NEWS CORP SCANDAL

News Corp.’s phone-hacking crisis claimed two top newspaper executives as Chief Executive Officer Rupert Murdoch defended his handling of the scandal and the FBI began a U.S. probe of the company.

Les Hinton, chairman of News International in the years the alleged hacking occurred, stepped down as head of the Dow Jones division yesterday. That followed the exit of News International CEO Rebekah Brooks. She was editor of the News of the World, the newspaper implicated in the scandal, from 2000 to 2003.

The spotlight will shift back to Murdoch and his son, James, the deputy chief operating officer, on July 19 when the two testify about the phone-hacking scandal before the U.K. Parliament. With the FBI involved and the company facing civil litigation in the U.S., the scandal is likely to grow.

In a statement announcing Hinton’s departure, the 80-year- old CEO downplayed his own importance to the company he built from two inherited Australian newspapers. He stated that News Corp. is not Rupert Murdoch, that it is the collective creativity and effort of many thousands of people around the world, and few individuals have given more to this company than Les Hinton.

FBI Role

The Federal Bureau of Investigation, prodded by members of Congress, began looking into whether News Corp. employees may have targeted the phones of victims of the Sept. 11, 2001, terrorist attacks.

U.S. Representative Peter King, the Republican chairman of the House Committee on Homeland Security, asked FBI Director Robert Mueller in a July 13 letter to investigate whether News of the World employees tried to access voicemails belonging to the victims through bribery and illegal wiretapping.

The FBI stated they are aware of certain allegations pertaining to a possible hacking by News Corp. personnel and they are looking into those charges.

Hiring Counsel

News Corp. has hired criminal defense lawyer Brendan V. Sullivan Jr.
of the Washington law firm Williams & Connolly LLP, the New York Times reported. Sullivan’s clients have included former Alaska Senator Ted Stevens, ex-New York Stock Exchange Chairman Richard Grasso and Reagan White House aide Oliver North.

Murdoch, in an interview with the News Corp.-owned Wall Street Journal, said an independent committee led by a distinguished non- employee will investigate the phone-hacking allegations. He claims the company has handled the crisis extremely well, with minor mistakes.

He met yesterday with the parents of Milly Dowler, a murdered schoolgirl whose voicemails were hacked by News of the World in 2002.

After meeting the Dowlers, Murdoch said he was appalled to find out what happened. He claims he apologized.

Dropped Bid

Murdoch has been in London since last weekend as the scandal escalated and politicians of all parties called on him and James, 38, to take responsibility. News Corp. is publishing an apology in all national newspapers in Britain, the younger Murdoch said in a letter to employees.

The now-defunct News of the World tabloid is accused of hacking hundreds of voice mails, including those of murder and terrorism victims, and bribing police for confidential information. Last week, News Corp. closed the 168-year-old newspaper. London police have made at least nine arrests as part of their investigation.

The scandal led News Corp. to abandon its $12.6 billion (7.8 billion-
pound) bid for full control of British Sky Broadcasting Group Plc.

News Corp. rose 21 cents, or 1.3 percent, to $15.64 yesterday in Nasdaq Stock Market trading in New York. The Class A shares have fallen about 13 percent since the first reports on July 4 that News of the World had hacked Milly Dowler’s voice mail.

The resignation of Brooks marked a U-turn for Murdoch, who had stood with the newspaper executive and said she would stay on. Murdoch this week backed his son and heir apparent, saying James had acted as fast as he could, the moment he could.

Family Holdings

The Murdochs must cooperate fully with inquiries into the phone- hacking scandal.

Murdoch controls News Corp. through a 38 percent stake in the company’s Class B voting shares. Those shares represent a 12 percent economic interest in the company, when nonvoting shares are counted as well.

In addition to Rupert Murdoch, News Corp.’s board members include his son Lachlan, 39, as well as James. Murdoch’s daughter Elisabeth, 42, was expected to become a director after selling her Shine Group TV production outfit to News Corp. for $673 million in February.

Justice Department

King’s request to Mueller was one of several by elected officials and media watchdog groups to investigate News Corp. King, who represents part of New York’s Long Island, said in the letter that his district lost 150 people in the attacks.

In a July 13 letter, New Jersey senator Frank Lautenberg asked U.S.
Attorney General Eric Holder and SEC Chairwoman Mary L. Schapiro to investigate whether News Corp. or its subsidiaries breached the U.S. Foreign Corrupt Practices Act.

The act makes it a crime for a U.S.-based company, such as News Corp., to pay foreign officials to get or keep business.

Holder yesterday confirmed the existence of a U.S. probe in public comments he made while in Sydney.

He claims there have been members of Congress in the United States who have asked them to investigate the same allegations, and they are progressing in that regard using the appropriate federal law enforcement agencies in the U.S.

Rupert Murdoch said the company isn’t separating its newspaper assets, which also include U.K.tabloid The Sun, the Times of London and the New York Post. The company will establish a protocol for behavior for reporters across the company, he said.