Above the Law notes that Wilson Sonsini Goodrich & Rosati has skipped the annual tradition of awarding associates who passed the bar exam a bottle of champagne. At $40 a bottle for 53 associates, $2,120 is hardly a big expense. But it is a powerful symbolic move: The bubbly times are gone for good.

Wilson Sonsini is no mere bill-by-the-hour outfit; the firm and its founders have been key players in establishing Silicon Valley's equity culture, where employees are motivated by stock options that pay off when a company goes public or gets sold. And who handled many of those IPOs and M&A deals? Wilson Sonsini, of course. Larry Sonsini, the firm's best-known founder, has been a consigliere to Apple CEO Steve Jobs and Google CEO Eric Schmidt, among others.

This decade has not been good for Wilson Sonsini. The firm has found itself dragged into every major scandal that drew national attention to the clubby world of the Valley, from HP's illegal pretexting of reporters' phone records to the backdating of stock options in many tech firms. Wilson Sonsini paid $9.5 million to one tech company to avoid involvement in litigation — but there are other backdating lawsuits out there. Observers of the legal profession are waiting to see if one ends up dragging the Valley's most arrogant lawyers into court.

Even if Wilson Sonsini escapes legal trouble, it can't dodge the recession. A cold IPO market has already hobbled its business; with public offerings completely frozen, and acquisitions happening for a fraction of the price they commanded even a few years ago, it's hard to see how the firm will make the kind of money it did in the '90s.

Wilson Sonsini helped build the Valley's sense of itself as a world apart — and its own firm as an even more rarefied sphere within that bubble. No wonder they and their clients ended up testing the law's gray areas in the pursuit of . That's why trimming this year's champagne budget isn't a mere cutting of perks: It's a sign that a gang of lawyers who saw themselves as above the rest have floated down to earth. The descent is only beginning.

Sonsini is one of Silicon Valley's most powerful lawyers, representing many high-profile firms (such as Sun Microsystems); the panelist is chastising him for not going after the leaking board member sooner. "I was aware," he says, in early 2005. He says he talked to each director, reminded them of their confidentiality agreements, and that now-confessed leaker George Keyworth denied leaking any information. "The way I dealt with [the leak] was in the board room," says Keyworth.

Watch the hearings live [C-SPAN]

• Ann Baskins, former HP lead counsel who resigned today
• Kevin Hunsaker, HP ethics director
• Anthony Gentilucci, former HP head of global investigation
• Ron DeLia, manager of Boston firm Security Outsourcing Solutions and outside investigator for HP

Meanwhile, chairwoman Patricia Dunn and HP lead outside counsel Larry Sonsini agreed to answer questions, showing that they believe they can escape the blame if they point to the more immediate culprits.

Former HP executives invoke right not to testify [Reuters]
Dunn grilled by Congress [CNET]

H-P is now charting the right course, with Mark Hurd firmly at the helm. There is no better indication of his commitment to doing the right thing than the appointment of Bart Schwartz as counsel to review and revamp H-P's security processes. "Bart is an outstanding lawyer and investigator with excellent judgment and immense integrity," former FBI director Louie Freeh told me. "He will act independently and provide to H-P a 'best practices' architecture for investigations and procedures which is thorough, fair and sensitive to privacy requirements."

The lawyer, Viet D. Dinh, says Hurd's role in the scandal was mitigated, HP lawyer Larry Sonsini acted ethically in the protection of his client (though others accuse him of knowingly green-lighting an illegal investigation), and reveals that Perkins sent Hurd an e-mail blaming now-ex-chairwoman Patricia Dunn for the whole thing and fearing that she'd pack the board with supporters when he left. Looks like Dinh agrees with everyone else's take: Dunn's the bad guy, and as her replacement, Hurd can save HP.

Dunn and Dusted [Wall Street Journal, sub required]

• CEO and now-chairman Mark Hurd (pictured here in his "Dad will make it all okay" glasses) will internally investigate HP's shady investigation, distancing himself from the scandal that got his predecessor kicked out.
• He'll also appear before a hearing of the House Energy and Commerce Committee, which "invited" him but was just given the right to subpoena if necessary.
• Dunn will appear before the same committee.
• HP stock could continue to recover, as it already has since Hurd announced Dunn's resignation.
• California Attorney General Bill Lockyer will continue investigating who broke the law when hired investigators impersonated phone customers to get their records.
• HP will find a different outside counsel for that investigation. News source Cal Law reports that HP fired Wilson Sonsini, law firm of Silicon Valley power lawyer Larry Sonsini, from this case while retaining it for other work.

HP chair Dunn resigns [Mercury News]
Hewlett Chairwoman Dunn Resigns [AP at New York Times]

Hewlett-Packard Co. chief executive Mark V. Hurd approved an elaborate "sting" operation on a reporter in February in an attempt to plug leaks to the media, according to an e-mail message sent by HP Chairman Patricia C. Dunn.

BusinessWeek (Tuesday):

Chairwoman Patricia Dunn and the company's general counsel [Larry Sonsini] have agreed to testify next week before a House panel investigating the affair.

SF Chronicle:

The House Energy and Commerce Committee on Wednesday gave the chairman of its oversight and investigations subcommittee the power to issue subpoenas in connection with the HP hearing.

And:

On Wednesday, the New York Times reported that HP's investigative team even considered infiltrating the newsrooms of Cnet and the Wall Street Journal by deploying investigators posing as clerical employees and cleaning crews.

Right, so now Hurd, the last good guy left in charge at HP and the board chairman-to-be, is implicated in the scandal that forced his predecessor Dunn to resign. We'll see what he has to say tomorrow in an HP press conference.

HP CEO Allowed 'Sting' of Reporter [Washington Post]
Hewlett-Packard to hold press conference [BusinessWeek]

Looks like HP chairwoman Patricia Dunn and Outside Counsel Larry Sonsini, the two perps of a possibly illegal investigation of board members and reporters, will soon have their day in court. The two were asked to testify before the House Committee on Energy and Commerce on September 28. HP General Counsel Ann Baskins and investigator Ronald DeLia were also sent voluntary letters to attend the hearings and use it as "an opportunity to be fully open and transparent." Why letters? The congressional committee can't officially subpoena. Still, Dunn and Sonsini might not want to flake on this hearing.

Congress Asks HP Chairman, Exec To Testify [CNET News]

• George Keyworth, the board member caught leaking details to CNET in 2004, also resigned Tuesday morning.
• Dunn publicly says she didn't authorize the "pretexting" (lying to access phone records) that got her in trouble. In fact, she was "appalled." Official policy is to believe her and accept her passive-voice apology.
• "Dunn" puns will be funny forever.
• A reader tells Valleywag:

  Here's the story from my pressy contacts: Dunn saved skin, as she was basically following orders, she's got massive dirt on others, company-wide thing.
  
  They are going PR shock, as it seems they spied on Dell and IBM people....afraid of the lawsuits and the market shock. Yah yah. I'm sure of it. That pretexting was a competitive policy, this wades into the bigtime criminal.

• Okay, so who's the real bad guy? Try Larry Sonsini, the powerful HP outside counsel who told former board member Tom Perkins that pretexting was legal. Forbes publisher Rich Karlgaard says HP should fire him (and Apple should too).

Embattled H.P. Chairwoman to Step Down [NY Times]