Hypercom Confidential

Colleen Smith claims her boss at Hypercom Corporation raped her. The company says it wanted to make things right. So the human resources director started hitting on her.

Colleen Ryan Smith claims she was raped three times by a top executive of Phoenix's Hypercom Corporation. The Scottsdale resident was one of Hypercom's 1,000 employees, about 500 of whom work in the Valley.

Hypercom is a big, if little-known, company. Its revenues reached nearly $200 million in 1997. Hypercom is the world's second-largest producer of the devices through which retailers swipe credit and debit cards to verify authenticity.

Smith, who was the executive's personal assistant, didn't report the alleged attacks to police. But other Hypercom executives heard rumblings about those attacks -- and other alleged sexual improprieties involving the executive -- and decided to investigate before an impending initial public offering of company stock.

Jairo Gonzalez (above) was the president of Hypercom Corporation's international division until recently. George Wallner (left) co-founded the Phoenix-based firm.
Jairo Gonzalez (above) was the president of Hypercom Corporation's international division until recently. George Wallner (left) co-founded the Phoenix-based firm.
George Wallner co-founded the Phoenix-based firm.
George Wallner co-founded the Phoenix-based firm.
credit-card-swiping machine
credit-card-swiping machine
Jairo Gonzalez was the president of Hypercom Corporation's international division until recently.
Jairo Gonzalez was the president of Hypercom Corporation's international division until recently.
Hypercom is the world's second-largest producer of credit-card-swiping machines.
Paolo Vescia
Hypercom is the world's second-largest producer of credit-card-swiping machines.
Hypercom human resources director John Murphy
Hypercom human resources director John Murphy
Colleen Ryan Smith.
Leah Fasten
Colleen Ryan Smith.

Or, if you believe her lawyer, Hypercom tried to buy Smith's silence.

While this was unfolding in late 1997, the Hypercom human resources director assigned to investigate the case began writing Smith love letters and sending her gifts.

Smith was in the throes of a messy divorce. The company promised to pay her divorce lawyer's fees. To pay off her home mortgage. To put her two sons through college. The company vowed to ensure her alleged assailant would never repeat his actions.

All she had to do was sign a contract to keep her deal quiet. Smith says she had no problem with that. Though devastated by the assaults, she hadn't told Hypercom about them -- the company had come to her.

Colleen Smith signed the confidentiality agreement and continued working for Hypercom in a different department. The executive allegedly was "reprimanded" by the company's co-founder.

Hypercom's IPO in November 1997 was a rousing success, garnering the company $125.7 million.

Life went on. Then, one day in the summer of 1998, Smith overheard two fellow employees discussing the payoff she'd gotten, and her confidentiality deal. She hired a lawyer, then sued the company for violating the confidentiality agreement, and other misdeeds.

Hypercom countersued, saying that she had broken the secrecy deal and should be ordered to repay the company all the money it had paid her.

A Superior Court judge is hearing the case.

Colleen Ryan Smith answered the doorbell at her north Phoenix home late on Friday morning, October 24, 1997.

Two middle-aged men in business suits greeted her. One of the men, John Murphy, was Hypercom's human resources director.

Then 36, Smith was working for Hypercom, helping customers resolve complaints. Before that, however, she'd been the executive secretary to Jairo Gonzalez, then the firm's international president and a member of its board of directors. Gonzalez held Hypercom stock valued at about $8 million.

New at Hypercom, Murphy had known Smith for less than two weeks, but what a fortnight it had been. According to her account, Murphy had discussed the alleged attacks with her nine days before the two men came to her home. She says he told her he'd been assigned to investigate.

"He looked at me and he said, 'I know that he raped you,'" Smith told a psychologist in an interview on January 5, 1999. (Murphy denies saying this.)

"'I know about rape crisis and I know about the hospital. Do you want to tell me anything about it?' And I said nothing. . . . I couldn't imagine how [he knew]. I didn't know whether I wanted to admit it. I didn't know whether I could trust him. I didn't know whether he was a godsend. I didn't know if he was the devil.

"This is a powerful company . . . and I'm a little pea in this whole world, and I just thought, 'Oh, my God!'"

She says Murphy told her to stay away from Hypercom until he finished his investigation.

