Rupert Murdoch's American Scandals

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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.

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