Phone Hacking Testimony Disputed

Two former executives broke ranks with News Corp. for the first time on Thursday over whether James Murdoch knew in 2008 that the phone-hacking scandal at the company's now-defunct U.K. tabloid likely involved more than just one rogue reporter, as the company had long maintained.

The rupture in the ranks comes as News Corp. is under pressure over a key piece of its defense against phone-hacking allegations: a 2007 internal investigation by an outside law firm. That inquiry appears to have been less rigorous than company executives have said.

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Associated Press

News Corp.'s James Murdoch said Thursday he stands by his testimony.

On Thursday, Colin Myler, former editor of the News of the World tabloid, and Tom Crone, a former lawyer for the paper, said in a joint statement that in 2008 they informed Mr. Murdoch, now News Corp.'s deputy chief operating officer, about a crucial email suggesting that phone hacking went beyond one reporter. Mr. Murdoch on Tuesday said before a parliamentary committee in the U.K. that he had never been made aware of the email—even though he had approved a roughly £700,000 settlement ($1.1 million) in the matter.

In a statement, Mr. Murdoch said, "I stand by my testimony." The settlement was one of his first major decisions after becoming head of News Corp.'s Europe and Asia operations in 2007. He didn't work at News Corp. at the time of the alleged hacking.

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The two executives' statement amounts to an unusual public rebuke by long-serving allies of News Corp. Chairman and Chief Executive Rupert Murdoch, who is the father of James. Mr. Myler edited the New York Post before returning to the U.K. to run the News of the World in 2007. Mr. Crone had made his name defending the company's racy tabloids in court.

Separately, the Justice Department is preparing subpoenas as part of preliminary investigations into News Corp. relating to alleged foreign bribery and alleged hacking of voice mail of Sept. 11 victims, according to a government official. While the company has sought to isolate the legal problems in the U.K., it has been bracing for increased scrutiny from both the Justice Department and the Securities and Exchange Commission, according to people familiar with the company's strategy. Final approval to issue the subpoenas hasn't yet happened, the official said.

A person close to News Corp. said the preparation of subpoenas is "a fishing expedition with no evidence to support it."

Meantime, News Corp. and its former U.K. law firm are increasingly at odds.

As recently as last week, in an interview with The Wall Street Journal, News Corp. founder Rupert Murdoch said the company had hired "the best lawyers in London" to investigate the hacking claims in 2007, providing them with "thousands of documents." Mr. Murdoch said Harbottle & Lewis LLP was hired "to inquire into the whole situation" and that "it was their major mistake in reporting that there was nothing further to worry about."

However, the law firm's inquiry was limited—not a full-blown investigation but rather a narrow inquiry related to an employment dispute—according to public evidence submitted to parliament and people familiar with the matter. It was based on a review of at least 300 emails forwarded to the law firm by two executives at News International, the media company's U.K. newspaper unit, according to the parliamentary committee evidence. The law firm's remit was limited to whether or not five staffers at the News of the World tabloid knew about one reporter's illegal hacking activities or had engaged in similar activities, according to evidence submitted by News International to a parliament committee.

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The tabloid's former editor, Colin Myler.

Furthermore, the batch of emails also contained evidence of police bribery, according to a lawyer recently hired by News Corp. to review some of them. The indications of bribery weren't reported to the police until last month, according to News Corp.; it isn't clear why. The recently hired lawyer, a former U.K. prosecutor and current News Corp. adviser, Ken MacDonald, on Tuesday told a parliamentary committee that the nine or 10 emails he reviewed contained "blindingly obvious" evidence of bribes.

Lord MacDonald and other legal specialists said British lawyers generally don't have a duty to report crimes to authorities because advice to clients is privileged. But lawyers said it would be typical to alert a client if evidence of serious wrongdoing were found.

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There is much that isn't yet known about the Harbottle inquiry. Among important unanswered questions: exactly how many emails News International turned over to Harbottle, how many people at the media company read those emails, and to what degree senior executives were made aware of their contents. It's also unclear whether Harbottle interviewed any News of the World staffers.

