(Updates with lawyer’s comment in fourth paragraph. For more news on the hacking scandal, see EXT3 <GO>.)
July 29 (Bloomberg) -- The FBI is in the initial stage of a probe of News Corp. as investigators evaluate whether U.S. charges can be brought over claims employees hacked into a rival’s website and sought access to phone records of victims of the 9/11 attacks, a person familiar with the matter said.
The Federal Bureau of Investigation will let Scotland Yard take the lead on a parallel investigation already under way in Britain, said two law-enforcement officials familiar with the matter.
The bureau isn’t planning to mount an aggressive investigation into allegations that News Corp.’s payments to U.K. police officers a decade ago violated a U.S. overseas bribery law, said the officials, who didn’t want to be identified because they aren’t allowed to discuss the U.S. Justice Department’s investigation.
“If the conduct largely relates to payments made to the U.K. police, it is quite probable that the U.S. would defer to the strong enforcement regime in the U.K.,” said Angela Burgess, a partner at the law firm Davis Polk & Wardwell LLP in New York. “If there are U.S. victims or a greater U.S. nexus, a broader U.S. investigation is more likely.”
In the U.S., Manhattan federal prosecutors have joined the inquiry into allegations that News Corp.’s American marketing arm hacked a password-protected website at Floorgraphics Inc., an attorney for Floorgraphics said.
William Isaacson, a lawyer at Boies, Schiller & Flexner LLP who represented Floorgraphics at a 2009 civil trial against News America Marketing In-Store Services, said two Manhattan prosecutors participated in his July 18 interview by the FBI. 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 in a telephone interview. One of the prosecutors identified by Isaacson works in the office’s public-corruption unit, while the other works in the complex-fraud unit, according to a personnel directory in the federal courthouse in Manhattan.
Allegations of phone hacking at the now-closed News of the World newspaper in the U.K. have led to the arrest of at least 10 people, 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.
The furor led to News Corp.’s dropping a takeover bid for British Sky Broadcasting Group Plc and prompted Cameron to start an inquiry.
The FBI is pursuing 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 attacks that destroyed the World Trade Center in Manhattan.
U.S. investigators are attempting to identify any victims, evaluating whether there is enough evidence to bring any federal charges and if the alleged crimes in the U.S. took place too far in the past to be prosecuted, said the person familiar with the probe related to the Sept. 11 attacks, who declined to be identified because the matter isn’t public.
The probe into the illegal phone records access is in the most preliminary stage, the person said.
News Corp. chief Rupert Murdoch told U.K. lawmakers last week that he has “seen no evidence of these allegations.”
News Corp.’s New York Post told employees to retain files related to any attempts at unauthorized access to third-party data, or illegal payments to government officials in an effort to obtain information, according to a memorandum reproduced on The Poynter Institute’s Romenesko Web site.
Teri Everett, a spokeswoman for News Corp., didn’t immediately return a call seeking comment on the memorandum or the federal probe of the company.
Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, declined to comment on a U.S. investigation. Alisa Finelli, a Justice Department spokeswoman, also declined to comment.
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 immediately comment on the participation of Manhattan prosecutors in the Floorgraphics probe.
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 phone 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.
“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 in a statement last week.
“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.”
This month, U.S. Senator Frank Lautenberg for New Jersey called for U.S. Attorney General Eric Holder to investigate the possibility that payments to U.K. police could be considered a violation of the Foreign Corrupt Practices Act, which forbids U.S. companies from paying bribes to officials of foreign governments. On July 15, Holder confirmed the existence of an “ongoing investigation.”
Some lawyers question whether the law, used primarily to punish bribes to obtain business, would apply to paying police officers for information.
“The FCPA is not a global statute governing all corrupt activity in the world,” said Steven Peikin, a former federal prosecutor now at Sullivan & Cromwell LLP.
“It would seem to me that if you’re paying off a police official to obtain information, that would be a stretch,” he said. “It’s not the heartland of conduct that the FCPA was intended to reach.”
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).
--With assistance from Tom Schoenberg in Washington and David Voreacos in Newark, New Jersey. Editors: Peter Blumberg, Andrew Dunn
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