If HP pays the bills, who calls the shots?

To hear Bill Conley tell it, the 1998 police raid of his Redmond business was no less than a $42 billion computer corporation using law enforcement to kill off competition.

Hewlett-Packard enlisted police and paid their expenses for the raid, which resulted in the seizure of items not described on the search warrant - all in an effort, he says, to set HP up in the market for used HP equipment.

Certainly, Conley's arguments must be weighed in the context of a man fighting to survive. He has spent about $700,000 in legal fees defending himself and his company, U.S. Computer, against criminal charges and a massive civil suit prompted by HP. He could face penalties if he loses what he contends is malicious prosecution.

Hewlett-Packard, based in Palo Alto, Calif., labels Conley's contentions "ludicrous" and asserts it was acting to protect its business.

The HP-Conley saga offers a glimpse into hardball practices involved in selling used computers to businesses and also underscores a wider issue: whether law enforcement should accept money from high-tech giants to undertake criminal investigations. The issues are coming to life in an unusual hearing, set to resume today, before the Seattle judge who authorized the raid of Conley's business.

The raid, conducted to search for allegedly stolen computer parts, was one of at least five HP helped set in motion in 1998 through the multi-agency Sacramento Valley Hi-Tech Crimes Task Force.

In the Redmond case, four task-force members flew in August 1998 from California and, working with Redmond police, raided U.S. Computer. Also present were three private HP security officers.

HP underwrote expenses of the task force, including the airfare, accommodations and meals. The raid also involved the clandestine tape-recording of conversations, which is prohibited in Washington.

Conley thinks the raids resulted from a conspiracy to drive out independent brokers like himself so that HP could enter the lucrative used-equipment business, and some officials question the propriety of private financing of public law-enforcement activities.

Robin Shakely, a lawyer in the Sacramento County District Attorney's Office, rejected the contention that HP called the shots: "Nobody in Sacramento County has law enforcement in their hip pocket."

Conspiracy theory

Conley's conspiracy theory plays out this way: HP realized it was missing the boat in the market for used HP 3000s, a business computer that has been around for 27 years. Oldies but goodies, HP 3000s are used by such notable companies as Boeing, for instance, to track jet parts. Used ones sell for up to several hundred thousand dollars.

Two years ago, HP tightened rules governing the transfer of software licenses when used 3000s change hands. About the same time, the company worked closely with the Sacramento Valley task force to initiate criminal investigations and financed raids.

About this time, HP turned to a partner, Denver-based Client Systems, to create a new channel for selling used 3000s. Last August, Client Systems announced the formation of Phoenix 3000 to make used HP 3000s available to authorized resellers.

In marketing material, Phoenix 3000 immediately played to the fear factor: "HP's commercial-system division has officially designated Phoenix 3000 as its ONLY authorized third-party refurbishment center and distributor of previously owned HP 3000s in the United States. There is never any question as to the legitimacy of the . . . software licenses. . . . No worries about law enforcement issues, or confiscation of fraudulent boxes!"

Phoenix 3000 business development manager Sean McCloskey said the campaign may have taken advantage of the crackdown on some brokers. "But that wasn't the original focus," he said.

The final crack of HP's corporate whip, Conley said, was its use of civil lawsuits to strike out at any brokers left standing. Conley and U.S. Computer are among those facing a $70 million civil racketeering suit in Sacramento. (Conley sold U.S. Computer to St. Louis-based Computer Sales International but remains president.)

The real target?

Christine Martino, worldwide marketing manager for HP's commercial-systems division, calls Conley's theory "ludicrous." She said there are "dozens, if not hundreds," of brokers operating "completely legally and selling HP 3000s aboveboard." The company, she said, pursued only those brokers who participated in "illegal activity."

HP corporate spokeswoman Emily Fox said that at least four people have been convicted and that one company, Abtech Systems of Carlsbad, Calif., agreed to settle a lawsuit last year for $900,000.

Conley, who denies any wrongdoing, faces a felony charge of possession of stolen property in California state court as a result of roughly $17,000 worth of memory recovered in the raid.

For reasons it declined to explain, the Sacramento District Attorney's Office dismissed and then refiled the charges in December 1999, the same month HP slapped Conley with the racketeering lawsuit.

In a sense, Conley has himself to blame for the raid. Though he maintains he bought the memory in good faith, legal documents include a transcript of a phone conversation between Conley and a man offering to sell him stolen memory modules. Conley is quoted as saying: "I don't care if they are (stolen). . . . If I can make a buck on it, I can make a buck on it."

Conley contends he was leading the seller on, intending to cooperate with HP, as HP's Fox acknowledged he had done in an earlier investigation.

In any case, Conley insists the real reason for the raid - not mentioned in the search warrant - was HP's pursuit of "ss-config," a piece of software found on the U.S. Computer premises.

HP contends that, with ss-config's password-protection scheme defeated, a license issued for eight users could turn the HP 3000 into equipment good for hundreds of users, depriving the company of significant revenue.

Conley's Seattle lawyers, Anne Bremner and John Henry Browne, say Conley had a right to possess the software and is seeking its return.

Who should pay?

Most recently, the spotlight has shifted to Seattle, where the same judge who two years ago authorized the Redmond raid is now presiding over a hearing to determine whether some items were seized illegally.

The hearing, scheduled to resume tomorrow before King County Superior Court Judge William Downing, is also serving as a possible launching pad for a future federal civil-rights case against HP and the Sacramento Valley task force, Conley's lawyers said.

Earlier this month, task force member Fred Adler of the California Department of Justice admitted he clandestinely tape-recorded employees during the raid. He apologized to Downing if he "inadvertently" violated state law.

Beyond the taping, the extent of private-public entanglement has caught Downing's eye. The judge wondered aloud whether the raid represented "a frolic" on HP's part vs. the stated purpose - to recover allegedly stolen computer parts.

But Jan Hoganson, the Sacramento task force commander, defended the support: "These very expensive out-of-town investigations need some serious money donations or they are not going to be accomplished," he said.

Hoganson said the California Legislature has since set aside money for his task force and two others, but it continues to accept money from private industry.

Larry Erickson, executive director of the Washington Association of Sheriffs and Police Chiefs, criticized such arrangements: "If an investigation is worth doing, it's a public law-enforcement agency, and the public ought to be paying the bill."

The issue has been argued before U.S. District Judge Garland Burrell in Sacramento, who later this month is to preside over the wire-fraud trial of Richard Adamson, the owner of Dallas-based Hardwarehouse who was subjected to an HP-financed raid two years ago.

Adamson's lawyers had obtained permission from a U.S. magistrate to probe the money ties. But last month, Burrell reversed the ruling, concluding that the law "does not preclude victims of crimes from ever assisting prosecutors," financially or otherwise.

A veteran criminal prosecutor with the Seattle U.S. Attorney's Office, who asked not to be identified, found the ruling offensive. "I don't think there should be any even remote appearance that there's any motive other than attempting to do justice," he said.

Peter Lewis's phone message number is 206-464-2217. His e-mail address is: plewis@seattletimes.com