Press probe says more papers may have phone-hacked (Reuters)

LONDON (Reuters) – Other tabloids besides Rupert Murdoch's News of the World may have hacked phones, a London court heard on Monday as it began an investigation into newspaper practices that could lead to tougher regulation of the entire UK press.

The Leveson inquiry, expected to take about a year, was set up by Prime Minister David Cameron after it was revealed in July that the News of the World ordered hacking of the voicemail of missing schoolgirl Milly Dowler, who was later found murdered.

"The inquiry is beginning to receive evidence to indicate that phone hacking was not limited to that organization," said Robert Jay, counsel to the inquiry.

He said Glenn Mulcaire, who was jailed for phone-hacking in 2007 along with the News of the World's royal reporter Clive Goodman, had written the words "Daily Mirror" and "The Sun" in his notebooks, referring to other tabloids.

Jay said the names of 27 other News of the World reporters besides that of Goodman, long scapegoated by News Corp's British newspaper arm as a lone "rogue" reporter, had been found in Mulcaire's notebooks.

As police work through a list of 5,800 potential hacking victims, including actor Hugh Grant, Harry Potter author J.K. Rowling and ex-soccer star Paul Gascoigne, the scale of the scandal at and beyond the News of the World is still unclear.

News Corp executive James Murdoch, son of Chief Executive Rupert Murdoch and executive chairman of the group's British newspaper arm, is meantime fighting for his credibility as heir to the media empire.

James Murdoch has testified twice to a British parliamentary committee that he knew nothing of the scale of phone-hacking at the once best-selling tabloid, which he closed down in July in an attempt to limit the damage.

Neville Thurlbeck, a former chief correspondent at the tabloid whose name appears in a key piece of evidence, told Reuters on Monday he believed Murdoch had indeed been kept in the dark.

CHILLING

Murdoch's claims to have cleaned up the newspaper's culture, however, have been undermined by the News of the World's recent admission that it ordered surveillance of figures including lawyers representing hacking victims as early as this year.

Last week, Murdoch apologized to members of the parliamentary committee for the fact that the News of the World had monitored their activities.

Louise Mensch, a member of the committee, asked on Monday: "What possible public interest could there be in that? It is chilling, it's terrifying. It sort of says: 'Don't mess with us because we'll come to get you.'

"If it is true, I want to know who did the authorization, when, and on what basis, and I certainly want to see any reports that were compiled about myself and my colleagues," the Conservative member of parliament told Sky News.

Labour MP Tom Watson, the most aggressive member of the committee, pulled out of an industry event on Monday to discuss what he described as fresh evidence that News Corp spied on his colleagues.

"Under the circumstances, I have to spend the day seeking advice from the Speaker (of parliament) and discussing the matter with fellow members of the DCMS Select Committee as to our legal and constitutional position," he said.

Jay said none of the instances of phone-hacking that had so far come to light, which include eavesdropping on crime victims and relatives of war dead, came close to being justified on public-interest grounds.

"What can be justified in the public interest and how can it be justified lies at the very epicenter of this inquiry," Jay said in his opening statement.

He cited the Guardian's dogged reporting on the phone-hacking scandal, the Telegraph's exposure of members of parliament fiddling expense claims, and the Sunday Times's 1960s campaign for compensation for thalidomide victims as instances in which underhand reporting methods had been justified.

But he said the press too often went on "fishing expeditions" without any idea of what they would find, fuelling a view of the press as ruthless, unscrupulous and willing to do anything to boost circulation.

Britain's press is currently self-regulated by the Press Complaints Commission, a voluntary body with little funding and no legal powers.

Its chairperson at the time of the hacking fallout, Peta Buscombe, announced after the Milly Dowler revelations that she would step down.

The PCC is not expected to survive in its current form, and the conclusions of the Leveson Inquiry, being held at London's Royal Courts of Justice, will be important in deciding what should replace it.

"The press provides an essential check on all aspects of public life. That is why any failure in the media affects all of us," Judge Brian Leveson, who is in charge of the inquiry, said in his opening statement.

