Rupert Murdoch's American Scandals

All the corruption exposed in England – hacking, political payoffs, dirty cops, hush-money settlements – is also happening here

Rupert Murdoch
Andrew Harrer/Bloomberg via Getty Images
As CEO, Murdoch not only tolerates employees and executives who push the boundaries of legality and good taste, he celebrates them — at least until the cops show up.
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Rupert Murdoch would like you to believe that the voicemail-hacking scandal at the News of the World "went against everything that I stand for." In his recent testimony before Parliament, the 80-year-old billionaire insisted that the criminal wrongdoing at the London tabloid betrayed the 53,000 "ethical and distinguished professionals" he commands from the pinnacle of News Corp. — the world's second-largest media empire. Besides, he claimed, the scandal at the News of the World involved "a tiny part of our business," which he helpfully quantified as "less than one percent of our company."

At first glance, the systemic campaign of bribery and wiretapping at the News of the World certainly does seem extraordinary. Reporters and editors at what was the largest-circulation Sunday paper in the English-speaking world stand accused of bribing police, hacking the private voicemails of everyone from the royal family to the parents of soldiers killed in Iraq and Afghanistan, and paying more than $2 million in gag settlements to victims — allegedly with the full knowledge of Murdoch's son and heir apparent, James.

But the corruption exposed at the News of the World is not the work of a "rogue" element within News Corp. — it's a reflection of the lawless culture that defines the company. As CEO, Murdoch not only tolerates employees and executives who push the boundaries of legality and good taste, he celebrates them — at least until the cops show up. "There's a broader culture within the company," Col Allan, editor of Murdoch's New York Post, crowed in 2007. "We like being pirates." Whatever veneer of integrity News Corp. may have accrued after its purchase of The Wall Street Journal the very same year masks an ingrained corporate ethos that believes integrity is for suckers. The attitude passed down from the top, says one veteran of Murdoch's tabloids, is aggressive and straightforward: "Anything we do is OK. We're News Corp. — so fuck you and fuck your mother."

Indeed, an examination of Murdoch's corporate history reveals that each of the elements of the scandal in London – hacking, thuggish reporting tactics, unethical entanglements with police, hush-money settlements and efforts to corrupt officials at the highest levels of government – extend far beyond Fleet Street. Over the past decade, News Corp. has systematically employed such tactics in its U.S. operations, exhibiting what a recent lawsuit filed against the firm calls a "culture run amok." As a former high-ranking News Corp. executive tells Rolling Stone: "It's the same shit, different day."

HACKING AND HUSH MONEY News America Marketing, a News Corp. subsidiary based in Connecticut, has been accused of engaging in "illegal computer espionage," repeatedly hacking a rival firm's computer system between 2003 and 2004 — a period that happens to coincide with NOTW's voicemail hacking in London. According to a lawsuit against News America, which dominates the lucrative market for ads on supermarket shelves and shopping carts, the Murdoch subsidiary grew alarmed when a competitor called Floorgraphics Inc. entered the market in the late 1990s with a novel concept — ad decals pasted on supermarket aisles. Paul Carlucci, the CEO of News America, responded by convening a meeting with FGI executives and allegedly delivering a Mafia­like ultimatum: Sell to Murdoch or be destroyed. "I work for a man who wants it all," Carlucci warned, "and doesn't understand anyone telling him he can't have it all."

When FGI rebuffed the takeover bid, according to a lawsuit the company filed in 2004, News America embarked on a campaign of "illegal, anti-competitive and unfair business practices." After hacking into FGI's database, the suit alleged, News America used the information to steal away top clients like Safeway, effectively destroying its rival's business. FGI petitioned Chris Christie, then a U.S. attorney, to launch a criminal investigation into the alleged hacking, but the future governor of New Jersey refused to file charges. By then, the damage was done. News America was able to snap up FGI for $30 million — not only achieving Murdoch's original goal of market domination but also quashing FGI's lawsuit in the process.

News Corp. shareholders have paid far more to hush up other complaints about News America's monopolistic abuses. To box out two more rival firms, Valassis Communications and Insignia, News America used its market position to hike ad rates for supermarket clients who refused to also advertise in Murdoch newspaper circulars. "It feels like they are raping us and they enjoy it," an executive at Sara Lee complained. In 2009, a Michigan court awarded Valassis $300 million for News America's illegal attempt to corner the market. News Corp. eventually silenced the affair with a $500 million payment to Valassis that blocked the threat of further litigation. It also reached a $125 million settlement with Insignia. The combined settlements of $655 million more than wiped out the profits News Corp. reaped from its record box-office smash Avatar.

THUGGISH REPORTING Instead of firing the man responsible for the legal and financial fiasco at News America, Murdoch promoted him. In addition to serving as CEO of News America, Carlucci was tapped in 2005 to become publisher of Murdoch's flagship American tabloid, the New York Post. Under Carlucci's leadership, the two businesses appear to have drawn inspiration from a similar source: organized crime. Carlucci reportedly encouraged teamwork at News America by showing his salesmen a clip from The Untouchables in which Al Capone brains a disloyal deputy with a baseball bat. And shortly after Carlucci arrived at the Post, the newspaper was rocked by a scandal in which a star Page Six reporter allegedly attempted to shake down billionaire Ron Burkle for "protection" from the gossip sheet, telling him, "It's a little like the Mafia."

