07.14.11

The FBI Confirms It’s Exploring Probe of News Corp.

The FBI says it has begun exploring a News Corp. probe as the beleaguered company works on its own internal investigation led by former New York public-schools chancellor Joel Klein.

The FBI and federal prosecutors have begun reviewing evidence in the News Corp. phone-hacking scandal that has engulfed Britain to determine whether any activity occurred in the United States that might warrant opening a criminal investigation, a senior law-enforcement official told THE DAILY BEAST on Thursday.

The official, who spoke only on condition of anonymity, said the decision by the bureau and the U.S. attorney’s office in Manhattan was a preliminary step and that a decision to open a full-scale investigation had not yet been made. The decision was made after requests from members of Congress, ethics watchdogs, and the families of the September 11 attacks about reports that the phones of some terror-attack victims in the U.S. may have been hacked by reporters for Rupert Murdoch’s British tabloids.

The review will look at evidence in the public domain as well as information shared by British authorities, the source said. A key element will be determining whether any potential criminal activitiy occurred on U.S. soil or under U.S. legal jurisdiction.

The development is the latest pressure on the storied news conglomerate, which faces the likely prospects of prolonged criminal investigations in Britain as well as potential civil litigation.

The news Thursday came just shortly after Murdoch and his son James backtracked and agreed to testify in front of British M.P.s next week.

As the possibilities of further government probes and lawsuits increased, News Corp. also has begun an internal probe that will rely on the powerhouse private law firms of Williams & Connelly in the United States and Olswang in Britain as well as the leadership of former Clinton White House lawyer and former New York City schools chancellor Joel Klein, who joined Murdoch’s company recently.

News Corp. spokeswoman Teri Everett said the two firms are “are advising” the company and that Klein “is directing the Company’s overall handling of the matter.” She declined to be more specific. Klein did not return calls seeking comment.

In past scandals, internal investigations, and the perception of  whether they are impartial, can greatly affect a company’s reputation and the ability to weather a storm. In 2004, former Attorney General Dick Thornburgh was tasked with investigating CBS and veteran anchor Dan Rather’s handling of “Memogate”–the infamous 60 Minutes report that alleged that George W. Bush hadn’t fulfilled his National Guard service, based on documents that were later determined to be forged. 

While the focus of that scandal was a sitting U.S. president, the current News Corp. scandal, brought to fever pitch by allegations of hacking into and tampering with the voice mail of a murdered 13-year-old, has high stakes, Thornburgh said in an interview with THE BEAST. “The scale is enormously greater here,” he said. “We were looking at one show, News Corp. is looking at a whole series of practices.”

The development is the latest pressure on the storied news conglomerate, which faces the likely prospects of prolonged criminal investigations in Britain as well as potential civil litigation.

Sen. Jay Rockefeller and other key leaders, including at least one Republican, have been calling for investigations, into whether News Corp. could have violated the Foreign Corrupt Practices Act or hacked into U.S. citizens phones. DOJ spokeswoman Laura Sweeney tells THE BEAST she “can confirm we've received letters from Sens. Lautenberg, Boxer, Rockefeller and Menendez. (I'm checking on Rep King letter as I understand that was sent to the FBI.) We are reviewing the letters but decline further comment.”

A spokeswoman for the Securities and Exchange Commission, Judith Burns tells THE DAILY BEAST the SEC also would not confirm or deny any investigations are underway. But News Corp. would certainly fall under its purview: any public company whose shares are trading in the U.S. is subject to U.S. securities law.

The legal battle could come from all fronts: criminal investigations, civil suits, and government probes. A key part of this will be News Corp.’s own internal probe, and on that front the reviews are so far mixed.

Thornburgh, who had experience investigating the WorldCom bankruptcy proceedings and was brought in to investigate the CBS scandal, says a key part of any internal investigation “is that it is viewed as being absolutely independent. That means no members of the board and no insiders with a connection to the corporation. Impartiality and the perception of impartiality are very important.” Klein, who joined News Corp.’s board of directors and was brought in as the company’s executive vice president, Office of the Chairman, could be lacking in distance.

Internal probes, says Thornburgh, should first involve the assembling of a team of outsiders with investigative skills, such as former FBI agents who are able to follow and track evidence. “The team should establish a contact within the organization and immediately order that no documents are destroyed.” Internal probes are not required by law, “but are dictated by circumstances."

In the case of CBS, it was to determine if the media company “violated standards of accuracy and fairness,” which Thornburgh and his partner, former Associated Press chief executive Louis Boccardi, found to be the case. “In internal investigations, you don’t have subpoena power, but you don’t need it if all the employees are there.” He said he expects Klein would be a contact point person for an investigation, “but will seek independent outsiders to investigate. He might also want auditors, accountants, and people familiar with journalistic practices in the U.K. to be involved. It’s going to be a long and arduous task.”

Klein has a long history leapfrogging into unusual and high stakes positions. A product of New York public schools and the son of a postman, he made his way to Harvard Law School. A successful young lawyer, he was tapped during the Clinton administration to replace Deputy White House Counsel Vince Foster, whose death by gunshot to the mouth sparked multiple conspiracy theories but was ruled a suicide after multiple investigations, including by Whitewater independent counsel Kenneth Starr.

Klein managed to move on successfully to the Justice Department, where he became the government’s lead attorney taking on Microsoft, alleging that it was acting as a monopoly to mute competition. Following a short interregnum as the chairman and CEO of the American operations of media giant Bertelsmann AG,  he began a controversial eight-year stint as the chancellor of New York City schools and was at one point rumored in news reports to be a potential Obama administration pick for education secretary.

Merryl Tisch, chancellor of the New York State Board of Regents, didn’t always agree with Klein while he served as New York City chancellor, “but he is straight, honest, and direct. When he came to New York, he was a fresh set of eyes in an entrenched bureaucracy, and he was able to be a change agent. I think Rupert made a brilliant choice.”

Former FCC commissioner Susan Ness, a communications policy consultant, says “anyone who has spent eight years handling our public-school crisis is well equipped to handle other major issues.” She says that Klein, who she last saw at a policy salon dinner at her home a few years ago, is polished and professional. The decision to have him manage the crisis might actually say more about Murdoch than it does about Klein. Says Ness:  “Murdoch … is a very smart guy.”

Any internal probe, says Thornburgh, will end up as part of criminal or other investigations. “It will be subpoenaed and used as a roadmap,” he said.