News Corp. Probe Now Includes Manhattan Prosecutors, Rival’s Lawyer Says

Manhattan federal prosecutors joined a U.S. inquiry into allegations that News Corp. (NWSA)’s American marketing arm hacked a rival’s password-protected website, an attorney for the competitor said.

William Isaacson, a lawyer at Boies, Schiller & Flexner LLP who represented Floorgraphics Inc. at a 2009 civil trial against News America Marketing In-Store Services, said two Manhattan prosecutors participated in his July 18 interview with the Federal Bureau of Investigation. In its lawsuit, Floorgraphics, now based in Hamilton, New Jersey, claimed News America employees hacked into its website in 2003 and 2004.

“They wanted to know what the case was about,” Isaacson said today in a phone interview. One of the prosecutors Isaacson said he spoke with works in the office’s public-corruption unit, according to a document posted in the federal courthouse in Manhattan. The other works in the complex-frauds unit, according to the document.

News Corp. is dealing with three probes by police and regulators into phone hacking at the now-closed News of the World newspaper in the U.K. At least 10 people have been arrested, including Rebekah Brooks, a former chief executive officer of News Corp.’s News International unit, and ex-News of the World editor Andy Coulson, who was Prime Minister David Cameron’s press chief until January.

Takeover Bid Dropped

The furor led to News Corp.’s dropping a takeover bid for British Sky Broadcasting Group Plc and the setting-up of an inquiry by Cameron.

Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, declined to comment on a U.S. investigation. Bharara’s office regularly investigates allegations of white- collar crime that cut across state and international borders.

Suzanne Halpin, a spokeswoman for Wilton, Connecticut-based News America, declined to comment on the participation of the Manhattan prosecutors. Tim Flannelly, a spokesman for the FBI’s New York office, declined to comment on the agency’s investigation.

The FBI is also probing a claim that News Corp. reporters unsuccessfully tried to get a former New York police officer to obtain phone records of victims of the Sept. 11, 2001, terrorist attack that destroyed the World Trade Center in Manhattan.

News Corp. Chairman Rupert Murdoch told U.K. lawmakers last week that he has “seen no evidence of these allegations.”

Preliminary Inquiry

Isaacson said he fielded questions from two Manhattan assistant U.S. attorneys and an FBI agent in what appeared to be a preliminary inquiry. His telephone interview with the prosecutors and FBI agent came on the same day that press reports appeared about the Floorgraphics lawsuit, he said.

In its lawsuit, which was tried in federal court in Trenton, New Jersey, Floorgraphics accused News America Marketing of stealing business by hacking into its secure website 11 times from October 2003 to January 2004 and through other means. At the time, Floorgraphics sold floor advertising in grocery stores.

At the trial, a News America Marketing lawyer acknowledged that his client’s computers were used to access Floorgraphics’ site. Six days into the trial, News America Marketing entered into what its lawyer called a “series of business arrangements” with Floorgraphics, part of which involved a $29.5 million payment and an agreement to buy Floorgraphics’ assets, according to court records.

Floorgraphics agreed to dismiss the case.

Site Was ‘Available’

“This site was available to hundreds, if not thousands, of Floorgraphics retailers, representatives of consumer packaged goods companies and Floorgraphics employees,” Halpin, the News America Marketing spokeswoman, said last week in a statement.

“There is considerable employee movement within this industry, and we believe it was someone with an authorized password” who was using a News America Marketing computer, she said. “News America Marketing condemns such conduct, which is in violation of the standards of our company.”

The Floorgraphics civil case is Floorgraphics v. News America Marketing In-Store Services Inc., 04-cv-03500, U.S. District Court, District of New Jersey (Trenton).

To contact the reporters on this story: David Glovin in federal court in New York at dglovin@bloomberg.net; Patricia Hurtado in federal court in New York at pathurtado@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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