The best part: when Walden utters, "You're serious." Poor guy's face freezes in disbelief for about five seconds.

Earlier: SV Confidential: Day 1 wrap-up for the HP Congressional hearings [Valleywag]

The panelist asks, "Why was Mr. Nye apparently the only one to consider the negative publicity that might be generated...wasn't your job there to act upon this concern?"

Dunn says she didn't hear about this e-mail until her lawyer read it in the Washington Post today. During the investigation, she says, there was no indication that anyone else had concerns.

Another panelist is livid. "There was some lawyer from some shoebox outfit in Mass. that people ended up relying on."

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]

First up is testimony from ex-chairwoman Patricia Dunn, who says she didn't even know what pretexting was until former board member Tom Perkins told her about it this June.

Pretexting, as Dunn now knows, is calling a company impersonating a customer so the caller can get that customer's account information. In this case, investigators under Dunn's command pretexted AT&T to get call records for Perkins's personal phone.

Dunn's former lawyers could back up her story, as they claim they felt the whole investigation was legal. The Congressional panel clearly doesn't think so, as they've asked everyone today how lying to get people's personal records, planting spies at news offices, and planting e-mail-tracking software on a reporter's computer seemed legal.

Dunn expresses 'deep regret' over leak probe [CNNMoney.com]

• Hewlett-Packard's chief in-house lawyer, Ann Baskins, resigned and won't appear in today's Congressional hearing. Her lawyer says Baskins always thought the investigation of HP board members and outside reporters was legal. [NY Times]
• Chairwoman Patricia Dunn yesterday repeated her claim that no one told her these investigations could be illegal. She also says she didn't hire the investigators who impersonated people to get their private phone records; they already worked for HP when she ordered the investigation. Because that...makes...such...a...difference. [NY Times]
• HP stock is up as investors admire how CEO and now-chairman Mark Hurd is handling the situation, as well as the actual company, which is making major bank since he took the helm in 2005. [Wall Street Journal]
• Business blog DealBreaker, which is holding a Pat Dunn Sympathy Watch, promises to cover today's Congressional hearings, which should include testimony from Dunn and from the investigators. Sez DealBreaker, "Expect some tough questions...like: so you thought stealing the phone records of your board members was legal?" [DealBreaker]

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]

Pretexting is lying. Wikipedia says: "Pretexting is the act of pretending to be someone who you are not by telling an untruth, or creating deception. The practice of pretexting typically involves tricking a telecom carrier into disclosing personal information of a customer, with the scammer pretending to be the customer."

It's common. The Washington Post says: "A security specialist said it has been a 'tradition for decades' for chief executives of big companies to hire private investigators to spy on colleagues, calling it a 'common power play.'"

It's easy. "All you need is the last four digits of a Social Security number and a correct ZIP code," a repossession investigator told the New York Times, and "you can view the bill."

It works. Hewlett-Packard's probe outed board member George Keyworth as the leaker who shared important business information with CNET.

It's unethical. At least according to a former president of a trade group, the National Council of Investigation and Security Services, quoted in the Times.

It's illegal. The Gramm-Leach-Bliley Act outlaws unauthorized attempts to gain personal nonpublic financial information. (Lawyers disagree on whether the ban applies to phone records.) Phone providers view pretexting as illegal and sue those who attempt it. This is why many investigators say they've stopped the practice. A bill in the California State Senate could make the offense a state crime punishable by up to a year in jail.

It got Patricia Dunn and superstar lawyer Larry Sonsini in trouble. As chairwoman of HP, Dunn authorized the leak investigation that included pretexting for phone records. Dunn now says she did not know of or authorize any pretexting. Also, the San Jose Mercury News obtained e-mails in which Larry Sonsini (outside counsel to HP) told former board member Tom Perkins that this investigation was legal.

The phone companies are fighting back. Most notably, Verizon is pushing against pretexters and other dealers in personal phone records. For example, the company settled with a records vendor who agreed to stop selling phone records and to share how they obtained those records.

This isn't the last scandal we'll hear. The president of one security company says that heads of Fortune 500 Companies hire "fly-by-night organizations" to do their dirty investigative work all the time. Now that a pretexting scandal is front-page news, expect investigative journalists to hunt down similar stories.

Pretexting [Wikipedia]
When a Stranger Calls, Beware of The Pretext [Washington Post]
An Industry Is Based on a Simple Masquerade [New York Times]