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The European Central Bank is set to meet in Frankfurt with all indicators pointing to the fifth rise in interest rates - this time of 0.25pc - since last December. Another hike in rates will put a further squeeze on first-time buyers in particular. Today's rise will mean that since last December first-time buyers will have seen their monthly mortgage repayments shoot up, on average, by €391. First-time buyers will be shelling out €1,317 a month to service a homeloan from next month, up from €926 before Christmas, according to figures compiled by DKM Economic Consultants. Yesterday, banking giant AIB moved to keep the flow of business coming from first-time buyers by offering a cash bonus of €2,000 if they sign up for a new mortgage. The move comes as more and more first-time buyers are being shut out of the market. This latest hike in interest rates will mean that a first-time buyer on a salary of €60,000 will be able to borrow €33,000 less today than in early December last year, AIB head of mortgages Marian McCarville said. She denied the bank was desperate to ensure it did not lose its share of first-time buyers in the market. Recent figures showed first-time buyers accounted for 22pc of the value of all mortgages issued. AIB is so far the only lender offering financial inducements to new home owners, but the move is expected to prompt others to follow its lead. "We have had four rates rises and first-time buyers are struggling in terms of what they can borrow. First-time buyers account for 22pc of the value of the market and we are keen to ensure we keep our share of that," Ms McCarville said. Today's rise means European Central Bank rates will hit 3.25pc, up from just 2pc in early December. Most mortgage rates are currently around 4.4pc. Now economists are predicting there could even be two more rates rises before the end of the year. Nick Matthews, an economist at Barclays Capital in London, said he expected the ECB to raise its rate to 3.25pc. "We're looking at two more rate increases by the end of the year," he added. Another rates rise in December, in addition to today's, will see the average home buyer around the country paying some €500 a month more in mortgage payments than last year. The rise in rates has prompted a slowdown in the housing market. The Irish Independent also reports that the issue of the privileged rich in Irish society paying little or no tax has been a hot potato for politicians and commentators for some time. But with the rich clearly getting richer on the back of a buoyant Irish economy and little perceived change to the reliefs and incentives endemic to the Irish taxation system, the issue is coming more and more to the fore as a general election looms. Ireland has one of the lowest corporate tax regimes in the developed world - a source of envy to our neighbours. Most voters agree with this policy but when the profits and dividends from those corporates avoid tax in the hands of the shareholders, the high level of support can diminish. It is, however, a fact of life that in general rich people can get much richer simply by doing nothing. Rising asset values means that the accumulated wealth of most rich people has increased overnight even before they get out of bed each morning. This applies in the Irish economy to an even greater extent than in many economies around the world. Growth The Celtic Tiger economic growth rates for over a decade, strong increases in property prices, increasing dividends from corporate investments have all added to the wealth of many Irish citizens. And newly wealthy people are being created every day. There is still an issue, however, when it emerges that a small number of very wealthy people pay no tax at all. Figures just released by the Revenue in answer to a political question from Labour's Joan Bruton TD showed some startling cases of legitimate tax avoidance. Between the 1999 tax year and 2003, a sizeable number of multimillionaires - 184 to be exact - declared incomes of more than €1m a year and paid no income tax at all. In 2003, 16,427 people, mostly self-employed, declared incomes in excess of €100,000 per year. The millionaires amongst them paid little or no income tax. Significantly, many of the wealthy who are availing of tax avoidance schemes do so year after year. It is in the nature of capital allowances, for example, that the write-off takes place over a sustained period. The millionaires have used the tax system to avoid any tax through the reliefs allowable, losses and expenses, retirement annuities, relief from tax on stallion fees and artists exemptions. Finance Minister Brian Cowen told the Dail last week that changes in recent budgets "will increase the average tax rate for those on higher incomes." However the Irish taxation system seems to have compounded the "rich getting richer" trends rather than spread the taxation load. A clear example was the decision by the then Minister for Finance to cut the rate of Capital Gains Tax (CGT) from 40pc to 20pc which stimulated the sale, purchase and transfer of assets resulting in much higher receipts to the Exchequer from CGT. However, it meant that wealthy