Michael Wolff of Adweek has been a follower of the Rupert Murdoch News Corporation for a long time, even written a book1 about Murdoch a while ago (before the current, seemingly ever-escalating scandal). Mr. Wolff is not surprised that the FBI and the DOJ are considering pursuing RICO statute investigations into News Corp.
In my biography of Rupert Murdoch, I referred to News Corporation as Mafia-like, provoking the annoyance of my publisher’s libel lawyers. I explained to them that I did not mean to suggest this was an organized crime family, but instead was using “mafia” as a metaphor to imply that News Corp. saw itself as a state within a state, and that the company was built on a basic notion of extended family bonds and loyalty.
But just because it’s a metaphor doesn’t mean it isn’t the real thing, too.Well-sourced information coming out of the Department of Justice and the FBI suggests a debate is going on that could result in the recently launched investigations of News Corp. falling under the RICO statutes.
RICO, the Racketeer Influenced and Corrupt Organizations Act, establishes a way to prosecute the leaders of organizations—and strike at the organizations themselves—for crimes company leaders may not have directly committed, but which were otherwise countenanced by the organization. Any two of a series of crimes that can be proven to have occurred within a 10-year period by members of the organization can establish a pattern of racketeering and result in draconian remedies. In 1990, following the indictment of Michael Milken for insider trading, Drexel Burnham Lambert, the firm that employed him, collapsed in the face of a RICO investigation.
Right Turn Ahead
Michael Wolff continues with some more details about the criminal culture of News Corporation, and Rupert Murdoch:
As it happens, much of this pattern of conduct at News Corp. has long been hiding in plain site. How the company has gotten away with such behavior is, in fact, a subtext of the investigations that are now unfolding.
Partly, the company has escaped legal scrutiny because this is a boys-will-be-boys sort of story. News Corp.’s by-any-means aggressiveness has become so much a part of its identity that it seemed almost redundant to find fault with it. Everybody knew but nobody—for both reasons of fear and profit—did anything about it; hence its behavior has become, however unpleasant, accepted.
And partly, it’s because the fundamental currency of the company has always been reward and punishment. Both the New York Post and Fox News maintain enemy lists. Almost anyone who has directly crossed these organizations, or who has made trouble for their parent company, will have felt the sting here. That sting involves regular taunting and, often, lies—Obama is a Muslim. (Or, if not outright lies, radical remakes of reality.)
Threats pervade the company’s basic view of the world. “We have stuff on him,” Murdoch would mutter about various individuals who I mentioned during my interviews with him. “We have pictures.”
Similarly, the Post and Fox News heap praise and favors on partisans, who in turn do them favors (the police, in New York as well as London, receive and return the favors). This reward and punishment has translated into substantial political power, both in terms of regulatory advantages and, too, in the ability of the company to shield itself from the kind of scrutiny that it has taken a perfect storm of events to have it now receive.
Then, too, as one of the largest media organizations, it has insured a hands-off attitude (if not policy) from other media organizations—those which have business with it, or whose executives want to protect their prospects of working for it, or that extend courtesies in the hope they will be extended back. There’s also the money. Ultimately, if you have the goods or the savvy with which to damage the company, you get paid off. In London, that’s how News Corp. thought it could contain the hacking scandal, with big cash payments to and confidentiality agreements with the hacking victims.
Nothing relevatory, but still, any more discussion of Rupert Murdoch’s criminal enterprise is good…
Tim Dickenson reports, in part:
At first glance, the systemic campaign of bribery and wiretapping at the News of the World certainly does seem extraordinary. Reporters and editors at what was the largest-circulation Sunday paper in the English-speaking world stand accused of bribing police, hacking the private voicemails of everyone from the royal family to the parents of soldiers killed in Iraq and Afghanistan, and paying more than $2 million in gag settlements to victims — allegedly with the full knowledge of Murdoch’s son and heir apparent, James.
But the corruption exposed at the News of the World is not the work of a “rogue” element within News Corp. — it’s a reflection of the lawless culture that defines the company. As CEO, Murdoch not only tolerates employees and executives who push the boundaries of legality and good taste, he celebrates them — at least until the cops show up. “There’s a broader culture within the company,” Col Allan, editor of Murdoch’s New York Post, crowed in 2007. “We like being pirates.” Whatever veneer of integrity News Corp. may have accrued after its purchase of The Wall Street Journal the very same year masks an ingrained corporate ethos that believes integrity is for suckers. The attitude passed down from the top, says one veteran of Murdoch’s tabloids, is aggressive and straightforward: “Anything we do is OK. We’re News Corp. — so fuck you and fuck your mother.”
