IN DEPTH: The $1bn News Corp. scandal the Murdochs are DESPERATE to bury PART 2/4
By Dan Evans
Founding Editor
FOR A WHILE in the mid noughties, News America’s computer hacking activities elevated its battle of businesses with FloorGraphics into a Federal affair.
Both the FBI and US Secret Service launched investigations into the shadowy goings on at Rupert Murdoch’s little known in-store ads company.
The attention of such serious instruments of state had potential to cause problems for the higher-ups at NAM – including Paul V. Carlucci, the charismatic and pugnacious Italian-American CEO whom Murdoch held dear for his loyalty.
““I believe I have all I need to conduct interviews. There is an excellent paper trail”
FBI Special Agent Susan Secco
News Corp. – which has always denied wrongdoing – awaited the outcome of FBI Special Agent Susan Secco’s probe into the FloorGraphics website breaches with special interest. Felony charges might leave guilty employees facing jail under the Computer Fraud and Abuse Act – and the company exposed to accusations of corporate criminality.
When Agent Secco and a colleague made their first visit in 2004 to FloorGraphics’ New Jersey offices, she was struck by just how solid its case against NAM looked. “I believe I have all I need to conduct interviews,” she wrote in a follow-up email. “There is an excellent paper trail.”
So far, so bad for News America. But then fortune appeared to smile on the corporation. Without explanation or fanfare, Agent Secco’s investigation was quietly dropped.
Although the reasons for the apparent volte face by America’s domestic security agency – motto Fidelity, Bravery, Integrity – were never made clear, the wisdom received by the Rebh brothers was that it was too busy securing George W. Bush’s Republican Convention in New York to be trifling over the Murdoch computer hacking allegations.
Agent Secco, for her part, passed her findings to the United States attorney in New Jersey but, after initial interest, the case fizzled out there too. The United States attorney at the time in New Jersey was Chris Christie, now State governor, and an ascending star in the Republican Party.
Michael Drewniak, Christie’s former press secretary, was later forced to defend the failure to pursue News America. Insisting there was no question of politics playing a part, he said: “The U.S. attorney’s office receives thousands of referrals each year from parties seeking criminal investigations. Any decision to prosecute or not prosecute is based strictly on the strength of the evidence or lack thereof.”
The Federal Trade Commission then asked for jurisdiction to pursue NAM, but was denied by the Justice Department. Frustrated, the Rebhs turned to the Secret Service, but again the case failed due to lack of cooperation.
FloorGraphics was now left with no option but to go after NAM through a civil lawsuit. When it eventually opened in 2009, Murdoch’s company was forced to admit that an unidentified individual at its offices had indeed illicitly accessed its competitor’s website.
In echoes of News Corp’s. – later discredited – attempt to blame one rogue reporter for its newspaper phone hacking scandal in the UK, this time it pointed to a rogue employee for perpetrating the FloorGraphics hacks.
It is not known whether NAM ever held the rogue to account, but the evidence of computer hacking contained in the IP addresses of its work computers, was indeed as compelling as Agent Secco had first believed.
In court, a fuller picture started to emerge of the dirty tricks NAM used against FloorGraphics. And the Rebhs say it went far beyond the mere theft of intellectual property.
NAM, it was alleged, indulged in subtle but straightforward intimidation tactics against FloorGraphics’ employees. Under Gary Henderson, NAM regularly sent mail-shots including announcements on NAM’s business successes, and others questioning FloorGraphics’ own performance claims, to the private home addresses of FloorGraphics’ staff.
FloorGraphics vice president of marketing Antonia DeMatto described her shock at seeing NAM’s marketing material in her mailbox.
“I found an envelope from News America Marketing,” she told CNN. “I was a little surprised because it’s not an address I use as a business mailing address.
“The real shocker was when I called the FloorGraphics office in New Jersey and asked them about this. They said I wasn’t the only one who received it and, in fact, it appeared that all of the employees in the company had received it, not just the executives.”