"At the heart of this inquiry therefore may be one simple question: Who guards the guardians?"

(Additional reporting by Kate Holton; Editing by Andrew Heavens)

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Solyndra scandal probe widens as White House orders new review (The Christian Science Monitor)

The Obama administration has ordered an independent review of loans made by the Energy Department to energy companies – a clear response to the controversial and now-bankrupt Solyndra Inc. solar energy company.

It’s the latest step in the face of growing criticism over the $528 million government loan to Solyndra, which was part of the administration’s economic stimulus package meant to advance green energy. Last month, FBI agents and investigators from the Department of Energy's Office of Inspector General searched Solyndra headquarters in California for documents and other information.

Heading the review announced Friday is former Treasury official Herbert Allison, who oversaw the Troubled Asset Relief Program, part of the 2008 Wall Street bailout.

"Today we are directing that an independent analysis be conducted of the current state of the Department of Energy loan portfolio, focusing on future loan monitoring and management," White House chief of staff Bill Daley said Friday afternoon – the traditional time for burying announcements. "While we continue to take steps to make sure the United States remains competitive in the 21st century energy economy, we must also ensure that we are strong stewards of taxpayer dollars."

Announcement of the internal review of procedures dealing with Solyndra was not enough to satisfy congressional critics.

Leaders of the Energy and Commerce Committee subcommittee on oversight and investigations say they’ll meet this coming week to consider a resolution authorizing the issuance of a subpoena for internal White House communications relating to the Solyndra loan guarantee.

“Subpoenaing the White House is a serious step that, unfortunately, appears necessary in light of the Obama administration’s stonewall on Solyndra,” Fred Upton (R) of Michigan and Cliff Stearns (R) of Florida said in a statement. “Since we launched the Solyndra investigation over eight months ago, the Obama administration has unfortunately fought us every step of the way, even forcing us to subpoena documents from [the White House Office of Management and Budget].”

Apparently, White House officials weren’t the only ones pushing special consideration for green energy.

Sen. Orrin Hatch (R) of Utah, who has criticized the Obama administration’s backing of Energy Department loan guarantees to Solyndra, pushed for more than $20 million in government funding for a clean energy firm in his home state, reports USA Today.

“Hatch aides [said] earlier this month that the Republican lawmaker had never pushed for taxpayer money to be used for Raser Technologies, which operated a geothermal power plant in southern Utah and also developed hybrid plug-in vehicles,” the newspaper reported Friday. “But on Friday, Hatch spokesman Matthew Harakal said that after an internal audit following publication of the USA Today story on Hatch's support for Raser, the Utah senator's office found that Hatch actually requested seven earmarks for more than $20 million from 2006 to 2008 to help fund research and development projects for the automotive wing of the company.”

None of the requests were funded, and Raser Technologies filed for bankruptcy in April.

Meanwhile, the Solyndra scandal – if that’s what it is – has indirectly touched at least one Republican presidential hopeful.

“Mitt Romney is facing scrutiny this week for associating himself with a lobbyist whose firm worked for failed California solar panel company Solyndra,” The Hill newspaper in Washington reported this week. “Lobbyist Alex Mistri co-hosted a Romney fundraiser Wednesday that included a number of lobbyists and members of Congress, held at the American Trucking Association near Capitol Hill.”

Also attending the Romney fundraiser co-hosted by lobbyist Mistri was Rep. Darrell Issa (R) of California, chairman of the House Committee on Oversight and Government Reform investigating Solyndra.

Material from the Associated Press was used in this report.

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Analysis: Mortgage probe may open new path for housing relief (Reuters)

(Reuters) – A controversial weapon could be deployed soon in the U.S. fight against the housing crisis as states and top banks near a deal in their dispute over mortgage abuses -- cutting the mortgage debt owed by homeowners.

Five major banks could be required to commit roughly $15 billion to reduce principal balances for struggling homeowners and modify loans in other ways under a proposed deal to settle allegations linked to the "robo-signing" scandal.

That amount would be part of broader sanctions that could total $25 billion, small change for the giants of Wall Street but potentially sowing the seed for a new approach to tackling the housing crisis.