Jairo Gonzalez also was in his mid-30s. A short, compactly built man, he was known inside Hypercom as hard-driving, mercurial and arrogant. But he was making the company vast sums of money. (In fiscal 1997, which ended that June 30, Hypercom reported a $15.6 million profit on sales of $196.7 million -- about half of it through the international division.)

Though Gonzalez and his attorney, Rodney Johnson, declined to answer questions for this story, Gonzalez denies all wrongdoing, claiming in court documents that Smith has caused him "embarrassment, frustration, humiliation and emotional distress."

Joining Murphy at Colleen Smith's doorstep that morning was George Wallner, who founded Hypercom with his brother, Paul.

George Wallner, Hypercom's majority stockholder and chairman of the board, is a physically fit man in his late 40s who cuts an impressive figure. His exotic accent is a mix of his native Hungary and his first adopted country, Australia.

The Wallner brothers are the only two Arizonans who made Forbes magazine's 1998 list of high-tech's 100 wealthiest people. George is worth more than $100 million, Forbes reported; his brother has somewhat less.

George Wallner had a lot on his mind as human resources director Murphy excused himself and returned to his car to await his boss. It was a crucial juncture in the 20-year history of the company, which had started in Australia on a shoestring in the late 1970s and had grown into a dynamo.

Just three days hence, on Monday, October 27, 1997, Wallner and company planned to promote Hypercom's upcoming initial public offering of stock at a meeting of prospective Phoenix investors. The Wallners were to retain majority control of the company, but hoped to sell more than $100 million in stock. If things went as planned, the IPO would be one of the nation's largest that year.

Why would George Wallner spend part of his Friday at the home of a low-level employee?

"I was very concerned about how she was feeling," Wallner testified at a hearing on October 27, 1999. ". . . I felt that, as chairman, I should see what the actual situation was personally. I said [to Smith], 'Look, there are some very serious allegations here. If they are true, I am willing to go all the way to make sure that whoever is guilty is dealt with accordingly.' [She] was to be out of the influence of Mr. Gonzalez, out of the work area controlled by Mr. Gonzalez, and [the company would ensure] the safety and future of her children. She also expressed a very strong desire not to have things stirred up -- she wanted the whole affair to be forgotten. . . . She further commented that she felt very afraid of Mr. Gonzalez and she wanted protection.

"She repeatedly said that her main concern was the future of her children. I sympathized with her. . . . I said right at the outset that there is no way we would consider giving you cash. She repeatedly said she wanted to stay with the company. She wanted to work in an area where nobody knew anything about the affair, about the relationship with Mr. Gonzalez."

Smith faced Wallner with trepidation. She knew he and Jairo Gonzalez were good friends as well as colleagues, and that they coown a 53-foot sailboat, The Atlantica.

Her recollection of the meeting is similar to Wallner's: "Our conversation was if I wanted to press charges against him. He told me that [Gonzalez] had a problem. He appreciated my loyalty, and that he would make sure that Jairo got the help that he needed, and that he would make sure that it won't reoccur. . . . This was not to go outside this house."

Smith then still went by her married name of Muzzarelli. She was enmeshed in a protracted divorce from her husband, John, from whom she'd been separated since August 1996. Her two sons were all she had, she told Wallner.

Hypercom's boss told Smith he'd pay for her sons' college educations when the time came. He assured her that John Murphy's investigation would get to the bottom of things.

The month after the meeting at Smith's home was momentous for all concerned. Hypercom went public on November 14, and soon sold out its shares -- worth $125.7 million. Less than a week later, Smith and Wallner inked an agreement that was supposed to stay confidential.

It promised that Hypercom would "take appropriate steps to see that any prior inappropriate conduct [by Jairo Gonzalez] not recur and that Ms. [Smith] be free of any retaliation for having participated in the company's investigation of this matter."

The company also promised to pay off Smith's mortgage -- $89,000 -- and her divorce attorney's fees of $7,000. It gave her a $2,500 bonus. It promised to transfer her out of the international unit and "into a new, appropriate position within the Company."

Most important to Smith, however, was the following clause:

"Pay the reasonable costs incurred in providing a college education for Ms. [Smith's] two children."

