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AUGUST 13, 2011

News Corp. Probes Advance in U.S.

By CASSELL BRYAN-LOW And DEVLIN BARRETT

Investigators haven't found hard evidence so far in probing whether News Corp.'s U.K.-based journalists might have hacked the phones of 9/11 victims, but U.S. authorities have expanded their query to see whether they can establish a broader pattern of more recent misconduct at the company's U.S. operations, say people familiar with the matter.

British police investigating the sweeping phone-hacking scandal at the company's now-closed News of the World tabloid have told the Federal Bureau of Investigation there are no names or telephone numbers of Sept. 11 victims among the evidence they have gathered to date, according to people familiar with the case.

London's Metropolitan Police Service, known as Scotland Yard, has examined voluminous phone records of what could be thousands of potential phone-hacking victims, but those records don't suggest 9/11 victims were among the targets of the hacking, according to the people familiar with the case. A Scotland Yard spokesman declined to comment.

The New York Police Department also has told the FBI it has no indication such attempted violations occurred, and the FBI's own crime-victims assistance office has said the same. Attorney General Eric Holder plans to meet later this month with some Sept. 11 families, to discuss their concerns about the issue.

The bureau is continuing to probe the 9/11 hacking claim, the people said. The New York Post, another News Corp. property, has told employees to preserve any records or documents that may be relevant in the phone-hacking inquiry.

The allegation stemmed from an article in the U.K.'s Daily Mirror, based on unnamed sources, that reported News Corp. journalists tried to hack the phones of 9/11 victims. It was among the most serious allegations made in the high-profile scandal that hit News Corp's U.K. operations involving widespread phone hacking that targeted celebrities, politicians and a murder victim. The Justice Department and FBI, after requests from U.S. lawmakers, opened a probe to determine if any U.S. laws had been violated.

A News Corp. spokesman declined to comment. News Corp. owns The Wall Street Journal.

The new, broader inquiry remains at an early stage and may prove a dead end, people familiar with the case say. It concerns past allegations of misconduct made against divisions of News Corp., including a supermarket-coupon and advertising unit that settled a lawsuit from a competitor alleging computer hacking. In some of these cases, U.S. lawmakers have requested the Justice Department investigate.

In a lawsuit, New Jersey-based firm Floorgraphics claimed employees at News America Marketing hacked into its website in 2003 and 2004. The case was settled in 2009 when News Corp. bought Floorgraphics' assets and clients for $29.5 million.

But the coupon case is more than five years old, meaning the statute of limitations would likely bar prosecution of the matter even if investigators uncovered criminal activity, the people said. The issue was brought to federal prosecutors years ago, but nothing came of it, according to congressional correspondence.

Now, U.S. authorities are trying to determine whether they can find a broad pattern of misdeeds at News Corp. that continued into 2006 or more recently, according to the people familiar with the matter. If they find evidence of such conduct, which could include rewarding executives accused of wrongdoing, for example, that would open the door to pursuing matters beyond the five-year time frame.

These new questions represent the third line of inquiry into the company being pursued by U.S. prosecutors, in addition to the phone-hacking allegation and a look at whether News Corp.'s U.K. reporters broke U.S. law when they allegedly bribed British police officers in return for information.

Mike Koehler, an assistant professor of business law at Butler University, said federal corruption probes that begin as inquiries into one part of a company often expand into searches for similar conduct elsewhere. In the case of News Corp., claims that its U.K. Sunday tabloid News of the World allegedly bribed British police sparked the Justice Department to examine whether such conduct amounts to a violation of U.S. corruption law.

"These inquiries have a point of entry, but it's common that once enforcement agencies get comfortable with that, they start saying, 'How do we know this conduct wasn't taking place in countries X, Y, and Z?' It essentially forces the company to do a worldwide review which can take a long time and cost money,'' said Mr. Koehler.

In the U.K., the phone hacking investigation has led to the arrests of 12 people, including former top editors. None of them have been charged and inquiries into one woman who was arrested, who hadn't worked for News Corp., have been dropped.

A parliamentary committee probing the phone-hacking allegations is due to meet next week to discuss written statements it has been receiving from current and former News Corp. employees.

News Corp. Class B shares closed up less than 1% at $16.67 in 4 p.m. trading Friday. Shares dropped after the scandal intensified July 5, but have rallied since the company's earnings report on Wednesday.

Write to Cassell Bryan-Low at cassell.bryan-low@wsj.com and Devlin Barrett at devlin.barrett@wsj.com