people paid at most 20pc of the gain in value of an asset while many of those on the PAYE system are tied into paying tax at the marginal 42pc rate. Wealthy people are assisted in their accumulation of more wealth by the access that they enjoy - because they can afford it - to financial, legal and taxation specialists. These specialists advise on the highest return the wealthy can achieve from their investments with the minimum of risk. They advise on legal structures - such as trusts - which allow the high net worth individuals to transfer part of their wealth to their partners, children or friends while minimising the tax take for society as a whole. A leading tax adviser, who spoke on the basis he wouldn't be named, defended his life's work. "If a businessman loses millions in one business and makes profits from another, why shouldn't he write off the losses against the profits. The net effect is no profits and no tax," he explained. On the issue of using student accommodation and stallion fees, the tax adviser argued: "These reliefs were introduced for a reason - to accommodate students or to promote the bloodstock industry - if they were unsuccessful there would be outroar." Income from one source - such as rents from properties - can be sheltered from income tax by purchasing other properties in the form of student accommodation or hotels which have tax incentives attached. In this way high net worth individuals can legitimately use tax shelters to minimise the amount of income tax they pay on rental income from properties, for example. The wealthy can also use devices such as massive pension contributions to avoid the PAYE income tax that the vast majority of self-employed and employees need to pay on a regular basis. Another factor which has arisen from the halving of Capital Gains Tax to 20pc is a shift towards asset disposals in preference to payment of income. Companies can pay their shareholders by way of a small capital repayment at the rate of 20pc rather than a dividend that can be taxed at the marginal income tax rate of 42pc. For many years the precise impact of tax reliefs were known but not quantified. However in more recent years, Revenue investigations have been taking place in an attempt to get a handle on the syndrome of the rich getting richer and paying less tax. The most interesting study has been carried out by Statistics Branch within the Revenue commissioners. This group, after all, has access to the detailed information that outside researchers cannot use. The latest report is based on the top 400 earners in 1999/2000 but the research goes all the way back to 1997. "The study was initiated because of concern over the ability of some high-earning taxpayers to reduce their actual tax payments to a very low level through the use of the various tax reliefs and exemptions which exist in the tax system," according to Revenue. The Revenue points out that the 1998 Finance Act placed a cap on the amount of capital allowances a taxpayer could claim on investments outside their own business. However they wanted to assess how effective the 1998 provisions were in preventing high earners from reducing their tax to low levels. The Statistics Branch review found that 117 of the 400 top earning individuals in the State enjoyed an effective tax rate of 30pc or less. By 2003 184 millionaires were paying no income tax at all on incomes of over €1m a year. The top rate of income tax in 2000 was 46pc. The 2001 study found that multi-storey car parks were a popular means of avoiding tax and that Revenue had lost €9.7m to that incentive. Hotels were also a popular method and Revenue estimated a loss of over €12m at the time to that relief. However it was capital allowances which made up the lion's share of the revenue foregone at €46m. Heritage homes resulted in a loss of €4m to the Revenue while loan interest was calculated at a €847,000 loss. More worryingly was the golden circle of 51 high net worth individuals who paid tax at a rate of 5pc or less. If a significant proportion of the highest earners in the State is paying very little tax, then it follows that the large majority of people in the State, on middle or lower incomes, are paying the bulk of the taxes being extracted. In 2005 those on PAYE paid €8.6bn in income tax to the Exchequer or 6.5pc more than the €8.1bn which those on PAYE paid in 2004 (reflecting the regular failure to adjust income tax bands for inflation). In comparison those self-employed in receipt of income paid tax of just over €2bn on it or 3.9pc more than they did in 2004. Those on PAYE include company directors but the vast bulk of those on PAYE are employees of a company in which they have no shareholding. The self-employed include professionals such as barristers who are subject to a withholding tax on fees paid by State agencies and other designated bodies. Withholding tax on fees brought in €342m in 2005 and €355m in 2004.
