The trials of HP (pg. 3)

By Nicholas Varchaver, Fortune senior writer

Still, Kamb didn't completely abandon the startup. And despite his attempts at secrecy, suspicions grew at HP. The company asked a manager, Colf, to poke around and see what he could glean about Kamb's relationship to byd:sign. Colf and two former HP executives insist that Kamb disclaimed any link. Colf says, "Karl absolutely denied any interest in byd:sign."

But an e-mail Kamb sent to Colf on Jan. 21, 2004, suggests that he did own up to at least some moonlighting. "My good friend Katsumi Iizuka (he was founder of Dell Japan) is the bydsign company, in Tokyo," Kamb wrote. "I know him very well ... He has provided endless CI for me regarding Dell, and it's been a very covert op. I have provided him with much support and advice on his project."

Kamb and his byd:sign comrades, several at HP, were still trading e-mails. According to HP's legal papers, those documents included "highly confidential and proprietary information regarding HP's business plans, product designs and preferences." Kamb confirms he sent e-mails to his byd:sign colleagues that discussed HP ideas, but he dismisses their significance: "What they're asserting is absurd. The stuff that is being talked about has absolutely zero commercial value. They were never put into any HP product - and never will be." He calls them "vague concepts" that were "so costly that HP never pursued them."

In the fall of 2004, HP debuted its TVs, which the company pushed as part of a "digital entertainment center" that linked a PC and other peripherals to the television. But HP's initial strategy met with a cool reception, as consumers gravitated toward lower-cost standalone TVs or those sold by traditional consumer electronics powerhouses such as Samsung, Sony, and Panasonic. According to industry tracker iSuppli, HP's share of the flat-panel market is still too tiny even to break out from the "other" category.

The most bizarre thing, from Kamb's perspective, is that byd:sign's and HP's products are different. Unlike HP's premium systems, byd:sign sells discount commodity TVs gussied up with a patina of design flair, what Kamb jokingly calls "putting a hat on a pig." He adds: "There's no commonality other than they both turn on and show a picture." Kamb's supporters point out that byd:sign began shipping TVs in 2003, before HP launched its business.

But even if HP portrays Kamb's actions in the most nefarious light, one thing is undeniable: He did have an ongoing connection to byd:sign. And indeed, by the summer of 2005, the situation had turned again. Kamb says he was led to believe that he'd soon be laid off from HP, and he prepared to shift to his other business.

We've got the goods on you, pal

Though it wasn't apparent at the time, Karl Kamb's downfall was set in motion when his wife, Susan, filed for divorce in September 2004. By the summer of 2005, the two sides had been skirmishing for nearly a year, with Mrs. Kamb's lawyers trying to sniff out Kamb's assets. Eventually her lawyers concluded that they just weren't getting enough information. In frustration, they subpoenaed HP, seeking information about Kamb's retirement accounts, stock options, and the like. They also requested details on any money Kamb might have received from byd:sign.

The question hit HP like a lightning bolt. As far as they were concerned, Kamb had denied any connection with byd:sign. Within days, HP sent two people to Kamb's house in Las Vegas. There the two "interrogated" him, as Kamb puts it, for two hours regarding his relationship to the startup. Says Kamb: "The basic thrust was, 'We've got the goods on you, pal, and you'd better cooperate.'" Kamb insists he did.

At about the same time - just days after HP received its subpoena from Kamb's wife - Kamb says a person purporting to be a T-Mobile employee called him and asked for his cellphone PIN. The "representative" claimed that T-Mobile's system was about to crash and that only by handing over his personal information could Kamb's e-mails and text messages be saved. When he called T-Mobile's security department, Kamb was told that nobody from the company had contacted him. Several days later he learned someone was also trying to pry into the records for his landline. Kamb suspected HP, and his lawyer said as much in a letter to the company in late August 2005.

A few days after that HP senior counsel Kevin Hunsaker (who would be fired after the pretexting scandal came to light) wrote back to say that "no representatives of HP were involved in any of the alleged activity described in [the] letter." He suggested that Kamb's wife might be to blame (a suggestion that Kamb's divorce lawyer briefly entertained).

The evidence, however, suggests that HP did get Kamb's phone records without his consent. Hunsaker seemed to endorse that view in an interview with HP's law firm Wilson Sonsini, which conducted an investigation of HP's leak probe in August 2006 at the company's request: "Hunsaker first learned that HP had used pretexting to obtain phone records in July 2005 in connection with an unrelated HP investigation. One of the subjects of the investigation was going through a messy divorce, and his attorney contacted Hunsaker, claiming that HP had attempted to change his PIN in order to access his voicemail. Hunsaker's team told him they had not altered the subject's PIN or voicemail, but had used pretexting to obtain phone information about the subject." Those circumstances seem to describe Kamb's situation. (Hunsaker's lawyer Michael Pancer vehemently asserts that his client was misquoted and insists that no other documents support the allegation. Wilson Sonsini declined to comment.)

