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Judge drops charges against HP's Dunn

Former Hewlett-Packard Chairwoman Patricia Dunn, right, and her husband, Bill Jahnke, left, leave a San Jose, Calif., courtroom, Thursday, Oct. 5, 2006. A judge dropped the charges Wednesday against Dunn, who was accused of orchestrating the company's boardroom spying scandal. (AP Photo/Paul Sakuma, File)

SAN JOSE, Calif. --A judge dropped all charges Wednesday against former Hewlett-Packard Co. board Chairwoman Patricia Dunn, who was accused of fraud in the boardroom spying scheme that rocked one of Silicon Valley's most respected companies.

Former HP ethics chief Kevin Hunsaker and two private investigators will also avoid jail time after their lawyers entered no contest pleas to misdemeanor charges in Santa Clara County Superior Court.

All four defendants had initially been charged with felonies, including identity theft and fraud, for their roles in a scheme to unmask the source of boardroom leaks. Investigators' tactics included "pretexting," or pretending to be someone else, to obtain the calling records of directors, employees and journalists.

The original charges carried hefty fines and prison terms.

Prosecutors said Dunn's health -- she's been undergoing treatment for advanced cervical cancer -- played a role in the decision to drop the charges.

"Based on (Dunn's) level of involvement in the pretexting scheme, and her health condition, (Attorney General Jerry Brown) believed dismissal of her case was appropriate," said Brown's spokesman, Nathan Barankin.

The other three defendants appeared to be more "directly and actively involved in the pretexting activities" than Dunn, he said.

But some legal experts said the sudden end to the high-profile case may also indicate the evidence wasn't very strong.

"At some point the attorney general's office knew that this case wasn't going to hold a lot of water," said James Post, a Boston University professor and expert on corporate governance and business ethics. "They could have settled with Dunn and Hunsaker at a much earlier time in a less punitive way."

HP's investigation, which took place in 2005 and 2006, erupted into a national scandal after HP disclosed that detectives it had hired obtained the private phone records of directors, employees and journalists.

The case made a household word out of "pretexting," a shady tactic in which detectives use their targets' Social Security numbers to fool telephone companies into divulging their detailed call logs.

Dunn ordered the investigators to find the source of the leak after a board member gave company information to a reporter. But she said she didn't know the detectives would go to such extremes.

She resigned last September at the height of the scandal.

"I have been strengthened by wonderful support during this difficult time -- both from my dear friends and from people I have never met," Dunn said in a statement Wednesday. "I have always had faith that the truth would win out and justice would be served -- and it has been."

Dunn, Hunsaker and the two private investigators -- Ronald DeLia and Matthew DePante -- did not attend Wednesday's hearing.

Hunsaker and the two detectives pleaded no contest to fraudulent wire communications charges. But Judge Ray E. Cunningham did not immediately accept their pleas and said the charges against them would also be dropped in September after they complete 96 hours of community service and make restitution.

Outside court, defense lawyers said the deal with prosecutors -- which did not include an admission of guilt -- was an appropriate resolution to the case.

"This was a worthless case -- this was never a criminal case," said Thomas Nolan, one of Hunsaker's lawyers. "All these people acted in good faith. They believed that what they were doing was right and legal."

The four were charged in October with four felony counts: use of false or fraudulent pretenses to obtain confidential information from a public utility; unauthorized access to computer data; identity theft; and conspiracy to commit each of those crimes.

Each of charges carried a fine of up to $10,000 and three years in prison.

But while the deal with state prosecutors allows all four defendants to escape jail time, they may not be entirely out of trouble. Federal prosecutors said their investigation of the HP leaks probe continues. They declined further comment.

To date, only one person has been charged by federal authorities in connection with the boardroom spying.

Private investigator Bryan Wagner pleaded guilty to identity theft and conspiracy and agreed to testify for the prosecution. Wagner had also been charged by the state, but those charges were dropped after he struck a deal with federal investigators.

Legal experts have repeatedly questioned whether the state would be able to win convictions given the murky legal statutes surrounding pretexting. Deep-pocketed defendants Dunn and Hunsaker also hired topflight attorneys and mounted vigorous public defenses.

"On the governance side and the privacy side, we're better off today when we were when this first broke," Post said. "But I'm not trying to excuse the kind of example that was made of Dunn and Hunsaker."

Prosecutors said the case has led to important reforms in the area of corporate governance and privacy protections.

"What we heard from critics from the start was that this (practice) was perfectly legal," Barankin said. "I think this outcome disproves that."

AT&T has reported a dramatic decline in the amount of pretexting since the HP scandal broke, he said.

Wednesday's news broke as HP's shareholders prepared for their annual meeting -- their first chance to grill Chief Executive Mark Hurd about the scandal. They also are considering a proposal to let stockholders nominate candidates for the Board of Directors.

There also was some confusion early Wednesday about the agreement between prosecutors and the defendants. The attorney general's office initially said Dunn and the three others had agreed to plead guilty, but the office later said that was inaccurate.

Through the investigation, shares of the region's oldest and biggest technology company remained immune to the scandal, steadily rising through much of last year.

HP's stock closed up 24 cents to $39.79 in Wednesday trading on the New York Stock Exchange.