RealTime IT News

A Scandalous Year For Tech

The best of 2006Internetnews.com wades through the top stories and issues that rocked the industry in 2006 in this week-long series.

At first, it looked like more of the same dysfunction spilling out of Hewlett-Packard's board of directors after one member resigned in a tiff over another's actions. Could this just be more fallout after the board's bruising battle to oust former CEO Carly Fiorina?

Then came the revelations over the use of pretexting -- such as snooping on journalists' phone records -- before the drip drip of the HP board's media leak probe scandal would slosh throughout the tech industry and beyond. HP wasn't the only company in trouble with regulators in 2006, although its mess was among the loudest in a year that kept the Department of Justice (DoJ) and several attorneys general, as well as the Securities and Exchange Commission, busy minding the behavior of high tech.

Will 2006 be remembered as the year Uncle Sam's watchdogs began to wrest tighter control of the high-tech industry?

HP Pretexting Scandal

It sounded like something out of a cloak-and-dagger film.

Take a few stories that included details leaked from boardroom discussions, add some peeved executives in the upper echelons of one of the most powerful high-tech companies in the world, and what do you get?

A pretexting scandal that saw executives lose their jobs, five indictments handed out by the California prosecutor, and a CEO on the hot seat for what he knew and when.

That sums up the HP pretexting scandal in which HP executives hired investigators to track the activities of journalists to determine where the source of the leaks.

Investigators engaged in pretexting, or impersonating journalists and HP board members, to obtain their phone records (pretexting may include financial records, but not in this case). The thinking was that if they could connect the dots of communication between board members and journalists, they could staunch the leaks.

But it backfired. Big time.

The news emerged after HP board member Thomas J. Perkins resigned and attracted the attention of government regulators and California's attorney general to methods used during a 2005 investigation into leaks from board of directors meetings.

In September, HP filed an explanation with the Securities and Exchange Commission (SEC) of its investigation into corporate leaks and the resignation of a member of the company's board of directors.

Within weeks, HP's Board Chairman Patricia Dunn and other execs resigned and HP executives were called to the carpet and grilled.

In October, Dunn and four others involved in the pretexting scandal were indicted and arraigned within a week. The parties settled for $14.5 million, which will finance a new law enforcement fund to fight violations of privacy and intellectual property rights.

Verizon and other phone carriers have begun suing alleged pretexters, which could lead to a serious continuation of the issue in 2007.

Reed Freeman, a consumer protection attorney and partner with Kelley Drye & Warren LLP in Washington, D.C., said that while the HP case received a lot of media attention and scrutiny, the Federal Trade Commission has brought about five cases against alleged phone pretexters.

Interestingly, Freeman said the FTC currently has to seek "equitable relief," which can include an injunction and/or repayment of funds obtained through pretexting, because there is currently no federal statute under which phone record pretexters may be prosecuted.

This means the FTC can't just slap phone pretexters with a fine upon finding them guilty.

That could change in 2007; Freeman said the FTC has recommended that Congress enact a statute that empowers the FTC to seek fines directly from offenders. This would fill what Freeman said the FTC "perceives to be a gap in their enforcement authority."

"There are a lot of high priorities in Congress but I think there is a reasonable likelihood that legislation could pass in the 110th Congress to address this," Freeman said.

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