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My SmartMoney.com column today: The Hewlett-Packard boardroom spying scandal has now reached a new and dangerous phase. This week California Attorney General Bill Lockyer obtained arrest warrants for former H-P Chairman Patricia Dunn and four others alleged to be involved in the plot.

I happen to know Patricia Dunn quite well. Pattie may be a jerk, but she's probably not a crook. More important, if I were an H-P shareholder, at this point I'd just want the cops to stay the heck out of things and let the company get on with its business.

I worked side by side with Pattie for 11 years at Barclays Global Investors. Pattie is a brilliant saleswoman and a gifted manager, and I'm grateful for having been her colleague.

That said, I've also seen her dark side. When I left Barclays, one of the knives in my back was Pattie's. Machiavelli wears Prada.

One of Pattie's knives was probably in the back of former H-P CEO Carly Fiorina, too. Pattie played a key role in Fiorina's firing, and became chairman when Fiorina was ousted. The queen is dead. Long live the queen. That's the way the game works.

So it's no surprise to me to hear that Pattie masterminded a scheme to spy on her own board of directors. Extreme? Yes. Distasteful? Yes. Bad business? Yes.

And yes, there's a part of me that is glad to see Pattie blow herself up. But this kind of corporate rough-housing isn't a crime. People get hurt, but in business that's all part of the game -- and everyone who plays expects it.

Between companies, the idea is to put your rival out of business if you can. Within companies, the idea is to elbow ahead of the other guy to get to the head of the board table.

Business is not a democracy, it's a jungle. And thank goodness. The freedom of American business to compete with itself and with global rivals, and for American corporate executives to compete with each other for power and riches, is what makes our economy the strongest in the world.

Still, there are laws against fraud and identity theft. And those are what Pattie stands accused of breaking.

But let's be clear about a couple of important points. First, Pattie and the others are not accused of any wrongdoing aimed at consumers. The fraud and identity theft in question were targeted against H-P's own board members, and against media reporters who covered H-P. And even there, the purpose was not to steal money or make fraudulent credit-card purchases or all the usual scams -- it was to discover who was leaking corporate information to the press.

I don't have a lot of sympathy for the victims here. They chose to play the dangerous game of corporate power-seeking -- they were well compensated for it and shouldn't be too shocked by what happened to them.

Business reporters are part of the corporate power game, too. And besides, if some investigative reporter had used the same shady techniques to get information for a story, he wouldn't be prosecuted for it -- he'd win a Pulitzer Prize.

Second, Pattie has claimed that she wasn't aware that illegal methods were being employed. Reading the arrest warrant, it's not at all clear to me that Attorney General Lockyer can prove that she was.

What is clear from reading the arrest warrant is that an act that took place within the special rules of corporate gamesmanship is now being treated like down-and-dirty street crime. Because of this warrant, Pattie is going to be fingerprinted, have her mug-shot taken, the whole nine yards -- as though she were a rapist or a drug dealer. I'm not convinced she deserves that kind of treatment.

From what I can tell, the reality here is that this is another case of self-promoting government prosecutors and sensation-seeking reporters ganging up on a successful businessperson, pandering to the public with the persecution of someone who can be portrayed as a wealthy corporate criminal.

This isn't Lockyer's first high-profile prosecution built on evidence that's less than solid. Just before issuing the warrant for Pattie, he announced that the State of California will be suing the top six American and Japanese auto makers for causing global warming.

Is there really any evidence -- that a courtroom would accept, that is -- global warming is even happening? If there is, is there any evidence that automobiles caused it? But if you're the attorney general, and someday you want to be governor, it costs you nothing to file a lawsuit. Never mind that it will cost millions upon millions for the auto makers to defend themselves. And never mind that the attorney general's time could be better spent tracking down rapists and drug dealers.

Think of the headline-grabbing cases against businessmen brought by New York Attorney General Eliot Spitzer. By publicly threatening companies with criminal prosecution, he was able to coerce some spectacular monetary settlements. But every time Spitzer met a victim who wouldn't just roll over -- someone who had the courage to take it all the way to a jury trial -- Spitzer has lost.

Think of the case of Frank Quattrone, another California businessman whom I know personally. Frank, an investment banker, had to endure no less than three separate trials on federal charges arising from his management of high-tech initial public offerings during the "bubble" stock market of the late 1990s. Finally, after expending millions of dollars and five years of his life defending himself, Quattrone has been exonerated.

For investors, the real story here may not be the tawdry tale of Pattie's little corporate intrigues. It's the larger story of the way over-reaching prosecutors are making it harder and harder for companies to find good executives to lead them. And the risk that Congress will pass some new law, like Sarbanes Oxley, that'll impose huge costs on all businesses because of the infractions of a very few.

The best thing to come out of this whole mess is that with Pattie out of the way, Mark Hurd, the supremely talented executive who has been H-P's CEO, is now its chairman, too. If Hurd can stay out of Bill Lockyer's clutches, then H-P may actually have a chance to once again be a great company.

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