But California state investigators recently found an invoice billed to "Ron" at "SOS" - Ronald DeLia of Security Outsourcing Solutions, a private investigator who was involved in pretexting for HP in the boardroom leak case - requesting Kamb's address (though not his phone number). Taken along with a phone-company log that indicates a request for Kamb's records was made, a law-enforcement official says, "The circumstantial evidence is very strong."

The apparent pretexting was only one part of HP's investigation, which proceeded in a heavy-handed manner. The company sent a lawyer to question Kamb's estranged wife at her lawyer's office near Dallas. The attorney told her she might face criminal prosecution for her husband's misdeeds. (That account comes from Chuck Woods, who later became Mrs. Kamb's divorce lawyer and says she told him of HP's threats. HP denies the charge.) Until that conversation, Mrs. Kamb - who was no fan of Kamb at that point - had been hoping to trade information with HP for each side's benefit.

Meanwhile HP dispatched two investigators to Japan to question Marc McEachern. The head of the HP labs in Japan, McEachern had been working with Kamb on HP's TV project - and also on byd:sign. In early September 2005, McEachern's legal papers charge, his boss instructed him to report to HP's Tokyo offices for a strategy meeting. When McEachern arrived there was no meeting. Instead, two HP investigators - Anthony Gentilucci and Ronald DeLia - were waiting. (Like DeLia, Gentilucci was involved in the infamous pretexting probe. Then manager of global investigations for HP, Gentilucci later resigned, and DeLia subsequently pleaded no contest to a misdemeanor charge.)

McEachern's papers portray a confrontational scene inside a Tokyo conference room. "For approximately five and one-half hours," the filing alleges, "Gentilucci and Delia interrogated and intimidated McEachern.... the HP Operatives prohibited McEachern from leaving the small interrogation room, from using the bathroom, from taking any breaks, from using the telephone, or from having any outside contact until he gave the HP operatives the answers they wanted to hear."

According to the filing, the two "intimidated him in a threatening manner only inches from his face, and they informed him that he could not leave the small conference room." (Gentilucci's lawyer, Ismail Ramsey, denies that his client acted inappropriately and asserts that both investigators were professional. DeLia's lawyer declined to comment. HP notes that McEachern's original filing didn't mention the scene - though it did describe a five-hour interrogation - and points out that McEachern added the claim only after last fall's pretexting scandal.) Eventually, according to McEachern's lawyer, the executive broke down, began crying, and "signed an HP document."

Anybody who has money

To prevail in any lawsuit, in basic terms, a plaintiff has to prove two things: first, that the defendant did something wrong; and second, that the plaintiff was harmed by the wrongful conduct. In this case it's eminently possible that HP will be able to show that Kamb breached his duties and sent e-mails he shouldn't have. No one could fairly describe Kamb as an innocent party. But how will the tech giant be able to show that Kamb and his tiny startup, which sells a product with almost no resemblance to HP's, actually caused it any harm, much less $100 million in harm?

At a hearing in late January, Judge Schneider prodded HP's lawyers with questions about HP's damages theory. He also expressed skepticism about HP's racketeering claims (as well as similar countercharges filed by Kamb) and gently suggested that perhaps HP had dragged peripheral players - some of Kamb's colleagues - into the suit. "Are you really going after those parties?" the judge asked. "Or is it just that you need their depositions? Or how many people here do you really want damages from?"

"Anybody who has money," replied HP lawyer Kelly Hine. "Your honor, I don't mean to be facetious. But right now there's nobody in the lawsuit that we have named as a defendant from whom we do not wish to recover damages." Hine may not have been facetious, but his comment raises another question: Even if HP wins, neither Kamb nor the other defendants will likely be able to pay anything more than a token judgment. Anything HP collects from Kamb himself won't even cover the company's legal expenses.

The cost might be worth it for HP if, in the end, the case vindicates the company's view of the importance of business integrity. As it happens, the case does offer a lesson about the value of ethics. It's just not clear if HP should be the teacher - or the student.

Reporter associate Doris Burke contributed to this article. Top of page

The Wilson Sonsini files: HP has said that its conduct in the 2006 pretexting scandal was an aberration. But a close look at its lawyer's files may tell a different story.
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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.