July 28 (Bloomberg) -- One August afternoon almost six years ago I sat in the office of a small marketing company called Floorgraphics Inc., listening to two of its founders tell how a News Corp. unit had hacked into their computer system.
They were trying to get federal prosecutors interested, they said. The big question in my mind was whether I had a story I could run with. At the time I was a reporter for the Wall Street Journal. (This was before News Corp. bought the paper.) Ultimately I decided not to write about the company. And I had largely forgotten about Floorgraphics, until this month.
The reason I’m dusting off this nugget now, in case it’s not obvious, is the scandal at News Corp., which started with voice-mail hacking and alleged bribes to British police by journalists at the now-shuttered London tabloid News of the World. Today U.S. authorities are looking into whether company employees may have violated American laws as well.
Founded in 1996 and based in Princeton, New Jersey, Floorgraphics had a simple business: Place ads for packaged goods on grocery-store floors, so customers would see them at the point of purchase. News America Marketing In-Store Services, a unit of News Corp., was a competitor. In July 2004, Floorgraphics filed suit in a New Jersey federal court, accusing News America of trying to destroy its business.
The broader story about the companies’ David-and-Goliath battle, which had already been written about, didn’t interest me much. The lawsuit’s allegation that News America hacked Floorgraphics’ computers had gotten my attention, though.
Back then, in mid-2005, George Rebh, Floorgraphics’ executive vice president, and his younger brother Richard, the company’s chief executive officer, had told me their initial tipoff came in January 2004, when the company learned from an advertising client that News America had detailed knowledge of a new store program Floorgraphics had been planning.
The Rebhs said they checked their company’s computer logs for Web traffic originating from News America’s network, as identified by its Internet protocol address. They said they found News America had accessed Floorgraphics’ computer systems on 11 occasions during a five-month period. Whoever did it, they said, apparently had the right username and password.
The problem from my standpoint was that I had no way to independently verify most of what they said. News America had denied Floorgraphics’ allegations in court papers, including the hacking claim. So I told George Rebh: If I could establish that there was an active federal investigation into their hacking allegation, then maybe there would be a story for me. News Corp. hadn’t disclosed such a probe, and it would be news if there was one.
Rebh had given me contact information for everyone they had been in touch with at the U.S. attorney’s office in Newark, New Jersey; the U.S. Secret Service, which has jurisdiction to investigate computer fraud; and the Federal Bureau of Investigation, including two FBI agents who Rebh said had visited Floorgraphics’ headquarters in April 2004 to gather evidence.
Rebh said one of the FBI agents had told him in November 2004 that they dropped the case months earlier after deciding it didn’t meet their $5,000 minimum damage threshold, which struck the Rebhs as ridiculous. After hearing this, George Rebh said he had called the assistant U.S. attorney who had been telling him that the FBI was making progress -- only to learn that the attorney was leaving for private practice.
The Rebhs eventually got some help from three New Jersey congressmen. U.S. Representative Rush Holt, a Democrat, sent a letter in April 2005 to then-U.S. Attorney Chris Christie (now the governor of New Jersey) asking his office to look into Floorgraphics’ allegations. The response from Christie’s office, signed by the head of its commercial-crimes unit, said the matter was “under review.”
Senators Sought Reviews
In June 2005, New Jersey’s two U.S. senators, Frank Lautenberg and Jon Corzine, both Democrats, sent a letter to Alberto Gonzales, then the U.S. attorney general, asking for the Justice Department to consider Floorgraphics’ allegations. That didn’t seem to spur much action, either.
A spokesman for Christie, Michael Drewniak, declined to comment this week on the Floorgraphics case, as did a Justice Department spokeswoman, Alisa Finelli, and a spokeswoman for the U.S. attorney’s office in Newark, Rebekah Carmichael. The Rebhs also declined to comment for this column.
After meeting with the Rebhs that summer, I called every source I could think of, and turned up nothing. Maybe federal investigators had dropped the ball. Perhaps there hadn’t been enough evidence. Or maybe they didn’t want to take on a sister company of Rupert Murdoch’s Fox News. Whatever it was, I told the Rebhs I didn’t have a story. And by early 2006 I had left the Journal for another job.
The case may have new life. An attorney for Floorgraphics, William Isaacson of Boies Schiller & Flexner in Washington, said he got a phone call last week from two federal prosecutors and an FBI agent asking about the hacking matter. Also last week, Lautenberg and Holt each wrote to U.S. Attorney General Eric Holder, flagging the letters they had sent in 2005.
More facts have emerged, too. In 2009, at a civil trial over Floorgraphics’ lawsuit, a lawyer for News America, Lee Abrams, acknowledged to jurors that News America’s computers were used to access Floorgraphics’ secure website, though he said the company didn’t know who did it. About a week after the trial began, News America agreed to buy Floorgraphics’ assets for $29.5 million, and Floorgraphics agreed to drop its suit.
In an e-mail this week, a spokeswoman for News America, Suzanne Halpin, said: “News America Marketing has condemned this conduct, which is in violation of the standards of our company.”
Whether there was ever any proof of a crime is another matter, of course. Too bad we may never know.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
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