The Irish Times reports that Smart Telecom's largest shareholder, Brendan Murtagh, appears close to a new interconnection agreement with Eircom that may clear the way for him to set about refinancing the troubled telecommunications firm. The terms of the new interconnection deal were not clear last night. However, the proposed agreement has been the subject of ongoing contact between the two companies since Tuesday. The talks started on the morning after 45,000 of Smart's residential fixed line and corporate customers were cut off the system without warning. Mr Murtagh owns 20 per cent of Smart, whose shares on the Alternative Investment Market (AIM) in London were suspended on Tuesday morning after Eircom cut off its connection. Amid a deepening financial crisis at Smart, Mr Murtagh has been keeping the company afloat in recent times to the tune of €2.5million-€3 million per month. His proposal to lead a consortium to refinance Smart is conditional on a new interconnection agreement being put in place. Without such an agreement, Smart would not be able to offer any service that makes use of Eircom's network. It is considered likely that a reconstituted Smart, delisted from the AIM, would concentrate on its broadband offering. Smart was not party to an interim deal agreed on Tuesday between Eircom and the communications regulator ComReg, which was designed to help Smart's fixed-line customers choose an alternative supplier. In addition to the intention to keep the broadband business going, Mr Murtagh is awaiting a High Court judgment on Smart's challenge to ComReg's decision to withdraw its award of a 3G mobile licence to the company.
Eircom is unlikely to sign a new agreement, unless it receives full payment of the money it says it is due from Smart. However, there has been some dispute over the sums of money that Smart owes Eircom. Sources close to Eircom insist that Smart had been billed for €4.3 million as of Monday and that €1.7 million was already in arrears when the network connection was cut at 5pm that day. Sources close to Smart say that a sum of €309,000 was the subject of a long-term dispute at that time and that a sum of €459,000 was due last Tuesday. Further sums of €410,000 and €480,000 were falling due later this week, but the same sources insist that €1.7 million was not in arrears last Monday. In the The Irish Times, Marc Coleman Economics Editor writes that there is no risk of a collapse in the construction sector, but the economy's present level of exposure to it is "unparalleled", according to Goodbody Stockbrokers. Even a moderate slowdown in the sector would cut growth in economic output from 5.7 per cent this year to 5 per cent next year and 3.2 per cent in 2008, according to the stockbroker's economist, Dermot O'Leary. Joe Gill, the head of research at Goodbody, said, however, that its analysis should calm fears of a property-related hard landing for the economy. "Every time I meet someone from an international institution, they're wondering what month will the Irish economy collapse . . . A growth figure of 3 per cent in 2008 should be a very reassuring number for those people." Goodbody's "moderate slowdown" scenario predicts housing completions to slow from 92,000 units this year to 77,000 in 2008 and 68,000 by the end of this decade. But in its "worst case" scenario, the stockbroking firm says that housing completions would fall from an expected 92,000 this year to 70,000 next year and 60,000 in 2008. Under the latter scenario, economic growth would fall to 2.6 per cent next year and 2.5 per cent in 2008, Mr O'Leary said. "The overall effect would be to drop about 3 percentage points off growth," he said. But the Republic's performance under this scenario would still be better than the European Union average, Mr O'Leary added. Some 23 per cent of the Republic's economy is dependant on the construction sector, according to the findings of the Goodbody research. "If you go back 10 years ago, it was only 14 per cent. If we compare this with Europe it's only 12 per cent," Mr O'Leary said. The research also finds that the economy's recent dependence on the sector is due to residential investment. "You can't hide it. The economy is very dependant on the sector. But we've laid out reasons why we think it won't collapse," Mr O'Leary said yesterday. However, the average number of persons living in an Irish house stands at 2.8, compared to an EU average of 2.4 persons and Goodbody maintain that this is a sign that the Republic is under-housed relative to the EU. "We are in a catch-up phase. Household size in Ireland is the highest in Europe and we would expect it to converge to European levels . . . I look on this as a form of pent-up demand," Mr O'Leary said. A pick up in investment under the National Development Plan (NDP) will also benefit the sector, he added. "Non-residential construction will take up the baton post-2006. Public capital spending remains underpinned due to a significant infrastructure deficit, which the Government is committed to addressing." On Monday the Economic and Social Research Institute (ESRI) warned that falling house prices in the US could cause its economy to slow significantly, prompting a 7 per cent fall in the size of the Republic's economy and the loss of 90,000 jobs. The Irish Examiner reports that Croke Park stadium made an operating profit of €15.4 million in 2005, nearly 20% more than the previous year. By renting out Croke Park for conferences and gigs it added €4.7m to the annual income, up from €1.69m in 2004.