Settlement talks continue with the banks, state attorneys general and some federal agencies over foreclosure shortcuts and other abuses. A deal could be struck within a month, according to people familiar with the matter.

Much of the exact language has yet to be hashed out but it could provide for the first broad use of principal writedowns, something economists and housing advocates say is a drastic but needed step to help set right the housing market.

Investors and the government-controlled mortgage finance giants Fannie Mae and Freddie Mac -- which own around half of all U.S. mortgages -- have long resisted the idea.

There are concerns it could encourage some borrowers to stop paying in order to qualify for a reduction in their overall mortgage.

Fannie and Freddie's regulator has been wary of allowing principal reductions, doing so would lower the value of the assets held by the taxpayer-supported firms.

More broadly, public anger over the possibility of bailouts for homeowners who got out of their depth in debt is seen as one of the origins of the conservative Tea Party movement.

Given the political sensitivity, the Obama administration has so far trodden carefully to help homeowners. It wants to let more borrowers refinance to lower interest rates and stretch out the terms of loans to reduce monthly payments.

Some officials at the Federal Reserve say the central bank should buy more mortgage debt to bring down borrowing rates.

But those efforts do little to address the underlying problem, that many borrowers owe more than their homes are worth.

Under a potential settlement, the five banks -- Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial -- would have to meet dollar targets to reduce principal for underwater borrowers.

"I think it will be a step in the right direction," said Ira Rheingold, executive director of the National Association of Consumer Advocates. "The AGs hope this could work as a pilot program, and show how principal reduction could work."

To be sure, the reductions will have limited impact. The deal is unlikely to touch mortgages held by Fannie and Freddie. And according to a back-of-the-envelope calculation, $15 billion in reduction at $50,000 per borrower could reach around 300,000 borrowers, a fraction of the 11 million underwater homeowners.

But a deal may prompt banks to expand the limited principal reduction programs that they have so far directed toward only the riskiest loans in their portfolios.

The settlement could lay the groundwork for a broader program, if Fannie and Freddie are swayed to test it out themselves as an alternative to the costly process of foreclosing on struggling borrowers.

"Fifteen billion (dollars) is a drop in the bucket, but here might well be the very opportunity to conduct an experiment," said Ken H. Johnson, a professor at Florida International University's business school.

PRIOR EFFORTS

One model could be the 2008 settlement between Countrywide, the mortgage lender bought by Bank of America in that year, and state attorneys general. It provided a framework for loan modifications that became the basis for the administration's Home Affordable Modification Program which has so far had only a modest impact.

That deal set up the now widely used "waterfall" approach to trying to lower a borrower's monthly payment through a series of steps that include reducing the interest rate, extending the term of the loan and deferring some principal.

The states are hopeful a settlement on foreclosure abuses could have a similar ripple effect.

Not all states are satisfied with Bank of America's compliance with the 2008 settlement, presaging some concerns that could arise in any new settlement. Nevada and Arizona sued the bank saying it did not honor its obligations and engaged in "deceptive" practices in dealing with distressed borrowers.

Shum Preston, a spokesman for the California attorney general, also said that his office continues to receive complaints from Countrywide borrowers.

But Massachusetts, which last year extracted an additional commitment from Bank of America to reduce around $3 billion in principal on some of its riskiest loans across the country, said the bank had been complying with the settlement.

A spokesman for the attorney general's office in the state, Brad Puffer, said around 2,600 residents have received loan modifications under the settlement, saving some $125 million in mortgage payments, including both principal reductions and other types of modifications.

Bank of America said it had extended 49,000 offers to reduce principal for underwater borrowers nationwide, forgiving almost $3 billion in principal payments, since the agreement.

That settlement, and a similar one by Wells Fargo, were directed at the riskiest loans, leaving largely untouched more traditional mortgages that still deep underwater due to cratering home prices.

Wells says it has provided $4 billion in principal reduction as part of 96,000 modifications completed since the Wachovia acquisition. In addition, since 2010, Wells has participated in a HAMP principal reduction program.

