Murdochs to be questioned in UK

Updated: 2011-07-15 08:23

(Agencies)

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LONDON - Rupert Murdoch and his son James first refused, then agreed Thursday to appear before UK lawmakers investigating phone hacking and police bribery, while in the US, the FBI opened a review into allegations the Murdoch media empire sought to hack into the phones of September 11 victims.

Those two developments - and the arrest of another former editor of a Murdoch tabloid - deepened the crisis for News Corp., which has seen its stock price sink as investors ask whether the scandal could drag down the whole company.

Murdoch defended News Corp.'s handling of the scandal, saying it will recover from any damage caused by the phone-hacking and police bribery allegations. The 80-year-old told The Wall Street Journal - which is owned by News Corp. - that he is "just getting annoyed" at all the recent negative press.

He also dismissed reports he would sell his UK newspapers to stem the scandal, calling the suggestion "pure and total rubbish."

A law enforcement official in New York said the FBI was looking into allegations that employees of News Corp. tried to hack into the telephones of victims of the September 11, 2001, terrorist attacks in the United States.

The decision to step in was made after US Rep. Peter King, Sen. Jay Rockefeller and several other members of Congress wrote FBI Director Robert Mueller demanding an investigation, said the official, who spoke on condition of anonymity because he wasn't authorized to speak publicly.

The allegation that Murdoch papers may have targeted 9/11 victims came from the rival Daily Mirror, which quoted an anonymous source as saying an unidentified American investigator had rejected approaches from unidentified journalists who showed a particular interest in British victims of the terror attacks. It cited no evidence that any phone had actually been hacked.

There was no indication members of Congress had information beyond the Mirror report. King spokesman Kevin Fogarty said the congressman's letter "was based on what was in the public record and that those allegations were not denied."

A federal law enforcement official said the FBI routinely carries out reviews when an issue like the Murdoch scandal becomes highly visible, and particularly when the matter involves a request from Congress. The official spoke on condition of anonymity because of the sensitivity of the matter.

The FBI's New York office hasn't commented and there was no immediate response Thursday from News Corp. or the U.S. attorney's office in Manhattan.

News Corp. stock fell more than 3 percent on the news.

Analysts said News Corp. executives could be at risk of being found criminally or civilly liable under federal wiretapping and state privacy laws if investigators find that American citizens were targeted. The company could also face sanctions in the US for phone hacking that originated in Britain under the 1977 Foreign Corrupt Practices Act.

Still, experts said they doubt such actions could jeopardize News Corp.'s US newspaper holdings such as The Wall Street Journal or result in the revocation of the license it needs to own Fox TV stations in America.

"I think we're a long way from that," said Philip Raible, a partner at New York law firm Rayner Rowe LLP, which specializes in corporate law affecting media companies.

News Corp. has been in crisis mode in the UK since a rival newspaper reported last week that its News of the World tabloid hacked into the phone of teenage murder victim Milly Dowler in 2002 and may have impeded a police investigation into the 13-year-old's disappearance.

The company closed the 168-year-old News of the World and abandoned a bid for control of the lucrative British Sky Broadcasting network in a so far fruitless attempt to halt the crisis, which has exploded with revelations that as many as 4,000 people may have been hacking targets.

U.S.-based media industry analyst Richard MacDonald said the scandal was undermining Murdoch's 30-year bid to convince investors that News Corp. was "a blue chip diversified media company."

"Without question, the revelations and subsequent penalties either criminal, civil or strategic will impair earnings performance, earnings multiples and asset value for who knows how long," he said.

British lawmakers took the dramatic step Thursday of issuing a summons to the once all-powerful Murdochs after the father and son said they would not appear before Parliament's Culture, Media and Sport Committee on Tuesday.

Within hours, the Murdochs made room in their schedules after all. It was another victory for politicians over the Murdochs _ something that would have been all but unthinkable just two weeks ago.

It is highly unusual for witnesses to refuse to appear before parliamentary committees, which quiz everyone from business leaders to prime ministers on a wide range of issues.

Rebekah Brooks, who heads the company's British newspaper division, did agree to testify. She was editor of the News of ttold the Culture, Media and Sport Committee he would be willing to appear August 10 or 11, without explaining why he was not free on Tuesday. Rupert Murdoch said he would not appear at all, offering instead to speak before a separate inquiry initiated by Prime Minister David Cameron and led by a judge.

Defiance of a parliamentary summons is illegal, and can in theory be punished with a fine or jail time. In practice, such sanctions have been all but unknown in modern times; the House of Commons last punished a nonmember in 1957. And it was not immediately clear whether Parliament could have enforced its summons on Rupert Murdoch, a US citizen.

Committee chairman Jameresurfaced. He was arrested on July 8.

In another sign of what Cameron has called the overly cozy relationship between politicians, the media and the police, the Metropolitan Police confirmed that Wallis had been employed as a part-time consultant to the force.

Wallis' firm was employed to provide "strategic communication advice" for two days a month while its own staffer was on medical leave, the Metropolitan Police said. The contract ended in September.

Media analyst Claire Enders said News Corp. might be tempted to sell its other British newspapers - The Sun, The Times and the Sunday Times.

That is an outcome favored by some analysts and shareholders, who see the papers as financially inconsequential and reputationally burdensome - as well as by many British politicians.

"The politicians want the Murdochs' role in public life to be greatly diminished," Enders said. "They would like them to move to New York and stay there.

"Since the papers have no political value any more, then their economic value must be questioned as well."