Indeed, an examination of Murdoch’s corporate history reveals that each of the elements of the scandal in London – hacking, thuggish reporting tactics, unethical entanglements with police, hush-money settlements and efforts to corrupt officials at the highest levels of government – extend far beyond Fleet Street. Over the past decade, News Corp. has systematically employed such tactics in its U.S. operations, exhibiting what a recent lawsuit filed against the firm calls a “culture run amok.” As a former high-ranking News Corp. executive tells Rolling Stone: “It’s the same shit, different day.”
HACKING AND HUSH MONEY News America Marketing, a News Corp. subsidiary based in Connecticut, has been accused of engaging in “illegal computer espionage,” repeatedly hacking a rival firm’s computer system between 2003 and 2004 — a period that happens to coincide with NOTW’s voicemail hacking in London. According to a lawsuit against News America, which dominates the lucrative market for ads on supermarket shelves and shopping carts, the Murdoch subsidiary grew alarmed when a competitor called Floorgraphics Inc. entered the market in the late 1990s with a novel concept — ad decals pasted on supermarket aisles. Paul Carlucci, the CEO of News America, responded by convening a meeting with FGI executives and allegedly delivering a Mafialike ultimatum: Sell to Murdoch or be destroyed. “I work for a man who wants it all,” Carlucci warned, “and doesn’t understand anyone telling him he can’t have it all.”
When FGI rebuffed the takeover bid, according to a lawsuit the company filed in 2004, News America embarked on a campaign of “illegal, anti-competitive and unfair business practices.” After hacking into FGI’s database, the suit alleged, News America used the information to steal away top clients like Safeway, effectively destroying its rival’s business. FGI petitioned Chris Christie, then a U.S. attorney, to launch a criminal investigation into the alleged hacking, but the future governor of New Jersey refused to file charges. By then, the damage was done. News America was able to snap up FGI for $30 million — not only achieving Murdoch’s original goal of market domination but also quashing FGI’s lawsuit in the process.
News Corp. shareholders have paid far more to hush up other complaints about News America’s monopolistic abuses. To box out two more rival firms, Valassis Communications and Insignia, News America used its market position to hike ad rates for supermarket clients who refused to also advertise in Murdoch newspaper circulars. “It feels like they are raping us and they enjoy it,” an executive at Sara Lee complained. In 2009, a Michigan court awarded Valassis $300 million for News America’s illegal attempt to corner the market. News Corp. eventually silenced the affair with a $500 million payment to Valassis that blocked the threat of further litigation. It also reached a $125 million settlement with Insignia. The combined settlements of $655 million more than wiped out the profits News Corp. reaped from its record box-office smash Avatar.
The allegations were first reported by BNET in 2009, and touched upon again by the New York Times today.
In the case, FGI alleged News engaged in a number of anti-competitive practices, including using stolen passwords to illicitly enter its computer system to review or download sales information. George Rebh, the owner of FGI, testified in a New Jersey federal court in 2009 that he had been contacted by Smuckers in January 2004 after the client became curious that News seemed to have confidential information about its business stored on FGI’s password-protected website for advertiser clients. Rebh testified:
We — our IT people looked at our password-protected site to see if there was any access to that site by unauthorized users.
They discovered that beginning in October of 2003 through the time that we discovered this, in January of 2004, in fact, right up to the day before, there had been unauthorized accesses into our system by people utilizing computers registered with an IP address to News America Marketing. IP address is registered to News America Marketing in Connecticut.
… There were 11 separate accesses over that four-month period.
The unauthorized access allowed users to see FGI’s clients’ advertising plans and sales records — crucial information that competitors could use to undercut FGI in negotiations with clients. Rebh testified that was exactly what happened: FGI lost its key account with Safeway supermarkets, and the company dwindled to just 25 employees at the time of the case, Rebh said:
In short, the loss of the Safeway contract marked the beginning of the end of our company.
FGI also alerted former U.S. Attorney Chris Christie (now governor of New Jersey) and former U.S. Attorney General Alberto Gonzalez asking for an investigation of the hacking. When the company got no response, it asked former U.S. Sen. Jon Corzine, current U.S. Sen. Frank Lautenberg, and U.S. Rep. Rush Holt to write to Christie and Gonzalez again, asking for an update. (Download the FGI v. News hacking memos here (PDF).) Christie’s former commercial crimes chief, Deborah Gramiccioni responded that the case was:
…under review by Assistant U.S. Attorneys in our Commercial Crimes Unit. Because the above-references matter may involve fraud, we are also forwarding copies of your letter and the attached information to the Febreal Bureau of Investigation for review.
The office of Republican Gov. Chris Christie of New Jersey is claiming that Fox News chairman Roger Ailes is a confidential adviser whose interactions with the governor should remain secret under New Jersey’s executive privilege. Last month, after New York magazine reported that Ailes met with Christie last summer and called him this year to urge him to run for president, Gawker filed a request under New Jersey’s Open Records Act seeking any correspondence between the two men, as well as any records of meetings or phone calls with Ailes from Christie’s schedule or call logs.