That sounded great to Smith. Both of her children suffer from attention deficit disorder, and are likely to need special tutoring if they want to make it to college.

In return, Smith promised not to tell anyone -- and that meant anyone -- about her agreement.

She says she stuck to her end of the bargain for almost a year. Then, in September 1998 -- after, she says, she became aware that others at Hypercom knew of her secret deal -- she did discuss it, first with an attorney, then with her family.

Finally, she went public with a lawsuit.

The lawsuit lists Hypercom, Jairo Gonzalez and John Murphy as defendants. Her complaint and Hypercom's countersuit are being heard by Superior Court Judge Edward Burke.

Hypercom's attorneys have asked the judge to enforce the contract between the firm and Smith.

"It's as simple as a deal is a deal," Snell & Wilmer's Bill Hayden wrote in legal papers earlier this year.

And if a deal is a deal, the company's argument goes, and Colleen Smith broke it by talking, then she should have to return its proceeds -- including the mortgage payment and the attorney's fees. It would also mean Hypercom won't have to pay for the education of Smith's sons.

If the judge rules against Hypercom and sets a trial date, new details of an already remarkable and sordid case will emerge -- something the company surely doesn't want. Burke's decision is imminent.

The facts in the public record provide a rare, fascinating and often distasteful look inside one of Phoenix's largest companies.

Colleen Smith's novel case encompasses complex legal issues, human emotions and nagging questions. Among the questions:

Why didn't Smith report the alleged rapes to the police?

She says she drove to Thunderbird Samaritan Hospital in late September 1996, after the first incident, though the hospital has yet to produce records. She also says she spoke to a rape crisis hot-line counselor several times -- sources confirm this -- but balked at calling police for fear she'd lose her job, or that Gonzalez would harm her.

It's unclear why Hypercom has continued to tolerate Jairo Gonzalez. The firm paid another female employee $100,000 last year after she leveled her own allegations against Gonzalez of "sexual harassment and physical assaults." And, according to Wallner's testimony, a third woman also made assault allegations against him.

If Wallner is accurate, it's not because Gonzalez -- though a "highly effective" employee, in Wallner's words -- is essential to Hypercom's success.

"With or without Mr. Gonzalez, or with or without Mrs. [Smith], Wallner testified, "the company would be able to function just the same as before."

That statement seems disingenuous.

Hypercom summed up Gonzalez's value to the company in a 1997 annual filing with the federal Securities and Exchange Commission: "The loss of . . . Gonzalez could have a material adverse effect on the company's business, operating results and financial condition."

This case is unusual in that the company first approached the alleged victim, not the other way around. Even then, she never spoke to an attorney about her situation for almost a year after signing her agreement.

Hypercom officials say they went to Smith because it was the right thing to do. But Hypercom also had good reason to believe that the rape allegations and other alleged incidents involving Gonzalez and other Hypercom female employees might become public and jeopardize the IPO.

"Either Mrs. Smith was being recompensed for inappropriate conduct, whatever that may mean," Superior Court Judge Pendleton Gaines said during a related proceeding October 12, "[or] another interpretation of the agreement, frankly, is that the company may have been purchasing [her] silence."

(Several stock market experts contacted by New Times say savvy investors always scrutinize a company's senior management when making their decisions, and that confidence in the top guns can boost the price of shares. To the contrary, those experts say, such serious allegations against a key player such as Gonzalez likely would have made some investors rethink their choice.)

Smith's attorney, Larry Debus, told Judge Burke at an August 23 hearing, "The very reason that they are hustling this woman [Smith], the very reason they're attempting to deceive her, the very reason they're trying to keep her quiet and shut her up is so that they can go out for their $100-$200 million IPO, and once that's over, they don't care because they already got their money. . . . She was told daily, sometimes many times a day, that if she told her family, if she told her divorce lawyers, if she told anybody [about the agreement], she was going to lose everything."

Smith says John Murphy, the human resources director, kept telling her that.

Consider that Murphy, charged with investigating rumors of Jairo Gonzalez's aggression, never bothered to interview Gonzalez before concluding the sexual episodes likely had been consensual.

