News Corp. Suit, Watchdog Complaint Portend U.S. Headaches For Murdoch

U.S. Capitol Building

The News Corp (NSDQ: NWS). phone-hacking and police payoffs scandal, which has riveted Britain for more than a week, has finally reached American shores — and company chairman Rupert Murdoch’s headaches on this side of the Atlantic may be only just beginning. A group of News Corp. shareholders has updated a March lawsuit against the company to include the phone-hacking scandal, calling it evidence of a breakdown in board oversight. Meanwhile, a Washington, D.C.-based watchdog group wants Congress to investigate whether any journalists working for the company’s U.K. division, News International, hacked into the phones of U.S. citizens.

The original lawsuit, which was filed by Amalgamated Bank and several public sector pension funds, accused News Corp. of nepotism over the company’s $615 million purchase of Shine Group, the production firm run by Murdoch’s daughter Elisabeth. The lawsuit charged that Murdoch “habitually uses News Corp to enrich himself and his family members at the company’s and its public shareholders’ expense.”

In the amended complaint, the plaintiffs pointed to the phone-hacking and police payoffs scandal as evidence “a culture run amuck within News Corp and a Board that provides no effective review or oversight.”

Citizens for Responsibility and Ethics, a non-profit group, pointed to new allegations that journalists working for other Murdoch papers may have employed the same tactics that led to the downfall of News of the World. CREW’s call for a congressional investigation came amid revelations that former U.K. Prime Minister Gordon Brown had been hacked, and that even Prince Charles may have been targeted. According to the Guardian, other News Int. papers were also involved, including The Sun and The Sunday Times.

The lawsuit and CREW complaint could be just the first of many legal or regulatory challenges facing News Corp. in the U.S., as the scandal grows wider by the day. Speculation includes legal exposure for James Murdoch, chairman of News Int. and deputy COO of News. Corp, which is incorporated in the U.S., and Les Hinton, the previous head of News Int. who now runs Dow Jones and is publisher of the Wall Street Journal. Another possible battleground: the FCC and Fox’s broadcast licenses.

In a development that could stoke U.S. anger toward the Murdoch empire, a New York City police officer says News of the World personnel offered to pay him to help gain access to voicemail accounts belonging to victims of the Sept. 11, 2001 terrorist attacks, according to The Daily Mirror.

“Given the ever-increasing number of Murdoch publications involved, combined with the allegation that News Corp. journalists sought access to the voicemails of 9/11 victims and their families, America cannot leave this investigation entirely to the British,” CREW Executive Director Melanie Sloan said in a statement. “Congress should immediately initiate its own inquiry.”

News Int. officials, including James Murdoch and Hinton, had insisted for years that the hacking was limited to isolated individuals who operated without the knowledge of their superiors. Hinton testified to that effect. The veracity of those claims is eroding by the day.

CREW, which a spokesman told us does not disclose its donors, has been described as a liberal watchdog group, although it has targeted politicians of both parties in its various campaigns against public corruption.

News Corp. shares closed over 7 percent lower on Monday, as the company’s takeover of U.K. satellite network BSkyB (NYSE: BSY) faced growing opposition from U.K. lawmakers.

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