She went on: “I think the creepy part of it is how they got the information (home addresses). How did they get the information? The anger-inducing unethical part is how they used it. And the absolutely infuriating part is that apparently this happened many times.”
In a statement NAM insisted that FloorGraphics’ staff’s details were innocently come by. It said: “Gary Henderson worked at FloorGraphics before he worked at NAM and made many personal contacts there. The contact information for his friends and former co-workers came from his own contact lists and address book.”
In six days of powerful evidence, the trial also heard from a former NAM manager, Robert Emmel, about the direct management style employed by Henderson’s boss, Paul V. Carlucci.
Emmel painted a picture of a man unwilling to take prisoners in the field of business conflict, and with an intolerance for employees who were not completely committed to the NAM way of working.
“If there were individuals concerned about doing the right thing – bed-wetting liberals in particular,” said Emmel. “Then he (Carlucci) could arrange for them to be out-placed from the company.”
Emmel went on to allege other improper practices at NAM. He claimed that News America Marketing was engaging in “criminal conduct against competitors“, and employing “deceptive and illegal business practices” to defraud retailer customers.
He insisted he had “substantial oral and documentary evidence” to support his allegations, adding that NAM used anti-competitive techniques against rival companies, and fraudulently inflated its reported earnings while keeping shareholders in the dark.
For a year before he left NAM in November 2006 in a dispute over timekeeping, Emmel began compiling documentary evidence that he posted anonymously to regulators and prosecutors including the US Securities and Exchange Commission, two Senate committees, and the New York Attorney General.
It is not known whether his leaks led to any formal investigations of NAM although court documents showed that the Senate Finance Committee at one point was considering referring the allegations to the US Justice Department and Federal Trade Commission respectively.
When NAM learned of Emmel’s whistleblowing it unleashed its legal armoury against him. In April 2007, it filed a lawsuit accusing him of six violations relating to his disclosure of confidential information, pressing its case with more than 300 pleadings to the Georgia courts.
But despite the tenacity with which it has pursued Emmel, NAM enjoyed little legal satisfaction. In March 2009, the district court in Georgia threw out all of its claims against him, bar one – a claim of breach of contract relating to his posting of the 55 pages of documents the day before he signed a non-disclosure agreement as part of his exit as an NAM employee.
Even that count, however, was overturned by the US appeal court, which ruled in Emmel’s favour, although it noted that a significant proportion of his legal fees had been paid by NAM’s competitors.
NAM, for its part, vigorously denied allegations of wrongdoing and any suggestion raised in the trial that it bullied and threatened a start-up company. The company’s lawyer also disputed during the trial George Rebh’s account of the conversation at A Dish of Salt. News America Marketing also claimed that over the years FloorGraphics had approached them about selling the company.
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“It brought back to mind all the times that we’d been through, trying to compete and finding ourselves competing with someone who was competing completely unfairly” ~ FloorGraphics VP Antonia DeMatto”
“It brought back to mind all the times that we’d been through, trying to compete and finding ourselves competing with someone who was competing completely unfairly”
FloorGraphics VP Antonia DeMatto
However, NAM’s assertions of innocence were never put to the test. After just a few days of the civil trial, Rupert Murdoch bought out FloorGraphics in its entirety for $29.5m.
And one of the new owner’s first acts was to discontinue legal proceedings before the full FloorGraphics’ case could be presented to the judge. It meant scrutiny of the business practices that flourished under Paul V. Carlucci at News America Marketing was cut short… for the time being at least.
But when fresh allegations of wrongdoing later emerged about another of Rupert Murdoch’s companies – this time of his newspaper interests hacking the voicemail of murdered schoolgirl Mille Dowler for a story in the UK – the parallels, for ex-Floorgraphics staff, were clear.
And they didn’t stop at claims of illegally accessing the private information of others, but extended to an emerging portrait of a culture among Rupert Murdoch’s businesses, where questionable practises go unquestioned in the naked pursuit of profit.
“It was a little bit like reliving it,” added Antonia DeMatto. “It brought back to mind all the times that we’d been through, trying to compete and finding ourselves competing with someone who was competing completely unfairly.”
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