One day after EADS, Airbus’s parent company, issued a €4.8bn profits warning arising from the A380 superjumbo programme, which is facing two years of delays, Mr Streiff revealed that the A400M military transport aircraft, another crucial programme, could also face rising costs and possible delays. However, analysts in the US said Airbus’s problems would be of limited benefit to Boeing. The US group’s order book was almost filled to the end of the decade following the successful launch of its 787 Dreamliner programme and rejuvenated sales for its smaller 737 aircraft. Scott Carson, who last month replaced Alan Mulally as Boeing’s head of commercial aircraft, has pledged to limit production increases to avoid the problems that forced the group to shut production lines for a month in 1997. In an interview with the FT, Mr Streiff said about the A400M: “The timetable is exactly on the edge. It is a tense situation with a number of suppliers and internally. We are exactly on track but without any reserves [of time].” The A400M was undertaken by Airbus as a fixed-price contract. “We have not yet found the right cost base to get to profitability targets,” said Mr Streiff. He said on Wednesday that the group must urgently rethink the way it developed aircraft. “This is such a long-term business. We must catch up. In 15 years I hope we are ahead of Boeing again.” EADS’s warning was forced by expected charges for A380 delays, charges that could arise from changes in the long-haul A350 XWB programme – the next big Airbus development – and charges for the so-called Power8 restructuring plan. Meanwhile, Thomas Enders, co-chief executive of EADS, on Wednesday raised doubts over the future of the A350. Asked if the project could be in danger because of EADS’s problems, he said: “I cannot rule that out.” He hinted that if the A350 threw up problems like those of the A380, it could endanger the whole group. He said: “The A380 timetable was ambitious from the start and perhaps unrealistic from today’s perspective.” Mr Streiff said he planned to raise the A350 XWB programme for approval by the EADS board within three weeks. Shares in EADS fell a further 4.2 per cent yesterday to €21.71. The price has fallen by more than a third since June. Standard & Poor’s, the credit rating agency, warned it might cut its rating for EADS. Mr Streiff said Airbus would announce in January the first planned reforms for its industrial operations in Europe, which are mainly spread across France, Germany, Spain and the UK. He said the group was examining previous “taboos”, which could lead to a rationalisation of its European operations and greater use of lower-cost production sources outside Airbus. The FT reports that Opec has agreed informally that it needs to cut production by at least 1m barrels a day – at least 4 per cent – in order to boost the falling price of oil. The majority of the cartel’s members back a voluntary reduction over the coming weeks and the deal could be ratified as early as the group’s mid-December meeting in the Nigerian capital of Abuja. “Opec is going to defend a price floor for its oil of $50-$55 a barrel,” said one Opec official. The price of Opec’s crude oil on Wednesday fell to $55.27 while Brent oil futures traded in London slipped 33 cents to $58 a barrel, 26 per cent below their July peak. Prices have fallen as demand in the US has waned and the likelihood of a supply shortage caused by Iran’s stand-off with the west has diminished. Saudi Arabia, Opec’s most important member, is unhappy with the move towards voluntary cuts, but at the same time the kingdom has already quietly cut its production by 200,000 barrels a day over the past two months. It would rather reach a clear public position at the cartel’s meeting in Abuja. However, on Wednesday the kingdom sharply increased the price it charges European refineries for its oil, making it likely that there will be a further drop in volumes in November. Kuwait on Wednesday became the first Persian Gulf state to herald production cuts after Nigeria and Venezuela announced on Friday that they would reduce output by a total of 170,000 b/d. Sheikh Ali al Jarrah al Sabah, Kuwait’s energy minister, publicly confirmed only that Kuwait might cut production, saying: “We are currently in negotiations with fellow Opec members. Matters have been left that these voluntary reductions undertaken by some Opec countries will calm the markets, at least for the current period.” But Opec insiders said on Wednesday that Kuwait, Iran, Venezuela, Nigeria and Libya had informally agreed to voluntary cuts and the UAE had said it was likely to join in. The discussions are still fluid, but the voluntary reductions are most likely to be formalised at the cartel’s Abuja meeting, the insiders said. Opec members worry most about next year’s second quarter when they foresee a sizeable glut unless production is reduced well in advance. The cartel is expecting new oil production from other parts of the world to hit prices and displace demand for its own oil. The cartel’s Vienna-based secretariat forecasts the need for Opec oil in the second quarter of 2007 to