Skip to main content

Updated from 3:17 p.m EDT

The spying controversy at


(HPQ) - Get HP Inc. Report

finally took a toll on the company's stock Thursday after revelations that CEO Mark Hurd may have had a hand in the affair.

Shares of H-P were down as much as 5% in early trading, as investors fretted that the man credited with reviving the tech giant's fortunes over the past 18 months could be touched by a controversy that he has until now managed to steer clear of.

According to a

Washington Post

report, Hurd approved a "sting" operation on a reporter as part of H-P's investigation into boardroom leaks. The newspaper cited an internal email from a company lawyer.

H-P announced that Hurd would lead a press conference Friday to discuss its leak investigation. And the company said late Thursday that Hurd has offered to appear before a U.S. House of Representatives subcommittee hearing later this month, joining some of his H-P colleagues who have been asked to testify.

And in a sign that the various government probes into H-P's conduct may be coming to a head, Chairwoman Patricia Dunn retained San Francisco litigator James Brosnahan, a reknown trial lawyer whose former clients include John Walker Lindh, the American citizen captured fighting for the Taliban after the U.S. invasion of Afghanistan.

The California attorney general's office and the U.S. Department of Justice are both looking into H-P's efforts to ferret out a source of press leaks within the company. H-P has acknowledged that independent investigators it retained had impersonated certain individuals to gain access to their phone records -- a practice known as pretexting.

The company has admitted that the phone records of board members, employees and nine journalists were accessed in this manner; this may violate state laws concerning identity theft and unauthorized computer access.

California Attorney General Bill Lockyer has said he has enough information to bring criminal charges as a result of the conduct, though he has not said who is facing charges or when the indictments will come down.

TheStreet Recommends

Dunn, who initiated H-P's internal leak investigation, announced earlier this month that she would relinquish her role as chairwoman in January.

The news that Hurd will replace her, becoming CEO and chairman, was interpreted by some investors as a sign that he was not implicated in the affair.

With Hurd's role now in question, the stock took its first hit since the affair began.

"There has been a level of immunity there

regarding the stock price, really because it was a non-event" with no impact on earnings, says Michael Church, a portfolio manager at Church Capital Management, which does not currently have a position in H-P.

"H-P has performed very well and it's been a lot to do with

Hurd, and to hear that he may be implicated in something like this, as bizarre as it may be, it's going to affect the stock, no question," said Church.

Another investor who owns H-P shares says the worst-case scenario now entails Hurd getting dismissed.

"As you get more data, as the probe expands, fears intensify," says the investor, who wished to remain anonymous.

Several players in the H-P affair, including Dunn and General Counsel Ann Baskins, are scheduled to testify before a U.S. House of Representatives subcommittee hearing on the matter on Sept. 28.

On Thursday, one representative called for Hurd to testify as well.

"Given allegations and media reports regarding Mr. Hurd's possible knowledge of H-P's various deceptive investigative techniques, I would expect that members and staff of the subcommittee will take a hard look at whether it is appropriate for Mr. Hurd to appear before the subcommittee next week," said Congressman Bart Stupak, a Michigan Democrat.

It is unclear whether the subcommittee will ask Hurd to testify at the hearing as well.

Shares of H-P closed Thursday off $1.91, or 5.2%, to $34.87.