Burkle secretly recorded Page Six reporter Jared Stern offering to go easy on him in the gossip sheet in exchange for a hefty payoff. "We know how to destroy people," Stern reportedly threatened. "It's what we do." To shield himself from character assassination, Stern allegedly suggested, Burkle could make a one-time payment of $100,000, followed by monthly installments of $10,000.

News Corp. axed Stern, dismissing him as a rogue reporter and calling his behavior "highly aberrational." But according to a 2007 affidavit by a fellow Post veteran, the alleged shakedown was an integral part of the company's culture. "The spineless hypocrites in senior management at the New York Post and News Corp. have always used 'expendable' employees as scapegoats for the misdeeds of its senior executives," Post reporter Ian Spiegelman testified. Spiegelman revealed that Page Six's top editor Richard Johnson and two others had accepted cash from a restaurateur whose business had received a positive mention the day before. Johnson also allegedly accepted a $50,000 all-expenses-paid bachelor party to Mexico from Joe Francis, the founder of Girls Gone Wild, whom the Post subsequently hyped as "the next Hugh Hefner." Spiegelman further charged that Col Allan, the Post's top editor, received free lap dances at the strip club Scores in return for favorable coverage by the paper.

News Corp. conceded that Johnson had accepted a $1,000 "gift," but Murdoch let the editor off with a reprimand. Indeed, as Murdoch biographer Michael Wolff later observed, the incident only served to enhance Johnson's reputation. "The bribery business actually seemed to confirm Johnson's status for Murdoch as an old-time, walk-on-the-wild-side, dangerous, rule-bucking, proudly cynical newsman," Wolff concluded. Insiders make clear that the worst impulses exhibited by the Post and other News Corp. publications come directly from the top. "Murdoch tries to wash his hands of everything when it's convenient and pretend he has no involvement in the day-to-day running of the paper — which is just nonsense," says a former Post reporter. "He's always been very hands-on. There were no major decisions taken, even at Page Six, where Murdoch's interests would not be considered."

POLITICAL CORRUPTION Murdoch has built News Corp. into a media empire second only to Disney by horse-trading editorial support for political favors, repeatedly persuading officials at the highest levels of government to bend, break or rewrite rules meant to safeguard the public interest. "Murdoch has made himself almost a partner of certain political movements," says Reed Hundt, who tried to rein in monopolistic practices by media giants like News Corp. as chairman of the Federal Communications Commission. "Politicians believe he's going to win in the end, so why tangle with him?"

Long before the rise of Fox News, Murdoch used News Corp. to influence friends in high places. Shortly after purchasing the Post in 1977, he plucked Ed Koch out of obscurity and used the tabloid to propel him into Gracie Mansion. "I couldn't have been elected without Rupert Murdoch's support," Koch said later. "Suddenly I was mayor of New York." In 1980, when Jimmy Carter was battling Ted Kennedy for the Democratic nomination and badly needed a primary win in New York, the Post endorsed the president. Six days later, Murdoch received a $290 million loan from the federal government to bail out one of his Australian companies. News Corp. received an even bigger payoff after it gave House Speaker Newt Gingrich a $4.5 million book deal in 1994 — just as Congress began debating a new law that removed federal restrictions on Murdoch's media holdings. Under George W. Bush, who owed his election in large part to the inaccurate and biased reporting of Fox News, the FCC blocked the sale of DirecTV to a News Corp. rival, then rubber-stamped its acquisition by Murdoch.

But Murdoch's coziest political bond has been with Rudy Giuliani. In 1994, Giuliani was elected mayor of New York by a narrow margin, thanks largely to the full-bore support of the Post. With Giuliani in office, the Post continued to back the mayor so slavishly that Rep. Charlie Rangel took to calling it the City Hall Post. News Corp. even hired Giuliani's wife, Donna Hanover, as a Fox television reporter, quickly quadrupling her salary to $123,000.

Giuliani was not shy about rewarding his media patron. When Murdoch moved News Corp. into its current Midtown headquarters, the mayor secured the company a tax break worth more than $20 million. Then, when Time Warner tried to keep Murdoch out of the New York market in 1996 by refusing to give Fox News a spot in its cable lineups, Giuliani threatened to revoke Time Warner's cable franchise and offered to air Fox News on one of the city's public-access channels. A federal judge blocked the move, upbraiding the mayor for acting "to reward a friend and to further a particular viewpoint." But the rank political favoritism paid off: During Giuliani's first term, according to a study by researchers at the University of Southern California, not a single negative editorial about him appeared in the Post.

