Charges Against Former HP Chairwoman Dunn Dropped (UPDATED)

(The last six paragraphs of this story were added after it was first published.)

A judge dismissed the criminal case against former Hewlett-Packard (HP) Chairwoman Patricia Dunn on Wednesday.

The California attorney general’s office stated earlier Wednesday that Dunn and three other defendants—Kevin Hunsaker, Ronald DeLia and Matthew DePante—would plead guilty to misdemeanor counts in the boardroom spying case.

But in a later statement, it admitted error. Dunn did not enter any plea to the charges, the attorney general’s office said. The three other defendants pleaded no contest to misdemeanor charges of fraudulent wire communications. The court did not accept their plea, but offered to dismiss the case against them if they completed 96 hours of community service and paid restitution to victims, the attorney general’s office said in the later statement.

Dunn’s attorney, James Brosnahan of Morrison & Foerster, said Wednesday that the judge had done the right thing.

“We have maintained from the beginning that Pattie Dunn was innocent and thus vigorously fought the charges against her. Today, the judge dismissed the case. Ms. Dunn did not plead to anything,” Brosnahan said in a prepared statement.

The events Wednesday ended a major chapter in a scandal that has drawn wide attention to HP but hasn’t significantly hurt the company’s business. A federal investigation is ongoing, the U.S. attorney’s office in San Francisco said Wednesday.

Another defendant, Bryan Wagner, has pleaded guilty to federal charges in the case and as a result can’t be prosecuted by the state. Those who had charges dropped against them on Wednesday could still be charged with federal crimes, the California attorney general’s office said.

HP declined to comment on the case.

Nathan Barankin of the attorney general’s press office said he issued the incorrect statement Wednesday morning after being told by prosecutors working on the case that the defendants would enter pleas that day. Because the defendants had been negotiating a plea bargain, he mistakenly assumed they all would plead guilty, Barankin said.

“This is purely staff error by me,” Barankin said.

Hunsaker was an HP lawyer; DeLia is an investigator with private investigation firm Security Outsourcing Solutions; and DePante was a third-party consultant working with Action Research Group.

The four defendants had been charged with fraudulent wire communications, wrongful use of computer data, identity theft and conspiracy. On the corporate level, HP agreed in December to pay US$14.5 million to settle potential civil charges in the case.

In January, the California attorney general offered to drop felony charges against the four defendants if they pleaded guilty to one misdemeanor each.

Authorities began investigating HP last year after the company revealed it hired private detective agencies to trace the source of leaks from HP’s board to reporters. The private detectives allegedly used a tactic called pretexting—pretending to be the people they were investigating—to gain unauthorized access to telephone records of targets of the HP investigation.

As a result, former Chairwoman Dunn has already stepped down from her job, as did Hunsaker.

Despite the management shake-up caused by Dunn’s resignation, HP has weathered the spy saga easily in business terms.

In the third quarter of 2006, HP passed Dell in market share to become the world’s largest PC vendor, according to figures from Gartner. HP repeated the feat in the fourth quarter, building sales momentum over struggling rival Dell.

And on Feb. 20, HP reported net income for its first quarter of US$1.5 billion, beating Wall Street expectations as well as its own profits for the same period last year. Much of the growth in profits came from increased sales in HP’s personal systems group, which sells desktop and laptop computers for consumers, and from its imaging and printing division, according to Chairman and CEO Mark Hurd.

HP customers have also shrugged off the company’s legal problems. Board members of Encompass, a leading HP user group, declined to comment on the judge’s decision Wednesday, according to a spokesman.

One measure of the long-term effects of the developments in the spy case may come at Encompass’ annual HP Tech Forum trade show, beginning June 18 in Las Vegas. But so far, the group plans to restrict its sessions to discussion of “the technologies of HP and related IT topics.”

-Ben Ames and Stephen Lawson, IDG News Service (Boston and San Francisco Bureaus)