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H-P Insiders Charged

California files criminal charges against ex-Chairwoman Patricia Dunn and four others.

An arrest warrant was issued for

Hewlett-Packard's

(HPQ) - Get HP Inc. (HPQ) Report

former Chairwoman Patricia Dunn Wednesday, less than two weeks after she resigned amid a scandal involving a company-sponsored spying campaign.

California Attorney General Bill Lockyer brought felony charges against Dunn and four other players involved in the affair, including a senior lawyer at H-P who has also resigned.

The charges, which carry a maximum prison sentence of three years, were widely expected, but nonetheless mark a stunning turn of events for the former chairwoman of one of the world's largest technology companies.

"One of our state's most venerable corporate institutions lost its way as its board sought to find out who leaked confidential company information to the press," Lockyer said in a statement. "In this misguided effort, people inside and outside H-P violated privacy rights and broke state law."

H-P disclosed

details last month of a concerted spying campaign to uncover the source of media leaks.

The company acknowledged that investigators hired by H-P accessed the personal phone records of board members, employees and journalists by impersonating those individuals -- a practice known as "pretexting."

Since then, details have emerged of a mind-boggling spying operation in which investigators dug through trash bins, surreptitiously staked out the house of H-P board members and sent emails with tracing mechanisms to one newsroom.

Shares of H-P were down 17 cents at $37.85 in extended trading. H-P's stock finished the regular session up 60 cents, at $38.02, a 52-week high.

Though the scandal has tarnished H-P's reputation and resulted in the resignation of several high-level employees, investors have so far shrugged off the importance of the affair on the premise that it has little bearing on the company's day-to-day operations and its earnings.

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Most significantly for investors, CEO Mark Hurd, who has been leading an 18-month turnaround of the company's business, has so far managed to avoid getting entangled in the affair.

Although Hurd approved and signed off on various aspects of the leak investigation, he has denied knowledge of any of its more unsavory and illegal aspects.

The California Attorney General's Office is among several different agencies and regulatory bodies looking into efforts by H-P to discover the source of media leaks. The U.S. Department of Justice and the

Securities and Exchange Commission's

Enforcement Division are also looking into the affair.

Last week, members of the U.S. House of Representatives grilled H-P CEO Mark Hurd, former Chairwoman Dunn and others in a seven-hour hearing about the affair.

During her testimony, Dunn insisted she believed that the phone records were accessed in a lawful manner and said she had never heard of the concept of pretexting until recently.

Wednesday's indictment seems to contradict her testimony, however. According to the indictment, Dunn was allegedly informed by a private investigator that phone records had been obtained by ruse in June 2005 during the first phase of the investigation.

Dunn told legislators at the hearing last week that pretexting had only been used in the second phase of the investigation, dubbed Kona 2, which began in 2006.

The indictment says former H-P General Counsel Ann Baskins was also informed of the pretexting in June 2005. Notably, Baskins, who resigned last week, was not indicted by the California AG.

Kevin Hunsaker, a former senior attorney inside H-P, was also indicted, along with three private investigators involved in the affair.

All five are charged with identity theft, unauthorized computer access, conspiracy to commit a crime and use of false pretenses to obtain confidential information from a public utility.

The AG's office said it will make arrangements for Dunn and Hunsaker to surrender voluntarily. Each has bail set at $5,000. Lockyer will seek the extradition of the remaining three defendants, who reside outside of California.

This article was written by a staff member of TheStreet.