Last week we received a rather surprising response: While declining to confirm the existence of any such records, Christie’s office said they “would be exempt from disclosure…based upon the executive privilege and well-settled case law.” In other words, Christie’s staff refused to search for any records—which, given the undisputed reports of a dinner and phone call, almost certainly exist—on the basis that Ailes is a confidential adviser whose comments should be shielded from public scrutiny.
I’ve been paying close attention to the escalating Rupert Murdoch scandal because not only is News Corporation and its subsidiaries like Fox News and the New York Post, and increasingly the Wall Street Journal, an insult to liberal, fair-minded citizens everywhere, but also I have some direct dealings with News America Marketing, the in-store marketing division of Murdoch’s empire. Let’s just say they were not pleasant dealings, and cost my company significant loss of income. I have met dozens or more ex-News America employees, most are decent enough folks, on the surface anyway, but the anti-competitive cut-throat behavior of News America emanates from the top.
Legal Tender – London
David Carr of The New York Times has published a great article about News America – you should really read the whole thing, if you are at all interested, but I’ve excerpted a few paragraphs below:
“Bury your mistakes,” Rupert Murdoch is fond of saying. But some mistakes don’t stay buried, no matter how much money you throw at them. Time and again in the United States and elsewhere, Mr. Murdoch’s News Corporation has used blunt force spending to skate past judgment, agreeing to payments to settle legal cases and, undoubtedly more important, silence its critics. In the case of News America Marketing, its obscure but profitable in-store and newspaper insert marketing business, the News Corporation has paid out about $655 million to make embarrassing charges of corporate espionage and anticompetitive behavior go away.
That kind of strategy provides a useful window into the larger corporate culture at a company that is now engulfed by a wildfire burning out of control in London, sparked by the hacking of a murdered young girl’s phone and fed by a steady stream of revelations about seedy, unethical and sometimes criminal behavior at the company’s newspapers.
So far, 10 people have been arrested, including, on Sunday, Rebekah Brooks, the head of News International. Les Hinton, who ran News International before her and most recently was the head of Dow Jones, resigned on Friday. Now we are left to wonder whether Mr. Murdoch will be forced to make an Abraham-like sacrifice and abandon his son James, the former heir apparent.
The News Corporation may be hoping that it can get back to business now that some of the responsible parties have been held to account — and that people will see the incident as an aberrant byproduct of the world of British tabloids. But that seems like a stretch. The damage is likely to continue to mount, perhaps because the underlying pathology is hardly restricted to those who have taken the fall.
As Mark Lewis, the lawyer for the family of the murdered girl, Milly Dowler, said after Ms. Brooks resigned, “This is not just about one individual but about the culture of an organization.”
In 2009, a federal case in New Jersey brought by a company called Floorgraphics went to trial, accusing News America of, wait for it, hacking its way into Floorgraphics’s password protected computer system.
The complaint summed up the ethos of News America nicely, saying it had “illegally accessed plaintiff’s computer system and obtained proprietary information” and “disseminated false, misleading and malicious information about the plaintiff.”
The complaint stated that the breach was traced to an I.P. address registered to News America and that after the break-in, Floorgraphics lost contracts from Safeway, Winn-Dixie and Piggly Wiggly.
Much of the lawsuit was based on the testimony of Robert Emmel, a former News America executive who had become a whistle-blower. After a few days of testimony, the News Corporation had heard enough. It settled with Floorgraphics for $29.5 million and then, days later, bought it, even though it reportedly had sales of less than $1 million.
News America paid more money to other competitors rather than have the embarrassment of public trials:
But the problems continued, and keeping a lid on News America turned out to be a busy and expensive exercise. At the beginning of this year, it paid out $125 million to Insignia Systems to settle allegations of anticompetitive behavior and violations of antitrust laws. And in the most costly payout, it spent half a billion dollars in 2010 on another settlement, just days before the case was scheduled to go to trial. The plaintiff, Valassis Communications, had already won a $300 million verdict in Michigan, but dropped the lawsuit in exchange for $500 million and an agreement to cooperate on certain ventures going forward.
and Murdoch’s minion, Paul Carlucci was a News Corporation man through and through. Meaning he was slimy, corrupt, and full of hatred towards liberals:
News America was led by Paul V. Carlucci, who, according to Forbes, used to show the sales staff the scene in “The Untouchables” in which Al Capone beats a man to death with a baseball bat. Mr. Emmel testified that Mr. Carlucci was clear about the guiding corporate philosophy.
According to Mr. Emmel’s testimony, Mr. Carlucci said that if there were employees uncomfortable with the company’s philosophy — “bed-wetting liberals in particular was the description he used” Mr. Emmel testified — then he could arrange to have those employees “outplaced from the company.”