On Thursday, Harbottle said it couldn't discuss the details of its work because of client-confidentiality restrictions. The firm said it had asked News International to release it from those restrictions.

Associated Press

The tabloid's former lawyer, Tom Crone.

Under pressure from a parliamentary committee, News International on Wednesday partially lifted the restriction, allowing the law firm to give evidence to the committee and to police. However, a person familiar with the matter said the company hadn't authorized Harbottle to speak to the media.

News Corp., which owns The Wall Street Journal, declined to comment.

Harbottle wasn't the only law firm News International drafted to look into phone-hacking allegations. After the scandal first erupted, in 2006, it hired another law firm, London-based BCL Burton Copeland, during a police investigation at that time following the arrest of News of the World reporter Clive Goodman for phone hacking.

In July 2009, Mr. Crone—one of the two men who on Thursday broke ranks with News Corp.—told a parliamentary committee looking into the phone hacking that the firm was "brought in to go over everything and find out what had gone on, to liaise with the police." At that time, Mr. Crone was News of the World's legal counsel.

However, the law firm's review was in fact mainly limited to examining payments to one investigator on the paper's payroll, according to 2009 parliamentary testimony. BCL Burton Copeland didn't respond to requests for comment.

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Learn more about who's who and how they're all connected in the scandal over allegations of voice-mail interceptions and corrupt payments to police.

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Mr. Crone, who left News International this month, declined to comment.

Mr. Myler, the other former executive to break ranks on Thursday, told the parliamentary committee in 2009 that News International's own inquiry included a review of 2,500 emails and that he spoke to executives about the matter. It isn't clear how many of those emails Harbottle received for review; News Corp. handed over 300 emails from the file to police in June.

The Harbottle assignment was born out of a legal battle with Mr. Goodman, the former reporter, who had been dismissed from the paper in 2007 after his imprisonment for hacking.

Mr. Goodman brought an internal wrongful-dismissal action against the company. During this process, Mr. Goodman alleged other employees were engaged in, or knew about, similar phone-hacking practices, a person familiar with the matter said.

In response, News International's head of legal affairs and head of human resources, Jon Chapman and Daniel Cloke, brought in Harbottle. In May 2007, Messrs. Chapman and Cloke reviewed and sent a batch of emails between Mr. Goodman and five other individuals to Harbottle, according to a document News International submitted to the parliamentary committee.

Messrs. Chapman and Cloke are no longer with the company. A lawyer for Mr. Cloke declined to comment and Mr. Chapman couldn't be reached.

In a letter dated May 29, 2007, Harbottle told News International that it "did not find anything in those emails which appeared to us to be reasonable evidence that Clive Goodman's illegal actions were known about and supported by" senior editors, or that "others were carrying out similar illegal procedures."

The company ultimately reached a private settlement with Mr. Goodman. News Corp. has told the parliamentary committee that the settlement was approved by Les Hinton, who at the time was head of News International and to whom Messrs. Chapman and Cloke reported.

In this past Tuesday's parliamentary testimony, Rupert Murdoch said his close friend and longtime aide Mr. Hinton had informed him of the Harbottle review.

Mr. Hinton resigned last week as the head of Dow Jones & Co., which is owned by News Corp. and which publishes the Journal. At the time of his resignation, Mr. Hinton said he was "ignorant of what apparently happened" at the tabloid. He didn't respond to requests for comment.

In 2009, Mr. Hinton told a parliamentary committee, "Look, I obviously did not look at those emails personally but I know that that scrutiny went on and no emails that raised any further suspicion were brought to my attention."

The Harbottle work resurfaced this year when police re-opened a criminal investigation into phone hacking. Upon discovering suggestions of bribery in the emails, Lord MacDonald, the News Corp. adviser and former prosecutor, reported his findings to News Corp.'s board, and advised giving the material to police. The company did so in late June, sparking police to launch a probe into corrupt payments.

—Bruce Orwall
and Jeanne Whalen contributed to this article.

Write to Cassell Bryan-Low at cassell.bryan-low@wsj.com, Paul Sonne at paul.sonne@wsj.com and Steve Stecklow at steve.stecklow@wsj.com
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