"We're never been here before so we can't look to past experience," said Johnson, the business school professor, "with the added complexity of what foreclosures do to market pricing, some form of principal reduction may be the answer."

(Reporting by Aruna Viswanatha in Washington D.C. and Rick Rothacker in Charlotte, North Carolina; Editing by Tim Dobbyn)

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NYC cops pleading not guilty in corruption probe (AP)

By TOM HAYS and COLLEEN LONG, Associated Press Tom Hays And Colleen Long, Associated Press – 1?hr?1?min?ago

NEW YORK – New York City police officers pleaded not guilty Friday to a range of corruption charges in a sweeping probe touched off by an investigation into whether a Bronx officer had ties to a drug dealer.

In total, 16 officers were arraigned in a packed courtroom. The halls were swarmed with people, and hundreds of officers carrying signs stood outside the courthouse and applauded as the accused officers walked through.

The Bronx officer, Jose Ramos, pleaded not guilty to drug and other charges. An internal affairs lieutenant pleaded not guilty to charges she leaked information to union officials about the probe. The rest of the officers pleaded not guilty to charges including official misconduct and obstructing governmental authority after prosecutors said they abused their authority by helping family and friends avoid paying traffic tickets.

The case evolved from a 2009 internal affairs probe of Ramos, who owned a barber shop and was suspected of allowing a friend to deal drugs out of it. Prosecutors said he also transported drugs in uniform.

"He sold his shield, he violated his oath," Assistant District Attorney Omer Wiceyk said.

Wiceyk said Ramos was recorded as saying he "stopped caring about the law a long time ago."

Ramos' attorney, John Sandleitner, said the charges were ridiculous. "If he had done any of these things that they say, they would've arrested him two months ago. Or two years ago," he said. "Why did they let him go to work, then?"

While listening to Ramos' phone, investigators caught calls from people seeing if Ramos could fix tickets for them. The conversations led to more wiretaps that produced evidence of additional officers having similar conversations.

Internal affairs lieutenant Jennara Cobb, who pleaded not guilty to charges of divulging a wiretap, was accused of meeting with union officials about the probe. As a result, word spread through the department's most powerful union and delegates started to alter the way they fixed tickets, prosecutor Jonathan Ortiz said.

"The investigation was significantly compromised because of her actions," he said.

Her attorney, Philip Karasyk, said she denied the charges and had been unfairly singled out. She was released on bail.

"That wiretap was leaking like a sieve," he said.

Many of those arrested include high level members of the union, the Patrolmen's Benevolent Association, the department's most powerful with 22,000 members.

"This has been laid on the shoulders of police officers, but when the dust settles and we have our day in court, it will be clear that this is part of the NYPD at all levels," union President Patrick Lynch said through a spokesman.

Among those charged were Bronx union delegates Officers Joseph Anthony, 46; Michael Hernandez, 35; and Brian McGuckin, 44. Officer Virgilio Bencosme, 33, and Officer Luis R. Rodriguez, 43, both of the 40th Precinct; Officer Christopher Scott, 41, of the 48th Precinct; Officer Jaime Payan, 37, of the 46th Precinct; Officer Eugene P. O'Reilly, 39, of the 45th Precinct; Officer Christopher Manzi, 41, of the 41st Precinct; and Jason Cenizal, 39, a former delegate from the 42nd Precinct.

Ramos' supervisor, Jacob G. Solorzano, 41, was charged with misconduct. Sgt. Marc Manara, 39, Officer Ruben Peralta, 45, Jeffrey Regan, 37 and Officer Christopher Scott, 41, of the 48th Precinct were all charged with covering up an assault for a an acquaintance. Some of the charges also overlap to include ticket fixing.

The case doesn't appear to rise to the level of the more notorious corruption scandals in the nation's largest police department. But in terms of the number of officers facing criminal or internal administrative charges, the probe represents the largest crackdown on police accused of misconduct in recent memory. Dozens of other officers may face internal charges.