Clearly, given the size of the payouts, along with the evidence and testimony in the lawsuits, the News Corporation must have known it had another rogue on its hands, one who needed to be dealt with. After all, Mr. Carlucci, who became chairman and chief executive of News America in 1997, had overseen a division that had drawn the scrutiny of government investigators and set off lawsuits that chipped away at the bottom line.
So what became of him? Mr. Carlucci, as it happens, became the publisher of The New York Post in 2005 and continues to serve as head of News America, which doesn’t exactly square with Mr. Murdoch’s recently stated desire to “absolutely establish our integrity in the eyes of the public.”
And meanwhile, the corrupt culture of Rupert Murdoch’s organization is being slowly exposed in England. Rebekah Brooks hasn’t yet been formally charged, but the British system operates a bit differently:
Ms. Brooks has not yet been formally charged, but it is significant that she was questioned in connection with two separate investigations. One, called Operation Weeting, is examining allegations of widespread phone hacking at The News of the World, the tabloid at the center of the scandal, where Ms. Brooks was editor from 2000 to 2003. The other is Operation Elveden, which is looking into charges that News International editors paid police officers for information.
…The arrest was a shock to the News Corporation, the parent company of News International, and the other properties in Mr. Murdoch’s media empire, which is reeling from the traumas of last week: the forced withdrawal of its cherished $12 billion takeover bid for British Sky Broadcasting and the resignations not only of Ms. Brooks but also of Les Hinton, a longtime Murdoch ally and friend who was the chairman of Dow Jones and the publisher of The Wall Street Journal.
Speaking of Ms. Brooks, an official at News International said: “When she resigned on Friday, we were not aware that she would be arrested by the police.” Another person briefed on the News Corporation’s plans said that on Friday, when the company was preparing to announce her exit and the departure in New York of Mr. Hinton, the possibility of her arrest was not discussed.
Investor unease about the scandal appeared to be affecting News Corporation shares, which were down nearly 6 percent in early Monday trading on the Australian exchange in Sydney.
Until Ms. Brooks arrived at a London police station by prearranged appointment on Sunday, she believed she would merely be helping the police as a witness, her spokesman said.
“She was very surprised, I think, to then be arrested,” said the spokesman, David Wilson, chairman of the Bell Pottinger public relations firm. Mr. Wilson said it all happened so quickly that both her lawyer and he were brought in to handle her case over the weekend.
Could Murdoch be jettisoned by his own company? Probably not, though never say never. Just ask Steve Jobs…
Rupert Murdoch could be facing a coup. If a recent report from Bloomberg is correct, at least some of the independent directors of News Corp. have, due to the phone hacking scandal that is engulfing the company and taking down some of its seniormost executives, begun asking “whether a leadership change is needed.” Fortunately for Murdoch, he’s built himself something of a firewall. Of the 16 voting members currently on the board, three are Murdoch family members—there’s Rupert himself, of course, along with his sons James and Lachlan—and another four are current News Corp. executives. (Elisabeth Murdoch, whose Shine Group was just purchased by News Corp., is expected to join the board as a voting member at some point though the current scandal may delay that move a bit.) But even those seven presumably reliable votes don’t get Rupert Murdoch an automatic majority. So he’s stacked the rest of the board with loyalists and puppets. . Many have ties with Murdoch that stretch back decades—and involve mutually beneficial financial transactions.
So he’s stacked the rest of the board with loyalists and puppets. . Many have ties with Murdoch that stretch back decades—and involve mutually beneficial financial transactions. “It’s an open secret, a joke inside News Corp., that the board is designed to be obsequious to Rupert,” a source close to the company says.
A few interesting links collected December 8th through December 9th:
News America Paid $29.5M in Mysterious Floorgraphics Acquisition | BNET Advertising Blog | BNET – The suit has a certain chutzpah to it. A source tells BNET that FGI had sales of less than $1 million. Many outside observers believed that at the time of the deal, FGI existed mostly to resolve its litigation against NAM, not as a functioning business. It’s hard to believe NAM thought it was buying a genuine business and not settling a lawsuit, which is essentially what NAM is arguing in its suit.
The Spending Wars | The American Prospect – How did military spending become sacrosanct? – Excellent question: How did military spending become sacrosanct?”When Rep. David Obey, chair of the House Appropriations Committee, recently proposed a surtax that would pay for the Afghanistan War, the collective response from most of his colleagues on both sides of the aisle was, “Are you nuts?” Nancy Pelosi quickly put the kibosh on Obey’s “Share the Sacrifice Act,” and all talk of funding the war has been banished. Meanwhile, Democrats have spent untold hours debating how to finance health-care reform, all while Republicans carp about how doing so is just too darn expensive, what with our ever-climbing deficit.”