fall to 26.97m b/d, 2m b/d, 10 per cent less than the average demand for Opec oil in 2006. Adding to Opec’s concerns yesterday was news from the US energy department that US oil inventories rose by 3.3m barrels last week, indicating that supply far outweighed immediate need for oil. “There is an abundance of production and countries have better managed to collect more oil for their inventories,” Prince Turki Al-Faisal, Saudi Arabia’s ambassador to the US, said. The New York Times reports that Apple Computer said on Wednesday that an internal review had found that Steven P. Jobs, the chief executive, knew that the company was backdating some stock options granted to employees to inflate their value. The company said Mr. Jobs did not knowingly receive any backdated options and had not benefited from the practice, and that he did not understand its accounting implications. A company spokesman, Steve Dowling, said it was possible that there had been “irregularities” with some options granted to Mr. Jobs, but he declined to elaborate. Apple, riding high on the popularity of its iPod music player, repeated that it would most likely need to restate past financial statements, but said it had not yet determined the amount or for which periods. “I apologize to Apple’s shareholders and employees for these problems, which happened on my watch,” Mr. Jobs said in a statement. “They are completely out of character for Apple.” Mr. Jobs said the company was working to resolve the remaining issues quickly. Apple revealed in June that it had discovered irregularities related to stock options awarded between 1997 and 2001. By doing so, it joined more than 100 companies, including Microsoft, that have announced investigations into their options practices. At the time, Apple said it was examining a grant made to Mr. Jobs that may have been improper. Mr. Dowling would not discuss the specifics of that grant on Wednesday. Apple also announced that Fred D. Anderson, an Apple director who was chief financial officer from 1996 to 2004, the period when the questionable grants were made, had resigned from the board, and said he had told the company that “he believes it is in Apple’s best interests” that he leave. Mr. Anderson is now managing director of Elevation Partners, a high-profile private equity company he helped found after leaving Apple. Roger McNamee, Elevation’s chief executive, said in an e-mailed statement that he had confidence in Mr. Anderson, whom he considered to have “uncompromising character,” and that he would remain part of the company. Apple’s statement said the financial investigation “raised serious concerns” about the activities of two other former Apple officers, but did not name them. The company said it would share details with the Securities and Exchange Commission. Apple said the investigation found no misconduct by anyone on the company’s current management team. Mr. Dowling said the company was not required to discuss Mr. Jobs’s role in the options grants, but was doing so in the interest of full disclosure. He said Mr. Jobs was not available for an interview. Apple shares fell 66 cents, or 0.9 percent, in after-hours trading, after rising $1.30 in regular trading to close at $75.38. Charles R. Wolf, an analyst with Needham & Company, said that investors were likely to respond favorably in the long term, and that he did not expect Apple’s restatement of earnings to be significant or to hurt its future performance. “The major risk in the backdating of options was that somehow Steve Jobs was actively involved,” Mr. Wolf said. “The announcement today eliminated that possibility.” Mr. Wolf said it was within reason that Mr. Jobs would not have paid attention to the backdating, particularly given that it was common and legal. “I don’t think he’d know an asset from a liability,” Mr. Wolf said of Mr. Jobs. “That’s not his game.” One unusually large grant to Mr. Jobs had been under scrutiny. Apple disclosed on Jan. 19, 2000, that he had received options to buy 10 million shares, effective Jan. 12. Those options carried a strike price of $87.19, the stock’s lowest closing price in the two months up to that date; by Jan. 19, the stock had risen to $106.56. The options later became worthless as Apple’s stock price declined. Mr. Jobs canceled most of his options in 2003 and was given restricted stock instead. A week after Apple disclosed its investigation, two shareholder lawsuits filed in California charged current and former Apple executives and directors with manipulating stock grants. Those suits are still pending. Apple said on Wednesday that stock option grants made on 15 dates between 1997 and 2002 appeared to have grant dates that preceded the approval of those grants. The company said the last one came in January 2002. Mr. Dowling said that the 15 dates represented 6 percent of all stock grants during the period. At the time of the options grants, it was not uncommon for companies to disclose stock option awards days or weeks after a grant was made. But the Sarbanes-Oxley Act of 2002, which addresses corporate accountability, now requires companies to report option grants within two days. Apple reported the findings after a special