Earlier this week, federal prosecutors in Manhattan brought conspiracy and other charges against five current and three former officers alleging they were part of a gun-running ring. In two other recent unrelated federal cases, one officer was charged with arresting a black man without cause and using a racial slur to describe the suspect, and another with using a law enforcement database to try to trump up charges against an innocent man.

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U.S. probe lays Gulf spill blame on BP, contractors (Reuters)

WASHINGTON/HOUSTON (Reuters) – The U.S. government heaped the lion's share of blame for the country's biggest ever oil spill on BP on Wednesday as investigators issued their final report on the massive Gulf disaster last year.

In a report that may be pivotal in the multibillion-dollar legal battles to come and could set the stage for criminal charges, the Coast Guard and the offshore oil regulator wrote that BP was solely to blame for 21 of 35 contributing causes to the Macondo well blow-out that led to the leak, and shared blame for 8 more.

After the most definitive look yet at the disaster, investigators said BP made a series of decisions that complicated cementing operations and may have contributed to the ultimate failure of the cementing of the well.

BP shares retained most of the day's near 4 percent gain after the report as investors viewed the report as spreading responsibility more broadly. Shares of Halliburton -- which was responsible for cementing -- fell nearly 1 percent.

But analysts also noted the report highlighted BP's risk approach had been a core cause.

"BP's cost or time saving decisions without considering contingencies and mitigation were contributing causes of the Macondo blowout," the report said.

The final report by the Coast Guard and Bureau of Ocean Energy Management had been eagerly awaited by investors seeking clues on possible legal ramifications BP and its partners may face from the drilling disaster.

The report highlighted a litany of errors that preceded last year's explosion on the BP-leased Deepwater Horizon rig killed 11 workers and spewed more than 4 million barrels of oil from the Macondo well into the sea.

BP failed to communicate decisions regarding the cementing that increased operational risks to Transocean, the contractor that owned and operated the Deepwater Horizon rig, according to the report.

Transocean workers missed an opportunity to address the cement problems when they misinterpreted a critical test of the well's cement barriers.

A NIGHTMARE WELL

The Macondo project was plagued by problems even prior to the spill, according to the report.

The well was running over budget and had also exhibited

signs that all was not right. In an email, a BP engineer labeled Macondo as a "a nightmare well which has everyone all over the place," according to the report.

BP had sent its minority partners MOEX and Anadarko Petroleum Corp three requests for more money to drill the well beyond the its original estimated cost of $96 million. The companies in total allocated $155 million to drill Macondo.

Halliburton was responsible for cementing on the well. The cement's failure to maintain the integrity of the well was the central cause of the blowout, the federal team said.

BP worked with Halliburton to design the cement job. Because the well was over budget, "BP sought to minimize these losses by reducing the volume of cement it pumped into the well" and a key analysis recommended by a Halliburton engineer was skipped, according to the report.

Halliburton, Transocean and Cameron International, the designer of the well's blowout preventer, were not immediately available for comment.

LEGAL IMPLICATIONS

The Gulf drilling disaster spurred a slew of investigations, lawsuits and regulatory reforms.

The Justice Department has already sued the well's owners, BP, Anadarko Petroleum Corp and Mitsui Co Ltd, as well as Transocean.

More charges could be brought, however, and the findings from federal investigators could provide fodder for lawsuits that BP and its contractors have filed blaming each other for the spill.

BP welcomed the report's findings spreading the responsibility for the accident around.

"BP agrees with the report's core conclusion -- consistent with every other official investigation -- that the Deepwater Horizon accident was the result of multiple causes, involving multiple parties, including Transocean and Halliburton," the company said in a statement.

The latest federal report echoes other official investigations of the spill, which have blamed the catastrophe on a series of mistakes made by BP and its partners.

REGULATORY CHANGES

In addition to the legal impacts of the federal report, the team's investigation may lead to further changes in the regulatory landscape for offshore drilling.

Following the Gulf spill, the government imposed a raft a new rules aimed at preventing another disaster.

While regulations in place at the time of the spill did not cause the disaster, "stronger and more comprehensive federal regulations might have reduced the likelihood of the Macondo blowout," the federal investigators said.

