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Hurd: Options Exercise Was Legal

Mark Hurd's selling of stock options just days before the company's pretexting scandal went public was legal, the Hewlett-Packard president and CEO insists in a letter to the House Energy and Commerce Committee.

Hurd's letter was in response to a December inquiry to Hurd by the House committee. The same panel conducted a high profile hearing in September on the HP pretexting scandal.

Hurd responded on Dec. 21, but the committee did not release his letter until Monday.

Hurd made a $1.37 million profit on the stock options deal that became official on Aug. 25. On that same day, Hurd was interviewed by outside investigators about his role in HP's efforts to plug boardroom leaks. The sale was also just two weeks before HP publicly revealed in a Securities and Exchange Commission (SEC) filing that it used pretexting to find the leakers.

"The decisions and trade I made are consistent with the legal opinion I received from HP Legal in advance of making the August trade," Hurd wrote.

Hurd included in his response an Aug. 22 memo from Ann Baskins, HP's then legal counsel. Baskins resigned Sept. 28 in the aftermath of the pretexting scandal.

"We are of the view that those transactions [Hurd's options exercise] are consistent with HP policy and applicable statutes and regulations," Baskins wrote in the memo.

Hurd said he began the process of exercising 100,000 options before any interviews about the boardroom leaks. The trade was completed before the Aug. 25 interview with the outside investigators.

"I gather that the committee's interest in the August trade stems from the events that have transpired over the last few months," Hurd wrote. "Let me assure you that the particular trade you have inquired about was totally unrelated to the interview I voluntarily gave as part of the so-called 'investigation of the leak investigation.'"

Hurd also insisted the trade was not a case of "bullet-dodging," noting HP's share price has risen by more than $5 share since the Aug. 25 trade. He added that the trade had "absolutely nothing whatsoever" with the practice of back dating options.

"The options I exercised in August 2006 were granted more than a year earlier (April 1, 2005) and as part of my accepting the position of HP's chief executive officer," Hurd said in the letter. "The options were priced at the existing market price for HP stock and the vesting schedule, which was set at the time the options were granted, has not been altered."

After receiving Hurd's response, House Energy and Committee Chairman John Dingell (D-Mich.) and Bart Stupak (D-Mich.), chairman of the panel's Subcommittee on Oversight and Investigations, wrote SEC Chairman Christopher Cox, requesting the SEC keep the committee informed of any results of the agency's investigation into HP's and Hurd's actions.

In a November filing with the SEC, the Palo Alto, Calif.-based systems vendor said it remains the target of "various governmental inquiries" for its use of pretexting to obtain the personal telephone records of board members and the media.

The SEC has upgraded its probe of the HP pretexting scandal to a formal order of investigation. HP has also received a request from the Federal Communications Commission (FCC) for records and other information related to the company's leaks investigation.

"We…request that you inform us when the investigation is closed and, at that time, whether any any violations of the Federal securities laws have occurred," Dingell and Stupak wrote.

A spokesman for the committee told internetnews.com, "At this point the ball is pretty much in the SEC's court right now."

HP's pretexting scandal led to several prominent resignations at HP. Along with Baskins, former Chairman Patricia Dunn and Kevin Hunsaker, the company's then ethics chief and in-house attorney, left HP.

Dunn and Hunsaker were subsequently indicted for conspiracy, fraudulent wire communications, wrongful use of computer data and identity theft. Dunn and Hunsaker have pleaded not guilty to the charges.

It was reported last week that California State prosecutors have made an offer to drop felony charges against Dunn.

Last week, Byran Wagner, an outside investigator hired by HP to track down leakers on the HP board and the media, took a guilty plea in federal court on four felony counts related to the case.