Worse yet, Murphy himself tried to cultivate a romantic relationship with Smith -- during and after he completed his "investigation." He spoke to her several times each day on the phone, and showed up unannounced at her home. He showered her with letters, cards, flowers and gifts. He took Smith and her sons to a hockey game, then to a charity dinner.

"If I sign this letter the way I would like to, you would probably go get a gun and shoot me, so I'll sign it, Affectionately Yours, John," Murphy wrote on November 5, 1997, three weeks after he'd met Smith.

"P.S. Your presence in the building, especially in the pink outfit, has not gone unnoticed by all the young men and (one old guy!!!) You look great!"

Smith says she trusted Murphy at first: "He was my savior. I truly believed that at the time. He was there to help me. . . . He had my entire life in his hands for a period of three weeks, possibly. He knew everything about me. He was the only person I could cry to. He was the only person that understood what I was going through. And for that I thanked him."

Later, however, "when he was starting to rub my neck and buy me flowers and gifts," she worried "that Hypercom had set him up to see if I would . . . go out with him, see him, have a relationship with him."

Murphy testified, "I wanted to show her that she could have an executive friend at work who really cared for her and her two boys, and that we could be friends."

Regardless of Murphy's motives, the fact that he engaged in this behavior at all is baffling.

"I'm having a hard time understanding why a director of human resources would be giving gifts," Judge Burke told Murphy at last month's hearing. ". . . Why is that not harassment, buying a subordinate gifts while doing an investigation?"

Murphy responded that he was just trying to be Smith's friend.


Colleen Smith is a feisty woman who is fast on her feet. She's a born mimic who honed her sense of humor as the youngest of five siblings -- the others are boys -- in her native San Angelo, Texas.

But her life has not been easy. Smith has suffered from recurring bouts of depression, an unhappy marriage and the indignities of working for Jairo Gonzalez.

She got married in her early 20s to John Muzzarelli, then a production manager for such musical acts as Elton John and Cheap Trick. In the early '90s, the couple moved to Arizona, where they planned to raise their two young sons.

By 1995, Smith says, her marriage was on the rocks. She felt the need to return to the workplace after eight years as a homemaker. That September, she went to work as a "temp" for a firm that sent her to Hypercom.

There, she worked for months as a receptionist for $6 an hour. One day in early 1996, she recalls, someone in human resources -- not John Murphy -- asked her if she'd be interested in becoming "personal assistant" to Jairo Gonzalez, the new president of the international division.

Gonzalez recently had moved to the Valley from Miami, where Hypercom also maintains offices. His rise inside the company had been meteoric, culminating in his election as vice chairman of the board of directors and the international presidency.

Though records indicate he was born in the United States, Gonzalez spent much time in Colombia. His multicultural background helped him pitch Hypercom products in Latin America.

Smith says her interview for the position was brief.

"He said, 'I've been known to be an asshole. Do you have a problem with an asshole?'" she recalled. "And I said, 'Depending.'"

Gonzalez hired her at $25,000 per year, which was a lot of money to her at the time. But she earned that money the hard way. Gonzalez routinely berated his subordinates, and Smith often was in his line of fire.

Smith says she experienced another unpleasant side of Gonzalez after a conference at the Embassy Suites. There, she says, Gonzalez was complimentary about the job she'd been doing. Then, he tried to kiss and caress her, though Smith says she rebuffed his advances.

Smith told another Hypercom employee, Maryanne Lawson, what had happened. She says Lawson advised her that Gonzalez was very important to Hypercom, and advised her to try to steer clear of him in social settings. (George Wallner confirmed on the witness stand last month that Lawson herself also accused Gonzalez of physically assaulting her, though the time, location and extent of the assault are unknown.)

Smith and her husband separated in August 1996. The following month, she says, Gonzalez raped her at a home Hypercom leased on East Greenway Road. She says she'd gone there to retrieve the belongings of a visiting Hypercom engineer who was about to undergo emergency heart surgery.

From her sworn affidavit of March 25, 1999:

"I went to the house, entered with a key that had been provided to me, and found Mr. Gonzalez waiting there drunk, angry and aggressive. He overpowered me, forced me to a backroom, threw me on the bed, forcibly removed my pantyhose, and brutally sodomized me. I pleaded with him to stop to no avail. As soon as I was able to escape Mr. Gonzalez, I left the house."

