James Murdoch under threat as UK scandal spreads

[July 23, 2011]  LONDON (AP) -- Media scion James Murdoch, his father's heir apparent, was under fire Friday over claims by former newspaper executives that he misled lawmakers about what he knew, and when, about Britain's phone-hacking scandal.

The allegations raise questions not only about his succession to the helm of the media empire but about what he may have relayed to Rupert Murdoch, the CEO and controlling shareholder.

The younger Murdoch's credibility was tested after he told a parliamentary committee this week that he was not aware of evidence that eavesdropping at the News of the World went beyond a jailed rogue reporter. The assertion was contradicted by two former top staffers, who insisted they told him years ago about an email that suggested wrongdoing at the paper was far more widespread.

The claim brings more trouble for the 38-year-old Murdoch, who heads the Europe and Asia operations of his father's News Corp., as his family fights a scandal that has already cost it one of its British tabloids, two top executives and a $12 billion bid for control of a lucrative satellite broadcaster.

James Murdoch has stood by his testimony, but Prime Minister David Cameron joined opposition lawmakers -- and some shareholders -- in demanding answers.

Lying to parliament is illegal, and Tom Watson, an opposition Labour Party lawmaker, called for Scotland Yard to investigate.

"This is the most significant moment of two years of investigation into phone hacking," Watson told the BBC, adding that the public dispute between senior Murdoch executives showed the company was "fracturing in front of our very eyes."

James Murdoch was not testifying under oath at Tuesday's parliamentary hearing, though he could face sanction if it becomes clear he deliberately misled lawmakers. That is highly unlike, however. The last time the House of Commons fined anyone was in 1666.

Far more serious is the prospect the younger Murdoch will get sucked into Britain's expanding police probe.

The scandal exploded earlier this month with revelations journalists at the News of the World hacked the phone of a 13-year-old murder victim while police were still searching for her and broadened to include claims reporters paid police for information.

That set off a firestorm that has hit the highest reaches of British society. It forced Rupert Murdoch to shutter News of the World, prompting a spate of high-profile resignations and departures at News Corp. and delivering the 80-year-old media baron and his son to be grilled before lawmakers.

The scandal continued its seemingly inexorable spread Friday. High-profile lawyers said they may have had their phones hacked -- something Britain's law society said could constitute obstruction of justice, a serious criminal offense.

Media attorney Mark Stephens, who once represented Wikileaks founder Julian Assange, said Friday he was one of a handful of attorneys whose phone messages may have been intercepted by News of the World. The alleged hacking is believed to have occurred before Stephens began representing Assange, who is no longer a client.

"There are some things in life that I consider sacrosanct: patient-doctor confidentiality, confessions to priests and lawyer-client privilege," Stephens said. "The key concern ... for me is whether this information was accessed so I can alert clients."

Stephens has represented several media organizations over the years, including previous work with The Associated Press on some cases.

Meanwhile, Scottish police said Friday they were opening their own perjury and corruption investigation related to the phone hacking, a move that could have consequences for ex-News of the World editor Andy Coulson, who served as Cameron's top media aide.

Coulson testified last year at a trial in Scotland that he was unaware of illegal activities by reporters at the News of the World and denied there was a culture of phone hacking at the paper.

Cameron, already under pressure over his decision to hire the former tabloid executive, continued to distance himself from a once-cozy relationship with the Murdochs, saying the family had "a mess to clear up."

In his testimony before parliament, James Murdoch batted away claims he knew the full extent of the hacking allegations when he approved a $1.1 million (700,000 pound) payout in 2008 to soccer players' association chief Gordon Taylor, one of the first victims to go to court.

News International had long maintained the eavesdropping was limited to a single rogue reporter and the private investigator he was working with to break into voice mails.

But an email uncovered during Taylor's lawsuit cast doubt on that claim. It contained a transcript of an illegally obtained conversation, drawn up by a junior reporter and marked "for Neville" -- an apparent reference to the News of the World's chief reporter, Neville Thurlbeck.

Because it seemed to implicate others in the hacking, the email had the potential to blow a hole through the fiercely held contention that one reporter alone had engaged in hacking. If James Murdoch knew about the email, it would lend weight to the suggestion he approved the payoff in an effort to bury the scandal.

James Murdoch told lawmakers Tuesday he knew nothing at the time, but former legal adviser Tom Crone and ex-editor Colin Myler contradicted him.

"We would like to point out that James Murdoch's recollection of what he was told when agreeing to settle the Gordon Taylor litigation was mistaken," they said. "In fact, we did inform him of the 'for Neville' email, which had been produced to us by Gordon Taylor's lawyers."

The latest claims could imperil the family dynasty Rupert Murdoch has created at News Corp., with some analysts speculating that James Murdoch may be out of the running to succeed his father.

"James Murdoch's name is now clouded and he is not going to be moving up in News Corp.," newspaper analyst Ken Doctor of Outsell Inc. said.

The widening investigation increases the chances of even more sensational allegations surfacing because as more people are implicated, the greater the chances they will cut deals and cooperate with authorities.

That doesn't bode well for Rupert Murdoch, Doctor said, because "it's becoming almost impossible to believe that this swashbuckling executive had no idea about the ongoing phone hacking at his newspapers."

"He might not have known all the specifics, but he had to know it was a practice going on."

Edgar Schein, a professor emeritus at MIT's Sloan School of Management, agreed. If nothing else, the elder Murdoch sanctioned "the value system that allowed it to happen," he said.

"Corporate cultures evolve around the value systems of the founders and executives in an organization," Schein said.

If James Murdoch is tainted, he could be shoved aside in favor of his 42-year-old sister Elisabeth or his 39-year-old brother Lachlan. Then again the Murdochs -- whose once-formidable clout in Britain has disintegrated -- could move out of the succession picture entirely.

If the crisis looming over News Corp.'s British newspapers keeps getting worse, the company's shareholders are more likely step up the pressure on the board to appoint a new leader to protect the movie studio and television franchises that bring in most of the revenue, Doctor said. "They are going to want a CEO who is not a Murdoch," he said.

Chase Carey, the American deputy chairman and president of News Corp., is one possible contender. He previously worked with Fox television, a company holding.

How this investigation unfolds is "ultimately much more important for James Murdoch than it is for News Corp.," said Barton Crockett of Lazard Capital Markets.

"What's important for investors is that News Corp. is bigger than the Murdochs. This is a company that will succeed whether or not the Murdochs are running it," he said.

Investors seemed unshaken by Friday's developments. News Corp.'s Class A shares dipped just 6 cents to close at $16.42

[Associated Press; By RAPHAEL SATTER and MICHAEL LIEDTKE]

Liedtke reported from San Francisco. Cassandra Vinograd, Jill Lawless, Robert Barr and Paisley Dodds in London and Ryan Nakashima in Los Angeles contributed to this report.

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