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by Michael J. Shapiro | March 01, 2010
On Feb. 22, federal prosecutors applied to intervene in the corporate espionage case brought by White Plains, N.Y.-based Starwood Hotels and Resorts Worldwide against Chicago-based Hilton Worldwide, citing a related criminal investigation pending in the Southern District of New York.

The new filing states, "The parties in this case consent to the Government's application to intervene, and defendants Hilton, [Ross] Klein and [Amar] Lalvani consent to a limited stay of discovery for a duration of six months." Starwood, however, objected to the stay.

Klein and Lalvani had held executive positions at Starwood but left to work for Hilton in June 2008, allegedly taking confidential Starwood documents with them.

Attorneys for Starwood turned up the heat in mid-January in the company's espionage lawsuit, even though reports indicated that the chains were working to settle the case. Starwood filed a 135-page amended and supplemental complaint packed with additional details, including allegations that at least 44 higher-ups at Hilton, five of whom are top executives, either were personally involved with or were aware of and condoned the acts against Starwood.

Among those named in the complaint are Hilton CEO Christopher Nasetta, as well as Steven Goldman, Hilton's former president of global development and real estate, who was placed on leave last September.

The new complaint says Nasetta and Goldman were responsible for recruiting Klein and Lalvani, and charges that Lalvani began to forward confidential Starwood information to Goldman while still employed at Starwood, a claim apparently backed by e-mail correspondence.

The complaint also charges that much of the stolen information was shared among top executives at Hilton, and that it was widely known that the documents came directly from Starwood. Cited as evidence is a letter sent to Nassetta in November 2008 from a Hilton whistleblower, a vice president for Conrad Hotels, expressing his discomfort over the many confidential Starwood documents being circulated.

Sources note that defendants often refute the claims made in such complaints.

The criminal investigation is looking into whether several statutes have been violated, including those covering conspiracy, fraud in connection with computers, theft of trade secrets and interstate transportation of stolen goods.