Smith says she called an operator on her car phone and asked for a rape crisis agency. A counselor urged her to go to a hospital, and she did -- to Thunderbird Samaritan, where she earlier had taken the sick engineer.

She says a doctor examined her in the emergency room and treated her for lacerations. But Smith wouldn't allow the doctor to use a "rape kit" -- which preserves evidence -- after he told her that would require him to call the police.

Smith says she went to the then-head of human resources the next day to ask for a job transfer. Again, from her affidavit:

"I did not tell him what had happened the night before for a number of reasons; I could ill afford to lose my job since it was the first job I'd had in eight years. . . . I was in the midst of an acrimonious divorce -- my husband was seeking custody, was not working, and was paying nothing towards our support. I was again told . . . that Mr. Gonzalez was extremely important to the company, that it would be 'political suicide' for me to transfer. . . . He further instructed me that I should go along with whatever Mr. Gonzalez needed me to do."

Smith says she told Maryanne Lawson -- then Hypercom's director of international marketing and another of Gonzalez's alleged victims -- about the rape a few days later. (Smith says Lawson never confided in her about her own experiences with Gonzalez, though she suspected something had happened. Lawson could not be reached for comment.)

Hypercom transferred Smith to an almost-completed warehouse on Deer Valley Road. Her job was to organize the new facility for its January 1997 opening.

Smith wasn't working directly for Gonzalez anymore -- she actually was working for his father, Jairo Gonzalez Sr., whom she says treated her respectfully. But when the elder man started to ask her to run errands for his son, she says she again complained to the human resources director, to no avail.

One of those errands in early September 1997 was to go to Gonzalez's home on East Orangewood to tell a housekeeper what to pack for his pending move to another residence. The housekeeper was there -- Smith's attorney says the maid will testify if the case goes to trial -- but Gonzalez sent her on errands. While the woman was gone, Smith alleges, Gonzalez raped her again.

"I returned to the warehouse in a near catatonic state and tried to block out the entire incident," she recalls.

The third alleged rape happened later that month, at a north Phoenix residence that Hypercom had leased for Gonzalez. Smith says Gonzalez had been overseas, and she'd been assigned to get the residence ready for him. When he returned, however, he told her to come over and show him how to use the security system.

She says she obeyed him.

"I was terrified, and I can't believe I did that," she says. "It was like I was out of my mind. I was hoping he wouldn't be there, and when he was and started doing his thing and he overpowered me, I just let him. I didn't fight, and I didn't tell anyone afterward."

Two facts about sexual assaults:

One-on-one cases are notoriously difficult to prove in court.

And a litany of studies show that many women don't report rapes, especially in the workplace. Tascha Boychuk, a nurse and forensic interviewer who testified for Smith at the recent hearing, told Judge Burke that women often keep quiet to survive economically, and to avoid having to reveal their guilt and shame.

Boychuk added, "It would not be inconsistent for [Smith] to have a variety of feelings" for Gonzalez, even though he allegedly had brutalized her.

Though Smith's mental condition was fragile at best -- "I'd cry constantly when my boys weren't around, and I was a total mess," she says -- she resolved to try to go about her business.

In mid October 1997, John Murphy came into her life.


John Murphy has been in the human resources field for three decades, including a 16-year stint with IBM.

A native of New York City, Murphy is a tall, friendly man who wears a sincere expression that befits his job. He took the job as Hypercom's vice president of human resources in August 1997, and moved to Phoenix from the East Coast after going through his own divorce.

His first major task at Hypercom was daunting: Then-company president Al Irato assigned him to look into allegations against the powerful Jairo Gonzalez, and to start with Colleen Smith.

The investigation seemed to have been sparked by a presentation on the upcoming IPO that Hypercom's corporate counsel, Peter Stutsman, had given a few weeks before. Stutsman told the gathering that the company planned to improve the workplace.

One of those attending was Ruth Rodriguez, who in 1997 was Hypercom's international marketing manager. Rodriguez testified at the recent hearing that she'd asked Stutsman if workplace reforms would include upper-level executives. That led to a discussion of Jairo Gonzalez. Gonzalez hadn't physically molested Rodriguez, but she told Stutsman of his vile temper and unreasonable demands.

