Private Investigator Pleads Guilty in HP Spy Case

A Colorado-based private investigator has become the first person convicted in the Hewlett-Packard (NYSE: HPQ) (HP) boardroom leak and spying scandal. Bryan Wagner, 29, pled guilty to identity theft and conspiracy charges in San Jose federal court, the U.S. Attorney's Office for the Northern District of California federal prosecutors announced last Friday.

Under a plea deal , Wagner reportedly admitted that he was paid as part of a conspiracy in which he used fraud and deceit to collect Social Security numbers and other personal information in an effort to obtain the personal telephone records of reporters and HP executives as well as their family members.

According to court papers, Wagner was hired to investigate and uncover the source of a series of leaks to journalists believed to come from a member of HP's board.

Wagner confessed to using pretexting, a form of identity theft in which he used fraudulently set-up e-mail accounts between April 2005 and September 2006 in order to gain access to the private telephone records including call logs and billing reports of former HP officials Tom Perkins and George Keyworth II, as well as reporters Pui-Wing Tam and Dawn Kawamoto, of the Wall Street Journal and Cnet.com respectively.

Just Another Fall Guy

While federal prosecutors refused to comment on the ongoing investigation, they reportedly have acknowledged that Warner was only a low-level member of a conspiracy that allegedly involves several subcontractors, including Boston-based Security Outsourcing Solutions and Action Research Group, located in Melbourne, Fla.

Wagner's guilty plea means that he could serve a mandatory minimum prison sentence of two years for identity theft and a maximum of five years for conspiracy. However, based on the extent of his cooperation, prosecutors could petition the court for more lenient sentencing.

Business as Usual

"These guys are fairly common. Companies use them to check up on employees and potential hires," Martin Reynolds, vice president of research at Gartner (NYSE: IT), told the E-Commerce Times. "This is common practice in the rather seedy investigator industry."

Wagner was more than likely "just doing what he always did," according to Reynolds. By pleading guilty, he will have the opportunity to argue that what he did happens every day -- and it is just what he does every day for a living.

"These unethical methods are typical," Reynolds noted, "and what will happen as they move up the chain -- the whole investigative industry is at stake here. That may be the goal of the prosecutor, even though many of these methods may also be used by law enforcement."

The Bottom Line

Since the scandal broke in September 2006, it appears to have had little effect on HP's bottom line.

In the third quarter, the computer maker surged past Dell (Nasdaq: DELL) for the first time in three years to take the top slot in total PC shipments for the period, reported Gartner.

HP's third quarter report indicated that the once-struggling company had reclaimed its place as the leader in market share as well.

The renewed publicity over the scandal will not have a detrimental affect on HP's bottom line, Frost and Sullivan Senior Analyst Mukul Krishna told the E-Commerce Times. "HP has been addressing a lot of issues lately and has taken this scandal into account too."

With a bevy of new products hitting the shelves, the company is doing well at building itself up, Krishna believes -- not only as a consumer electronics company, but also as an enterprise on par with the IBMs and Microsofts of the world.

"As long as HP is proactive and indicates that no one is above the law and that it will take action -- plus continuing innovation [not only] on the electronics side but for enterprise technology -- they will do well," he said.