- Associated Press - Friday, July 15, 2011

LONDON (AP) - Rupert Murdoch and his son James first refused, then agreed to appear before U.K. lawmakers investigating phone hacking and police bribery, while in the U.S., the FBI opened a review into allegations the Murdoch media empire sought to hack into the phones of Sept. 11 victims.

Those two developments Thursday _ and the arrest of another former editor of a Murdoch tabloid _ deepened the crisis for News Corp., which has seen its stock price sink as investors ask whether the scandal could drag down the whole company.

Murdoch defended News Corp.’s handling of the scandal, saying it will recover from any damage caused by the phone-hacking and police bribery allegations. The 80-year-old told The Wall Street Journal _ which is owned by News Corp. _ that he is “just getting annoyed” at all the recent negative press.

He also dismissed reports he would sell his U.K. newspapers to stem the scandal, calling the suggestion “pure and total rubbish.”

On Friday, U.S. Attorney General Eric Holder confirmed the early stages of an inquiry into allegations that employees of News Corp. tried to hack into the telephones of victims of the Sept. 11, 2001, terrorist attacks in the United States.

“There have been members of Congress in the United States who have asked us to investigate those same allegations and we are progressing in that regard using the appropriate criminal law enforcement agencies in the United States,” Holder said at a press conference in Australia while attending a meeting of the Attorneys-General of the U.S., United Kingdom, Canada, New Zealand and Australia.

The decision to step in was made after U.S. Rep. Peter King, Sen. Jay Rockefeller and several other members of Congress wrote FBI Director Robert Mueller demanding an investigation, said the official, who spoke on condition of anonymity because he wasn’t authorized to speak publicly.

The allegation that Murdoch papers may have targeted 9/11 victims came from the rival Daily Mirror, which quoted an anonymous source as saying an unidentified American investigator had rejected approaches from unidentified journalists who showed a particular interest in British victims of the terror attacks. It cited no evidence that any phone had actually been hacked.

There was no indication members of Congress had information beyond the Mirror report. King spokesman Kevin Fogarty said the congressman’s letter “was based on what was in the public record and that those allegations were not denied.”

A federal law enforcement official said the FBI routinely carries out reviews when an issue like the Murdoch scandal becomes highly visible, and particularly when the matter involves a request from Congress. The official spoke on condition of anonymity because of the sensitivity of the matter.

The FBI’s New York office hasn’t commented and there was no immediate response Thursday from News Corp. or the U.S. attorney’s office in Manhattan.

News Corp. stock fell more than 3 percent on the news.

Analysts said News Corp. executives could be at risk of being found criminally or civilly liable under federal wiretapping and state privacy laws if investigators find that American citizens were targeted. The company could also face sanctions in the U.S. for phone hacking that originated in Britain under the 1977 Foreign Corrupt Practices Act.

Still, experts said they doubt such actions could jeopardize News Corp.’s U.S. newspaper holdings such as The Wall Street Journal or result in the revocation of the license it needs to own Fox TV stations in America.

“I think we’re a long way from that,” said Philip Raible, a partner at New York law firm Rayner Rowe LLP, which specializes in corporate law affecting media companies.

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