Rodriguez also said she knew of several alleged "inappropriate" incidents involving Gonzalez and female employees, including Colleen Smith. (She didn't testify about how she came upon such information.)

Rodriguez recalled that the phrase "class-action lawsuit" came up during her conversation with Stutsman.

This was not good news for Hypercom. The last thing the company needed in the critical days before the IPO was bad publicity, or a lawsuit. Maybe, as George Wallner suggests, it wouldn't have had any effect on the IPO. But maybe it would have, and that was not a risk Hypercom was willing to take.

Stutsman delivered the information to the company's big shots. John Murphy spoke to Ruth Rodriguez.

His version of the conversation: "Ruth told me that she had heard rumors about Colleen and Jairo Jr., and that she thought somebody ought to look into those rumors and see if she had been fairly treated."

Rodriguez's version: "He kept saying that, because of the IPO, that we'd have to work on it, and it would have to be investigated. But nothing really was happening. He kept saying that it could get out."

And what had Murphy been worried about getting out? "The situation with Jairo."

Yet Rodriguez apparently never told Colleen Smith that she'd told company supervisors of her suspicions.

Colleen Smith says she felt paralyzed during her first lunch with John Murphy, on October 15, 1997, at Andy's Family Restaurant. She couldn't figure out how he knew she'd been raped.

Murphy told her to go home until further notice and not to tell anyone what was happening, that he'd take care of things.

A few days later, Smith says, Jairo Gonzalez called her from London at 3 a.m., Arizona time, and implored her not to say a word about their "relationship" to anyone.

She says, "And I told him on the phone, 'Relationship? What relationship?'"

Murphy began his investigation from a distinct disadvantage. He testified that George Wallner himself instructed him not to interview Jairo Gonzalez, the target.

That goes against a basic tenet of human resources investigation, as discussed in a special report published by HR Executive magazine.

"You will also need to interview the person being investigated to determine his or her side of the story," the author notes. ". . . In certain situations, it may be necessary to retain someone outside the company to conduct the investigation, to ensure the necessary objectivity to investigate a complaint against a high-level executive."

None of the management handbooks perused by New Times bother to warn human resources professionals not to get emotionally involved with the subjects of an investigation. That's considered a given.

Whatever had happened to Colleen Smith, she hadn't asked for this investigation and was in a vulnerable spot.

Murphy began to call her day and night, and showed up often at her house. One night, he took Smith and her sons to a Phoenix Coyotes game, sitting in Hypercom's excellent seats and buying the boys team memorabilia on the company's dime.

One late evening, Smith got home after eating out with a girlfriend and found several phone messages from Murphy.

"It was, 'Where are you? Are you okay?'" she recalls. "I was in a funk and I told him so. My kids were at their dad's. He asked if he could come over, and I said okay."

Murphy recalled the evening this way in a deposition:

"She was talking about perhaps taking her life and she was very upset. . . . And I was concerned that she would do something rash, as upset as she was over the telephone. . . . She didn't know she would be able to get through this, was very upset, kept crying. I thought the most prudent thing immediately was to get there and see if I could either help her or get her to go somewhere."

Murphy left after a few hours, as Smith -- who still was on paid leave from Hypercom -- tried to regroup.

One part of her was suspicious of Murphy.

"All this time I have worked for this company and no one has ever acknowledged anything that I've ever done," she says. "Now, all of a sudden, I am princess of the ball or something here. . . . He's being a little handsy, patting me on the back with that, 'Not to worry, sunshine,' you know, playing with my hair kind of thing."

But another part of her wanted to believe in him, despite growing signs that he had romantic designs. Smith says Murphy asked her to go to the movies, or to grill some steaks at his apartment, but she declined.

Eventually, she told him that Jairo Gonzalez had raped her.

"Did you believe her, sir, while she was telling you this?" Smith's co-counsel, Jerry Busby, asked Murphy during his deposition.

"At that moment, yes, I did," Murphy replied.

"Do you still believe her?"

"No."

Murphy said he had ended his investigation after "I had done as much as I could to find out what had really happened between these two individuals. . . . I concluded that there had been an affair, and that these people had been lovers. . . . And the reason I believe that is because all through the investigation, she told me she did not want anything to happen to Jairo."

