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What's the Deal With News Corp's Other, U.S.-Based, Hacking Scandal?


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By: Braden Goyette, ProPublica

ProPublica, July 22, 2011, 3:20 p.m. - After testifying before the British Parliament this week, Rupert Murdoch returned to the United States to be greeted with more bad news: The Justice Department is opening up an inquiry into allegations of computer hacking [1] by News Corp's American advertising wing, News America Marketing. The New York Times' David Carr revisited News America's troubled history with "anti-competitive behavior" [2] in a column on Monday. On Wednesday, New Jersey Sen. Frank Lautenberg wrote to Eric Holder [3] calling for a federal investigation into the hacking claims, pointing back to a similar request he had made back in 2005.

What's this other hacking scandal all about?

News America was accused in a 2009 lawsuit [4] of hacking into the computers of one of its competitors, Floorgraphics Inc., to steal detailed information about their sales, clients and finances. Floorgraphics said they first realized they were being hacked in 2004, when they discovered intrusions from computers with IP addresses registered to News America. The company claimed that their information was accessed at least 11 times over four months and that they started losing important clients to News America shortly afterward, leading to a round of layoffs.

There was an FBI investigation into the hacking allegations in 2004 [1], but it didn't end up going anywhere.

Why would News America want to do that?

News America and Floorgraphics Inc. both provide services for clients to promote their products in grocery stores.

According to court testimony [5] from one of the founders of Floorgraphics, George Rebh, News America CEO Paul Carlucci expressed interest in buying the company years before the hacking incident. Carlucci then threatened them after Floorgraphics declined. From the Guardian: [6]

According to transcripts of a trial that took place 10 years after the lunch, the Rebh brothers were astonished. No, they replied, they only wanted to talk about working together and had no intention of selling. George Rebh told the jury that Carlucci then said: "From now on, consider us your competitor and understand this: if you ever get into any of our businesses, I will destroy you. I work for a man who wants it all, and doesn't understand anybody telling him he can't have it all."

News Corp later denied that Carlucci had said this.

Has News America been caught up in any other similar lawsuits?

News America was involved in lawsuits with two other competitors, Valassis Communications and Insignia Systems, who accused News America of engaging in predatory business practices and violating U.S. antitrust law. These cases didn't involve hacking. News Corp settled with Valassis for $500 million [7] and with Insignia for $125 million [8].

How did the Floorgraphics lawsuit end?

News America settled out of court with Floorgraphics for $29.5 million [9] a little over a week into the trial and then bought the company [10] within the same week.

What happened to the guy who was running News America at the time of this alleged hacking?

Paul Carlucci is now the publisher of the New York Post and is still the CEO of News America.

What does this have to do with the phone hacking scandal in the U.K.?

Nothing so far, but journalists are latching onto it as a window into News Corp's overall culture. The New York Times' Carr has pointed out that there are interesting parallels in terms of how News Corp moved quickly to settle out of court, ensuring that evidence remains sealed and plaintiffs can't talk.

So, wait; how many investigations into News Corp are going on in the United States?

There are three. The Justice Department is currently investigating claims that News Corp hacked into Floorgraphics' computers. The FBI has begun investigating claims that Murdoch papers attempted to hack into the phones of 9/11 victims. Separately, the Department of Justice is looking into the alleged bribes [11] Murdoch papers paid to British police. Fortunately for News Corp, they've got former federal prosecutors on their side [12]. (Here's our earlier story explaining why the United States is getting involved over bribes made abroad [13].)

Did Murdoch papers hack into the phones of 9/11 victims?

We really don't know. That accusation originated from a story in another British tabloid, The Daily Mirror, that cites an unnamed ex-NYPD officer as its main source [14]. The FBI inquiry came in response to calls from politicians [15], and not because any incriminating evidence has been found.

 

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