committee of outside directors, lawyers and accountants completed a three-month investigation, examining more than 650,000 documents. The NYT also reports that Hewlett-Packard’s former chairwoman was among five people charged Wednesday with illegally gathering phone records of board members, journalists and others in an effort to find the source of news leaks. The felony charges, filed by the California attorney general’s office, are the first stemming from a spying operation that ended last spring but came to light a month ago in disclosures by a disgruntled former director. The case has rocked the company, forcing out the chairwoman, Patricia C. Dunn, along with the general counsel, a second director and two other senior officers. A House subcommittee held hearings on the case last week, and federal prosecutors have also been considering charges. It was Ms. Dunn who authorized the operation, aimed at tracing leaks from the board, and put it into the hands of outside investigators. Those charged with her Wednesday included the company lawyer who supervised one phase of the operation and three detectives. The charges stem from the use of pretexting, a form of deception, to obtain private calling records from phone company employees. “We plan to aggressively prosecute this case,” Bill Lockyer, the state’s attorney general, said at a news conference in Sacramento. “However, the investigation into this matter remains active and still incomplete.” The company’s general counsel, Ann O. Baskins, who resigned hours before the House hearing last week, was not among those charged. Nor was Mark V. Hurd, the chief executive, who has overseen a resurgence in Hewlett-Packard’s business that has buoyed its stock even in the face of the recent upheaval. “There currently is no evidence that Mark Hurd engaged in criminal conduct,” Mr. Lockyer said. Concerns over leaks from the board predated the ouster of Carleton S. Fiorina as chairwoman and chief executive in early 2005. In a memoir to be published next week, Ms. Fiorina says that she ordered an initial leak investigation shortly before her departure. [Page C1.] The charges against Ms. Dunn, who is expected to appear in court within 24 hours, come as she battles ovarian cancer. “I truly hope Ms. Dunn wins her fight against this disease,” Mr. Lockyer said. “However, her illness has no impact on her culpability.” A criminal complaint filed in San Jose, Calif., accuses all the defendants of four charges: using false pretenses to obtain confidential information from a public utility, unauthorized access of computer data, identity theft and conspiracy to commit each of those crimes. Mr. Lockyer said the first three charges each carried a maxiumm penalty of three years in prison and a fine of $10,000. A conspiracy conviction can bring a $25,000 fine and one year in prison. Arrest warrants were issued for the five, who include Kevin T. Hunsaker, a former senior lawyer at Hewlett-Packard; Ronald R. DeLia, a Boston-area private detective; Matthew DePante, manager of Action Research Group, an information broker in Melbourne, Fla.; and Bryan Wagner of Littleton, Colo., who is said to have obtained private phone records while working for Mr. DePante. An investigation was begun by Ms. Dunn in 2005 — involving leaks that were apparent in news articles just before and after Ms. Fiorina’s ouster — but it ended inconclusively. A second phase began in January 2006, after news reports about a management meeting indicated further leaks, and the effort was turned over to Mr. Hunsaker for supervision. Ms. Dunn resigned from the board last month under pressure because of the methods used. Mr. Hunsaker, a senior counsel and director of ethics, was fired after he refused to resign, his lawyer said. Robert M. Morgester, deputy attorney general for the state’s special crimes unit, wrote in a supporting document to the charges filed Wednesday that “both Dunn and Hunsaker were aware that the records were to be obtained by fraud or deceit.” He said Mr. Hunsaker provided continuous guidance to Mr. DeLia on which records to obtain. The criminal complaint notes that the pretexting in the case involved the home, office, cellphone and fax numbers of 24 people. Mr. Morgester wrote that Mr. DePante’s firm, Action Research, analyzed 33 months of calls and retrieved information on 590 numbers that figured in those individuals’ phone records. The complaint states that in April 2005, Ms. Dunn gave Mr. DeLia the home, office and cellphone numbers for company directors. In June 2005, Mr. DeLia told Ms. Dunn and Ms. Baskins, the general counsel, that phone records were obtained “by ruse” from a telecommunications carrier. In addition to getting phone records directly from customer service representatives, the operation also involved access to records kept online. State investigators said they were able to find Mr. Wagner by tracking a cookie left on his computer when he used it to gain access to online records at AT&T. A cookie is a piece of computer code that identifies what computer has visited a particular Web site. Although the operation for gathering of phone records stretched across the country and back again, California claims jurisdiction