Not surprisingly, George Wallner agreed with Murphy's conclusions. He testified last month that he'd called Gonzalez shortly after he'd met with Smith at her home on October 24.

"I wanted to hear his side of the story," Wallner told Judge Burke. "I had strongly reprimanded him for getting involved in the first place. I reprimanded him for the style which he was generally dealing with his employees. I had forbade him any future contact with Mrs. [Smith] and . . . I instructed him not to come to Phoenix for the next three months. I felt there was a relationship between the two of them that was not really beneficial for the business. I knew that Mrs. [Smith] had an affair with Mr. Gonzalez -- a private affair."

Despite this, Murphy broached the idea of a settlement with Smith a few days before he and Wallner went to her home.

She steadfastly insisted on two key items -- that Hypercom pay for her sons' college educations (and, she says she believed, tutoring to help the boys get into college), and assurances that company officials would rein in Gonzalez.

As Thanksgiving 1997 approached, Murphy pressed Smith to agree to the settlement. He told her that Hypercom had agreed to send her and her children to her hometown for the holiday, not an inexpensive venture, and he threw in a free rental car.

Colleen Smith signed the document November 20, 1997 -- a few days after Hypercom's long-awaited IPO sale started. Wallner signed it the next day.

If Hypercom officials had been so convinced that Smith hadn't been raped, why did the company agree to pay off Smith's $89,000 mortgage?

"I felt the truth lied somewhere in between. . . ." George Wallner testified. "We bore of the responsibility."

The key part of the agreement from Hypercom's point of view was the confidentiality section: "If a court of competent jurisdiction determines that Ms. [Smith] has violated the covenant of confidentiality, the company will be relieved of any ongoing obligations. . . ."

Smith did not consult an attorney about her agreement before signing it. Hypercom used in-house counsel as well as the blue-blood firm of Snell & Wilmer to craft the paperwork.

A June 1, 1999, severance agreement between Hypercom and one of its top executives also included a confidentiality clause. It, however, added, "The company advises [the employee] to consult with an attorney prior to executing this agreement."

Colleen Smith was afforded no such advice. She says she believed the confidentiality agreement encompassed even her own divorce attorney, James Leather -- who confirmed at the recent hearing that Smith hadn't told him about it.

(Murphy had become so involved in Smith's life that, on November 12, 1997, he went with her to Leather's office. "He was so attentive," Leather testified, "I thought that maybe he was her boyfriend -- or a friend at work. As I recall, they sat very close to each other. He was doing almost all the talking, very interested in all the [divorce] proceedings.")

Smith flew to Texas at Thanksgiving, she says, hoping that this would spell the end of her nightmare.

Though the IPO was finished and the confidentiality agreement signed, Murphy continued his pursuit of Smith. He sent yellow roses to her parents' home in Texas, followed by a centerpiece the next day.

The attention vexed Smith, who let Murphy know about it. He responded in a December 6, 1997, handwritten letter. After apologizing for any embarrassment he might have caused, Murphy wrote:

"I would never touch you in lust or anger and I never have done that to any woman. . . . I'll always be there for you and if you need anything, anytime, just call. Friends do that. No more moral judgments either."

The human resources director closed by saying, "You'll find younger and I'm sure you'll find a more handsome guy, but I'm not sure you'll find a better man. Love, John."

Three weeks after his "never find a better man" letter, Murphy became engaged to marry another Hypercom employee. The pair got married in February 1998.


In 1998, Colleen Smith went to work as an assistant to Hypercom's then-chief financial officer Thomas Linnen. She says Linnen was a gentleman and easy to work for, a welcome change from Jairo Gonzalez.

She occasionally saw Gonzalez in passing, but that was the extent of it. Her divorce was nearly completed, and she was dating an Alaska Airlines pilot named Rick Smith who was treating her nicely.

That summer, however, Smith says she was in the ladies' room at Hypercom and overheard two women talking about her.

"They were talking about my agreement," she says, "and what a fool I was to sign something that wouldn't pay off [the college education component] for 10 years. I was flabbergasted. I hadn't talked about this to anyone. But everyone seemed to know that Jairo had done something to me and the company had made this deal with me. I was starting to feel like I was over my head again."

