Federal prosecutors intervene in Starwood-Hilton suit because of criminal investigation

Feds file to halt Starwood-Hilton lawsuit

MIAMI — Federal prosecutors and agents are investigating possible charges including fraud and theft of trade secrets in a criminal probe of Hilton Hotels Corp. and two executives lured away from a competing hotel company, according to a motion filed Friday.

The U.S. Attorney’s Office for the Southern District of New York sought to limit the sharing of information in a lawsuit pursued by Starwood Hotels & Resorts Worldwide Inc. against Hilton and two former Starwood executives, Ross Klein and Amar Lalvani.

The motion says charges of conspiracy, computer fraud, theft of trade secrets and interstate transportation of stolen goods are possible.

Messages seeking comment from attorneys for Klein, Lalvani and both companies were not immediately returned Friday afternoon.

Federal agents took up the case after Starwood filed suit in April 2009 claiming Klein and Lalvani, who formerly headed the company’s luxury hotels group, took more than 100,000 documents with confidential and privileged information and used them to create a Hilton “lifestyle” brand to compete against the W Hotel chain Starwood launched.

Prosecutors say the lawsuit must be halted because Starwood had been demanding all materials and contact Hilton exchanged with federal prosecutors and FBI special agents as part of routine discovery.

“Significantly, these requests have impaired, and will continue to impair, our office’s ability to obtain full and complete information from certain witnesses who are essential to our investigation,” the U.S. Attorney’s Office wrote.

Prosecutors also said Hilton and its employees could have benefited by using Starwood materials obtained in discovery to tailor their testimony in criminal proceedings.

The motion to halt the lawsuit for six months must be approved by a federal judge.

In an amended complaint last month, Starwood said at least 44 Hilton executives, up to and including CEO Chris Nassetta, knowingly allowed the stolen information to be used to develop a new “lifestyle” brand at breakneck pace. Hilton announced the launch of “Denizen” in March 2009, months after Lalvani and Klein were hired.

According to the lawsuit, Starwood knew nothing of any stolen materials until February 2009, when a Hilton attorney representing Klein in arbitration against his former employer unexpectedly returned eight boxes of sensitive materials, saying they came to his attention while preparing for the case.

The documents allegedly stolen included detailed Starwood marketing materials, future growth plans, agreements with franchisors, blueprints for developing the W Hotels brand and instructions to convert existing properties.

Hilton, which is owned by The Blackstone Group, had previously disclosed a grand jury subpoena, but prosecutors wouldn’t confirm an active investigation.