear Her Name Over Spying Scandal
5
The New Yorker. The Kona Files
6
Reporters Committee for Freedom of the Press. HP to Pay $14.5 Million Settlement in Pretexting Scandal
7
CNET. Reporters’ Records Accessed in HP Probe
8
GovInfo. Hewlett-Packard’s Pretexting Scandal – Hearing Before the Subcommittee on Oversight and Investigations
9
The New York Times. Keyworth Resigns From HP Board
10
SEC. In the Matter of Hewlett-Packard Company, Release No. 55801
11
NBC News. SEC Settles HP Charges Over Boardroom Spying
12
NBC News. HP Chairwoman Dunn Resigns
13
SEC. HP Current Report on Resignation of Ann Baskins
14
SFGate. HP’s Tough Day in Congress
15
California Attorney General. Attorney General Lockyer Files Criminal Charges Against Former Hewlett-Packard Officials
16
NBC News. Charges Dropped Against Dunn in HP Case
17
SFGate. Final Charges Dropped in HP Pretexting Case
18
SF Press Club. 3-Month Sentence for Spying on Reporters
19
Reporters Committee for Freedom of the Press. The Pretexting Problem
20
Congress.gov. Telephone Records and Privacy Protection Act of 2006
21
NBC News. The Trials of Patricia Dunn