News Corp.'s U.S. Computer-Hacking Woes Are Looming Larger

Last Updated Aug 9, 2011 9:37 AM EDT

A lawyer for News Corp. (NWS) admitted in open court in 2009 that someone at its News America Marketing headquarters hacked into the computer system of a rival company in order to look at confidential plans for the rivals' clients, according to trial testimony.

Separately, a source familiar with the case tells BNET that News, the FBI, and the victimized company all confirmed in their own investigations that the hacking took place, yet the FBI did nothing about it. The victim company, supermarket ad agency Floorgraphics Inc., later sued News and the case was settled for $29.5 million, just a few days after the News lawyer's admission.

Exactly what happened back in 2003 and 2004, when Floorgraphics learned its password-protected website had been compromised by News, has come under renewed scrutiny due to the revelations from London that reporters employed by Rupert Murdoch's tabloid empire routinely hacked the phones of celebrities and other sources, and illegally paid private investigators and police officers for information.

Attorney general Eric Holder says the FBI is now investigating whether reporters paid New York police employees for information on victims of Sept. 11.

And the New York Times reports that the Floorgraphics hacking case "died a slow death" under former U.S. Attorney for New Jersey Chris Christie (pictured) despite an FBI agent's conclusion that there was "an excellent paper trail" in the case. (Christie is now governor of New Jersey.)

Overall, it appears that the FBI dropped the ball, especially in light of statements made in New Jersey federal court in 2009 by News attorney Lee Abrams, who was defending the Murdoch company against Floorgraphics' allegations about the hacking. In his opening statement he told jurors:

You also heard about this access to the website, the password protected website. First of all, let me tell you that it wasn't very well protected. Floorgraphics gave a user name and a password to retailers. It used the same user name and password for all the retailers in the country and that user name and password was in effect for a year so that Floorgraphics sent hundreds of notifications to all of the retailers with which it had contracts saying use the following user name and password and they sent this by e-mail.
Abrams went on to argue that the information on the site wasn't important, even though it showed pictures of Floorgraphics' plans for the future advertising of ketchup in Safeway supermarkets. Abrams then confirmed again that the Floorgraphics site was hacked:
We have seen numbers that show that some person accessing through a firewall at News America Marketing headquarters accessed these pictures. We don't know who did the access. You will hear testimony from the people who investigated to see who did it, but there is no evidence that any of those pictures or the opportunity to see those pictures had any impact on the success of News America Marketing in bidding for the contract at Safeway or anywhere else.
Floorgraphics alleged in the case that news had accessed its computers 11 times over a four month period. It then sent a letter to News CFO David DeVoe (pictured), informing him that it believed one of his employees was engaged in illegal activity. The company never heard back. The hacking was also confirmed July 21, 2011, by a News spokesperson.

A source now tells BNET that News conducted an internal investigation into the hacking and produced a report that reached the conclusion alluded to by Abrams -- that someone inside its News America unit was accessing Floorgraphics' website with a stolen password. Legal fallout from the case, and similar ones linked to it, led News to pay $656 million in settlements to rival ad agencies, and the resignation of the company's top U.S. lawyer, Lawrence "Lon" Jacobs.
The revelations put new pressure on the FBI to complete its investigation of the Floorgraphics incident -- agents began looking at the case anew in July -- and to say why it will or not bring charges.


Image of Rupert Murdoch by Flickr user World Economic Forum; Chris Christie by Wikimedia, CC; and DeVoe courtesy of CityFile.