POLITCAL ENTANGLEMENTS Just as the News of the World scandal toppled the head of Scotland Yard, News Corp. also brought down one of America's top cops. In 2001, one of Murdoch's publishing chiefs, Judith Regan, signed New York Police Commissioner Bernie Kerik to a book advance worth six figures. In an affair worthy of Page Six, the News Corp. executive was soon literally in bed with the police czar, meeting for sex in an apartment overlooking Ground Zero that was intended to house exhausted recovery workers. Before long, Kerik was tasking NYPD officers as if they were Regan's personal bodyguards, at one point reportedly dispatching them to track down the publisher's lost cellphone.

According to a source familiar with details of the affair, the relationship soured when Regan tried to break it off. Unable to call the cops, she confided in fellow News Corp. executive Roger Ailes, the head of Fox News, hoping he could get Giuliani to rein in Kerik. But Ailes was more concerned about the political fallout. According to legal filings by Regan, Ailes anticipated the damage the scandal could cause the mayor and personally confronted Murdoch, telling him that Regan was "out of control." Ailes grew even more concerned in 2004, when President Bush nominated Kerik — by then a senior vice president in Giuliani's national security firm — to head the Department of Homeland Security. If Regan disclosed her tawdry ties to the former commissioner, Ailes feared, it might harm Kerik's nomination and "more importantly, Giuliani's planned presidential campaign."

To keep the affair hush-hush, Ailes "advised Regan to lie to and withhold information from investigators," and even coached her on limiting her disclosures "as is typically done when Fox News on-air talent receive their 'talking points.'" The alleged obstruction of justice by Ailes has since made headlines, but Regan also fingered "another News Corp. executive," whom she claimed advised her "not to produce clearly relevant documents in connection with a governmental investigation of Kerik."

Regan laid these allegations bare in a wrongful-termination lawsuit she filed in 2007. As it did with its accusers in London, News Corp. moved to paper over the matter by reaching a settlement with Regan worth more than $10 million. The only one punished in the Kerik affair was Kerik himself, who was sentenced to four years in prison for lying to federal investigators and failing to report income from a News Corp. book advance to the IRS.

Murdoch may soon find himself in even deeper trouble for his dealings with New York police. The Justice Department is currently investigating allegations that News Corp. reporters tried to bribe a New York cop, seeking to hack the phones of 9/11 victims — a charge that has outraged even the staunchest Fox News Republicans. "It is revolting to imagine that members of the media would seek to compromise the integrity of a public official for financial gain in the pursuit of yellow journalism," Rep. Peter King of New York wrote in a letter to FBI director Robert Mueller, demanding that any wrongdoing be met with the "harshest sanctions available under law."

But the "revolting" practice that King describes is actually at the core of Murdoch's business model. Until the News of the World scandal became public, deplorable judgment and even outright criminal behavior have not been firing offenses for Murdoch's top deputies, either in London or New York. A willingness to push the boundaries of the law and common decency, in fact, is what has made Murdoch a billionaire nearly eight times over. Murdoch himself has bragged of possessing files, replete with photographs detailing the sexual escapades of prominent liberals. You know, for leverage. All of which makes laughable Murdoch's claim before Parliament that "I'm the best person to clean this up."

The phone-hacking scandal engulfing News Corp. has led members of the extended Bancroft clan that sold The Wall Street Journal to Murdoch to repent of their decision — even though they received what amounted to a $3 billion overpayment from News Corp. for the paper. "Murdoch thinks he is completely above the law, as he always has," former top shareholder Bill Cox III recently told ProPublica. "We made a deal with the devil."

The sharks are already circling in England, where politicians long cowed by Murdoch's bullying now appear determined to curb News Corp.'s influence. Labor Party leader Ed Miliband, decrying Murdoch for having "too much power over British public life," has called for a breakup of his U.K. holdings. Here in the United States, institutional shareholders filed suit in July, seeking to change News Corp. from the inside by reforming its board of hand-appointed cronies. The board, the suit claims, has "abdicated its fiduciary duties" by enabling Murdoch to run the publicly-traded News Corp. "without any restraints on his pursuit of his political and personal agendas, which has led the company to engage in improper and illegal conduct."

The lawsuit highlights Murdoch's outrageous pay: He's pocketed $75 million in compensation over the past three years, even as News Corp.'s stock has yielded a negative return. It also blasts his "rampant nepotism," noting the extravagant overpayment he made to acquire his daughter Elizabeth's production company, Shine — a deal that made her $250 million richer at the expense of the company. But even as Murdoch's children have come back into the News Corp. fold, his dreams of creating a media dynasty have never been more troubled. As the fallout from the hacking scandal continues in London, the News of the World's former editor is accusing heir apparent James Murdoch of lying to Parliament about his knowledge of the hush money paid to hacking victims.

As each News of the World revelation exposes the root and branch of corruption at News Corp., the increasingly desperate Murdoch has responded by hacking off branches. In removing Les Hinton, the publisher of The Wall Street Journal, he cut off an executive he once said he would trust his life to. In getting rid of Rebekah Brooks at News of the World, he abandoned a deputy he favored like a daughter. Son James now looks like the next branch to go. But until Rupert Murdoch sees fit to remove himself, the root of all that's vile at News Corp. will remain the same.

This story is from the August 18, 2011 issue of Rolling Stone.

From The Archives Issue 1137: August 18, 2011
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