Friday, July 22, 2011

Murdoch's New York Post Publisher Also Has A Hacking Problem

July 22, 2011 10:18 am ET by Eric Boehlert

One week ago, Rupert Murdoch's longtime aide, Les Hinton, was forced to resign as publisher of the Wall Street Journal because of the central role he'd been playing for years in News Corp.'s unraveling phone-hacking scandal. Hinton's resignation, unthinkable just four weeks ago, signaled the severity of News Corp.'s woes in America.

Now another Murdoch publisher, Paul Carlucci, who oversees the New York Post, may be facing renewed questions from prosecutors about his business past and what role he played in a News Corp. computer hacking scandal that unfolded right here in the U.S.

The allegations were part of a larger anti-competitive practices scandal that has already cost Murdoch's company hundreds of millions of dollars in legal setbacks and settlements, and a scandal that highlights what appears to be a culture of corruption inside News Corp.'s American operations. It's a culture that flies in the face of Murdoch's insistence that the hacking at his British tabloid represented an isolated incident.

The background: A New Jersey start-up company, Floorgraphics (FGI), was created to sell large advertising decals placed on the floors of grocery stores. In 1999, FGI's founders, Richard and George Rebh, met with Carlucci who at the time was CEO of News America Marketing, an in-store advertising division of News Corp. (In 2005, Carlucci added the title of Post publisher to his resume.) At the lunch, after the Rebhs rebuffed Carlucci's offer to buy the company, he allegedly threatened to destroy FGI.

Years later company executives discovered FGI's secure website had been broken into nearly a dozen times and confidential information had been obtained. They alleged Murdoch's company was spreading lies about FGI and using its proprietary information to steal away clients.

At the time, FGI urged authorities to pursue criminal charges, but the case was not prosecuted by the U.S. Attorney General's office in New Jersey, run at the time by Chris Christie. (Now governor of New Jersey, Christie has struck up a close working relationship with Roger Ailes, chief of Murdoch's Fox News.)

A FGI civil suit, claiming a series of anti-competitive practices, was filed against News Corp.'s News America. In 2009, after only a couple of days of testimony, the case was abruptly settled with Murdoch's company agreeing to purchase FGI for $30 million, but not before News America conceded that someone using its computers had hacked FGI's website. (News America claimed it did not know who the culprit was.)

Now, in light of the UK phone-hacking fiasco, NBC's Michael Isikoff reports Department of Justice prosecutors "are reviewing allegations that News Corp.'s advertising arm repeatedly hacked into the computers of a competitor in the United States as part of an effort to steal the rival firm's business, according to a lawyer for the company."

And that brings us back to Post publisher Carlucci. Writes Isikoff [emphasis added]:

The inquiry into Floorgraphics could pose a problem for another of Murdoch's top newspaper executives: Paul Carlucci, the publisher of the New York Post. Carlucci also has been the longtime chairman and chief executive of News America and has been accused in three lawsuits of creating a cut-throat competitive culture at the company, including showing his employees a scene from the movie "The Untouchables" in which the mobster Al Capone crushes a rival's head with a baseball bat.

Carlucci has denied the incident. Asked if Carlucci had any knowledge of the hacking of Floorgraphics' computers, company spokeswoman [Suzanne] Halpin said via email: "Certainly not. No one at News America Marketing had any knowledge of the alleged incident until the claim was made that it had happened."

Legal experts say it could prove difficult for prosecutors to make a case against News Corp. based on the Floorgraphics allegations alone, since the standard five-year statute of limitations for most federal computer crimes has long since expired.

But legal sources say that the interest in the case appeared to be part of an effort to determine if there is a more extensive pattern of criminal conduct at News Corp. -- a line of inquiry that New Jersey's Democratic Sen. Frank Lautenberg asked be pursued in a letter this week to Holder and FBI Director Robert Mueller.

And from's Jim Edwards, who's diligently covered the FGI/News America story for years:

At the time FGI's competitors were allegedly hacked, the CEO of News America Marketing was Paul Carlucci, who is now also publisher of the New York Post. Carlucci was the focus of a series of contentious depositions prior to the 2009 trial, in which Rebh claimed Carlucci threatened to "destroy" FGI.

From that deposition:

A: At a certain point in the conversation Mr. Carlucci turned to Richard and said, "So, I understand your --" words to the effect, "So, I understand you're here to sell your company?"

Q: And was there a response?

A: We were -- I was surprised to hear that, and Richard's response was, "No. That's not why we're here. We were really here to meet you, and to discuss the possibility of doing joint promotions."

Q: What happened after that?

A: ... he followed that by saying, "But from now on, consider me, us your competitor, and understand this, if you ever get into any of our businesses, I will destroy you." And he said, "I work for a man who wants it all, and doesn't understand anybody telling him he can't have it all." And that ended his discussion.

Carlucci, of course, works for Murdoch.

But given the new scrutiny of News Corp. and questions that swirl about the history of law-breaking at its media properties, can Murdoch afford to keep Carlucci working for him at the New York Post?

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