The report said regulations could be strengthened in areas involving cementing procedures and inspection of offshore drilling operations, but said many recommended changes have already been implemented by the BOEM.

(Additional reporting by Matthew Daily, Kristen Hays, Tom Bergin and Anna Driver; Editing by Russell Blinch and David Gregorio)

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Credit Suisse unlikely to get help over U.S. tax probe (Reuters)

ZURICH (Reuters) – Switzerland's parliament would not vote for a second tax treaty to help settle U.S. charges that Credit Suisse bankers helped wealthy Americans evade taxes, Swiss politicians were quoted as saying on Sunday.

In 2009, the Swiss government cut a deal with Washington to hand over the details of 4,450 UBS bank accounts to the U.S. authorities to end a damaging lawsuit against the bank, lifting the veil on Switzerland's cherished tradition of banking secrecy that had helped it build up a multi-trillion-dollar offshore banking industry.

But politicians of various affiliations said there was little appetite for a second deal to help Credit Suisse, which is being probed by U.S. authorities as part of a broader investigation into banks suspected of helping Americans evade taxes.

"The enthusiasm to guarantee a bank state help again is very low," Christian Democrat (CVP) Pirmin Bischof was quoted as saying in the SonntagsZeitung.

This view was echoed by Free Democrat (FDP) Ruedi Noser in the NZZ am Sonntag newspaper.

"Parliament will not accept a second state treaty," he said.

Offshore tax havens have come under attack in recent years as cash-strapped governments seek to boost revenues in the wake of the financial crisis, forcing countries like Switzerland to pledge to cooperate more to help hunt tax cheats.

Last week U.S. authorities indicted three Credit Suisse private bankers for allegedly helping wealthy Americans evade taxes, bringing the total number of Credit Suisse bankers indicted to seven.

Despite their insistence Credit Suisse must solve its problems alone, the growing scrutiny from the U.S. has angered some politicians, potentially straining talks between the two countries on a multibillion dollar deal over Swiss banks helping Americans to shield their money from the U.S. taxman.

"If the U.S. is going to act in such a way Switzerland must break off negotiations for a political solution," Noser was cited as saying in the NZZ am Sonntag.

The talks had already become bogged down due to Swiss insistence any deal leave Swiss bankers free from prosecution in the United States, sources said last month.

The investigation against Credit Suisse has also prompted Swiss private banks Sarasin and Julius Baer to ban staff from traveling to the United States.

"For the last two weeks it has been necessary to get approval for all private and business trips to the U.S.," Sarasin spokesman Benedikt Gratzl told der Sonntag.

"It's about protection. So the bank and its employees will be protected from investigations and arrests," Gratzl said.

Julius Baer declined to comment to the paper and did not immediately respond to a request for comment from Reuters.

(Reporting by Caroline Copley; Editing by Erica Billingham)

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Cameron denies staff tried to halt hacking probe (AP)

LONDON – Prime Minister David Cameron emphatically denied claims that his staff tried to stop an inquiry into phone hacking at the News of the World and defended his decision to hire one of the tabloid's editors as his communications chief.

In a raucous emergency session Wednesday in Parliament, Cameron did admit that both the ruling Conservatives and the opposition Labour parties had failed to pursue key developments in the hacking case and had actively courted media baron Rupert Murdoch.

"The clock has stopped on my watch and we need to sort it out," Cameron told lawmakers, promising that a government inquiry would examine the cozy relationship between British politicians and media and investigate whether other news organizations may have broken the law.

Police are also probing whether news media breached privacy laws.

Cameron cut short his Africa trip and the House of Commons delayed its summer break to debate issues engulfing both Britain's political and media elite and Murdoch's global communications empire, News Corp.

Murdoch owned the troubled News of the World, where the phone hacking claims first emerged in 2005, when the royal household alerted police that the tabloid may have learned about Prince William's knee injury by illegally intercepting phone messages.

Cameron's former communications chief Andy Coulson — a former editor at the tabloid — is among 10 people who have been arrested in the scandal. One has been cleared.

