Murdoch May Face Legal Challenges in U.S. Over Hacking Scandal

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Rupert Murdoch's publicly traded News Corp. may face multiple legal challenges in the U.S. amid the phone-hacking scandal that has rattled the media mogul's empire, according to legal experts.

Murdoch and his son James both reiterated to parliament during hearings on the blossoming scandal Tuesday that News Corp. has vowed to cooperate with law enforcement probes over claims that reporters at the now-defunct News of the World hacked voice mail messages and others in their employ bribed police.

But that does not mean they are in the clear in the U.S., experts say.

"There are a whole lot of ways they maybe in trouble," said Joel Seligman, the president of Rochester University and a nationally recognized expert on corporate governance and the Securities Exchange Commission.

"Whether they are will be determined ultimately by two things: facts and circumstance and what is called the culpability standard. Were the relevant individuals aware of something wrong going on and failing to correct it or reckless in disregarding this?"

Over the years as U.S. multinationals have increased their global reach, legal experts say the Department of Justice has increasingly relied on the Foreign Corrupt Practices Act to try and project U.S. anti-bribery standards into countries where such behavior is a business as usual.

New Jersey Senator Frank Lautenberg  said he wants the Department of Justice and the Securities Exchange Commission to investigate whether Murdoch's News Corp., through a British subsidiary, violated what's called the U.S. Foreign Corrupt Practices Act by making payments to British police officials for access to non-public information.  

"Any American Corporation that offers a bribe to a foreign official is creating a violation of law and it could ultimately mean jail or certainly fines for that kind of behavior," Lautenberg told WNYC in a phone interview. 

Attorney General  Eric Holder has said he's reviewing Lautenberg's request.

Although the phone hacking scandal exploded on the U.S. media scene just recently, it has had a long narrative arc on the other side of the Atlantic. There have been criminal convictions in the case, and News Corp. has paid out large sums to settle out-of-court court claims with victims of the hacking scandal.

Professor James Cox, who teaches Corporate and Securities Law at Duke University, said even boilerplate representations made over the years by News Corp. that describes itself as a company that is fully compliant with all relevant laws like the U.S. Foreign Corrupt Practices Act could haunt itself and the Murdochs.

"There is case law that these so-called 'We are clean' statements are materially misleading," Cox said. "So the real issue is what News Corp. said about how they and their publishing empire have carried out their business. That would be one area where both SEC investigators and stockholders ... will be looking at closely to see if they have a claim."

There have been legal papers filed suggesting that at least two law firms are pursing a case on behalf of stockholders who allege the value of their News Corp stock was undermined because they claim the management at News Corp. engaged in a cover-up of the hacking scandal. 

In papers filed on behalf of the Lewis Wilder Revocable Trust, attorney Arthur Abbey claims that in the aftermath of the arrest and conviction in 2007 of News of the World private detective Glenn Mulcaire and News of the World Royal editor Clive Goodman that the company conducted a phony internal review.

In fact, not only had defendants not done a "full rigorous internal inquiry into the hacking issues but they set out on a course of conduct to conceal and cover up the illegal activity" that included as many as 4,000 victims, Abbey wrote.

Investors, law enforcement and the SEC are not the Murdochs only potential problems.

Professor Ellen Goodman, who teaches communications law at Rutgers University, said that in rare instances, the Federal Communication Commission can lift a television broadcast license from a licensee if they have been found guilty of a felony or have not been truthful in their filings with the FCC or other regulators.

Murdoch currently has  27 local FCC TV licenses. 

"If it were shown that there had been violations of the law by the company that could be traced back to him and to News Corp. then I think there would be definitely a lot of dogs barking up that tree," Goodman said in a phone interview.

Goodman said one potential precedent could be found in the 1980s when the FCC broke up the legendary broadcasting company RKO that was owned by General Tire.

RKO was found to not be forthcoming with the FCC and General Tire, the parent company, was flagged for making illegal campaign contributions and making overseas bribe payments. One of the stations lost in that action was New York's own WOR-TV,  now part of the  Murdoch holdings.