in the case because the detectives were paid by Hewlett-Packard, which is based in Palo Alto, Calif., and the planning was done there as well. Of the charges against Ms. Dunn, Mr. Lockyer, the attorney general, said, “The person who orchestrated these illegal practices should be held accountable, not just those who carried them out.” Ms. Dunn’s lawyer, James J. Brosnahan of Morrison & Foerster in San Francisco, said in a statement: “These charges are being brought against the wrong person at the wrong time and for the wrong reasons. They are the culmination of a well-financed and highly orchestrated disinformation campaign.” The charges are yet another blow for Ms. Dunn. On Tuesday, a representative said Ms. Dunn was to begin six months of chemotherapy on Friday for recurrent advanced ovarian cancer. A friend said that she had Stage 4 ovarian cancer. She has survived breast cancer and melanoma, a skin cancer. Stage 4, in which the cancer has spread beyond the abdomen to other parts of the body, is the most advanced, and only 29 percent of women with that stage are still alive after five years. The disease is so dangerous because it often has no symptoms until it has become advanced and has started spreading inside the abdomen. Alison Davis, a managing partner at Belvedere Capital Partners, a private equity firm in San Francisco, called the charges against Ms. Dunn unbelievable. “She stands for integrity and doing the right thing more than anyone else I can think of,” said Ms. Davis, who was chief financial officer of Barclays Global Investors, where Ms. Dunn served as chief executive. Ms. Baskins, who as general counsel was Mr. Hunsaker’s boss and was involved in both the 2005 and 2006 phases of the investigation, may have escaped charges because she never passed on any phone numbers to a pretexter. Her lawyer, Cristina C. Arguedas, with the firm of Arguedas, Cassman & Headley of Berkeley, Calif., said, “Ann Baskins did nothing that could possibly warrant a charge being filed against her.” Other criminal defense lawyers said prosecutors might have a difficult time proving intent. To do so, they would have to show that the defendants had some appreciation of the wrongfulness of their actions. “It can be a squishy concept,” said Matthew J. Jacobs, a former federal prosecutor and a partner in the Silicon Valley law firm of McDermott Will & Emery. Getting a legal opinion and taking steps to establish the legality of an action can show a lack of criminal intent. Ms. Baskins repeatedly asked for verification that the methods the investigators used were legal. The question of intent could also be raised for those charged, Mr. Hunsaker and Ms. Dunn in particular, several defense lawyers said. Ms. Dunn, who is not a lawyer, relied on the lawyers’ advice. The documents provided by the company show Mr. Hunsaker asked for legal opinions and did his own research to verify that what was done was considered legal. In one set of e-mail exchanges between Mr. Hunsaker and Anthony R. Gentilucci, the company’s manager of global investigations, Mr. Hunsaker raises the question of legality. Mr. Gentilucci replied, “I think it is on the edge, but above board.” Mr. Hunsaker’s response was, “I shouldn’t have asked.” Mr. Hunsaker’s lawyer, Michael Pancer, said in a recent interview that his client meant that he should not have asked because he knew that Mr. Gentilucci would have checked on the legality of the method. Lawyers for Ms. Dunn and Mr. DeLia did not respond to requests for comment. Mr. Wagner said he had been advised not to comment on the charges against him. He said, however, “If I would have known it was this high-profile, I wouldn’t have done it.” Mr. DePante’s lawyer, Richard J. Preira of Miami Beach, Fla., said that “his conduct is not illegal” and that his client was a scapegoat. He also said, “the prosecutors are trying to fit a square peg in a round hole.” Indeed, other defense lawyers and legal scholars not involved in the case said it would not be an easy one for the attorney general despite the mountain of documents provided by the company. The problem is that California had no law against the specific act of pretexting. So the prosecutors have to stitch together a set of laws to charge the defendants. Defense lawyers are likely to try to exploit the weak seams. Take, for instance, the law that makes it a crime to use electronic media to take information owned by a public utility. The first problem, said Robert Weisberg, a Stanford University law professor, is whether a phone company can be considered a public utility anymore. The identity theft law makes it a crime to steal something of value — credit, goods, services, or medical information — Mr. Weisberg notes, but a defense lawyer could argue that phone records have no monetary value. California made pretexting a crime, but the law, signed on Saturday by Gov. Arnold Schwarzenegger, does not go into effect until Jan. 1. It would not apply to any of the pretexting in the Hewlett-Packard case. Under that law, the penalty for a violation would be $2,500 and up to a year in county jail. Repeated violations would result in a $10,000 fine and a year in jail. © Copyright 2007 by Finfacts.com |