Within a few days, Smith says, her youngest son told her by phone about a message that a man had left:

"My kid tells me, 'Mom, what does it mean that you didn't have the balls to stand up to them, and that if you had, my wife wouldn't have been hurt?'"

The message came from the husband of Ali Bistick, an ex-Hypercom employee who succeeded Smith as Jairo Gonzalez's assistant.

Within a day, Smith says, she got another message, this one from an attorney representing the Bisticks.

According to Smith, the attorney told her, "'We know that you've had an incident with [Gonzalez], and we know that they settled with you, and he's conducted the same behavior on [Ali]. She is in very bad shape and she needs your help."

Though Bistick didn't testify at Smith's recent hearing -- she was due to give birth the day after it ended -- Larry Debus avowed in legal papers that she would say:

"While in Florida and in Arizona, [Ali] was verbally and physically abused (sexually) by Jairo Gonzalez. That one such physical abuse occurred in Arizona in 1997. That her complaints about the sexual harassment and physical assaults of Jairo Gonzalez resulted in her entering into a settlement with Hypercom and Gonzalez."

Bistick accepted a $100,000 check for her troubles, George Wallner testified at the hearing, though he said he'd disagreed with the decision to settle.

"Ali told me Jairo Gonzalez had done nothing to her," Wallner said, adding she'd told him, "'I'm an Hispanic woman -- I would have scratched his eyes out.'"

Smith says she asked John Murphy what was going on after she got the troubling phone messages.

"'Settle down,'" she recalls him telling her. "'It's nothing to worry about. We are going to settle with Ali, even though we know there's no reason to -- for your privacy, because we have promised you that. Your loyalty, blah, blah, blah.' I said, 'Well, you know what? They're talking about it in the ladies' room.'"

Murphy told Smith to take the rest of the day off.

"I took the afternoon off, all right. I went right to the Yellow Pages and found a lawyer."

In September, that attorney sent Hypercom a demand letter on Smith's behalf. The company responded with a counteroffer: If Smith wouldn't sue, Hypercom would pay her $45,000 plus benefits for a year's "sabbatical." The firm also would put $120,000 into the still-unfunded educational trust program for her sons -- or would cut her one check for $120,000.

Smith rejected the offer. On September 23, 1998, George Wallner signed a letter authorizing the same deal, except he dropped the offer to $100,000 instead of $120,000.

Wallner gave Smith less than a day to sign. Again, she didn't. That marked the end of settlement negotiations.

Smith later hired Larry Debus, a noted criminal-defense attorney now trying his hand in the civil arena, to represent her. He and co-counsel Jerry Busby have been doing battle against Snell & Wilmer's team of attorneys, led by Lonnie Williams. (As named defendants, John Murphy and Jairo Gonzalez have their own attorneys.)

Despite his dubious behavior toward Smith, John Murphy seems to be doing well at Hypercom. Around the time he was courting Smith in late 1997, the firm promoted Murphy to a newly created position of senior vice president of Human Resources and Administration. That's his job today.

Jairo Gonzalez's star at Hypercom may be on the wane. He didn't run for reelection to the board of directors. The official explanation in Hypercom's notice of its annual meeting -- which was to have been held Tuesday, November 16, at the Embassy Suites-Biltmore: "He felt he needed to devote his fulltime efforts to his current job responsibilities with Hypercom."

On July 1, Gonzalez became Hypercom's managing director of global sales and marketing. Industry sources say the new position is a demotion from his previous position as president of the international division.

Hypercom fired Colleen Smith earlier this year, after alleging she'd stolen a computer terminal from them. (The facts surrounding the alleged theft are controverted.)

Smith says she's still occasionally plagued by depression, but feels better about herself than she has in a long time. She gives her children and her new husband -- Rick Smith, the airline pilot -- much of the credit.

"I didn't ask for any of this, believe me," she says, "and I'm not happy it happened. But now that I've read the paperwork, and sat in court, and heard their crap, you know something? I think Hypercom and Jairo Gonzalez deserve each other."

Contact Paul Rubin at his online address: prubin@newtimes.com

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