Lawmakers wanted to know why Cameron insisted on hiring Coulson despite warnings and how much the prime minister knew about the phone hacking investigation. There have been allegations that some people on Cameron's staff may have met with police to pressure them to drop the investigation.

"To risk any perception that No 10 (Downing Street) was seeking to influence a sensitive police investigation in any way would have been completely wrong," he said.

Cameron did, however, meet with News Corp. executives more than two dozen times from May 2010 to this month — meetings that were criticized in Parliament by Labour leader Ed Miliband, who said Cameron had made a "catastrophic error of judgment" in hiring Coulson.

Coulson was an editor at the News of the World when royal reporter Clive Goodman and private investigator Glenn Mulcaire were arrested and jailed in 2007 for phone hacking. The original police inquiry into phone hacking was dropped, Coulson quit the paper and Cameron — then opposition leader — hired him.

This January, police reopened the hacking investigation. They are now investigating some 3,870 people whose names and telephone numbers were found in the News of the World files. It remains unclear how many were hacking victims. Coulson resigned his government post that same month.

News Corp. said Wednesday it had now eliminated legal payments to Mulcaire — a day after Murdoch told lawmakers in a special parliamentary committee hearing that he would try to find a way to stop the payments. Mulcaire's lawyer, Sarah Webb, declined to comment on the development.

In other phone hacking news, a judge Wednesday awarded "Notting Hill" actor Hugh Grant — one of the most prominent celebrity critics of the Murdoch empire — the right to see whether he was one of the tabloid hacking victims.

The scandal captivated television audiences from America to Murdoch's native Australia on Tuesday, as Murdoch endured a three-hour grilling by U.K. lawmakers. The media baron said he had known nothing of allegations that staff at News of the World hacked into cell phones and bribed police to get information on celebrities, politicians and crime victims.

He also said he had been humbled by the allegations and apologized for the "horrible invasions" of privacy.

Murdoch flew out of London on Wednesday.

Politicians from both the Conservative Party and Labour Party have been tainted by the scandal.

During Wednesday's session, Miliband reminded Cameron that his own Deputy Prime Minister Nick Clegg had warned Cameron against bringing Coulson into Downing Street last year as communications chief. Clegg sat stone-faced during much of Wednesday's rowdy session.

Cameron later countered, saying the Labour Party was also guilty of hiring questionable characters, including Miliband's current strategist, Tom Baldwin, another former Murdoch journalist from a different paper.

Conservative donor Lord Ashcroft, a Belize-based billionaire who has funded the party for more than a decade, has accused Baldwin of trying to get private banking information in 1999.

Cameron defended Coulson's work and said if it emerged that Coulson had lied to him about his role in the hacking case he would take it seriously.

"Andy Coulson is innocent until proven guilty," Cameron said.

Buckingham Palace reacted sharply to a claim by one lawmaker that it had raised concerns with Cameron's office over his decision to hire Coulson. "It is outrageous to suggest this," said a palace spokesman.

Britain's Conservative Party reported it had just learned that another recently arrested phone-hacking suspect, former News of the World executive editor Neil Wallis, may have advised Coulson before the 2010 national election that put Cameron into power. It said Wallis was not paid for the advice, however.

Cameron also said the hacking affair raises questions over the ethics and values of London's police force and vowed Wednesday that he would bring in new leadership to the force. Two top police resigned this week over their close ties to Wallis.

Meanwhile, a House of Commons committee on Wednesday blasted both News International, the News Corp. unit that operates the British papers, and the London Metropolitan Police for their performance on the scandal.

"We deplore the response of News International to the original investigation into hacking. It is almost impossible to escape the conclusion ... that they were deliberately trying to thwart a criminal investigation," said the Home Affairs committee, which has been grilling past and present Metropolitan Police officials about their decision not to reopen the hacking investigation in 2009.

On Wednesday, police charged Jonathan May-Bowles, 26, with behavior causing harassment, alarm or distress in a public place for trying to hit Murdoch with a foam pie at the U.K. hearing.

As the scandal exploded this month, Murdoch shut down the 168-year-old News of the World, gave up on buying full control of British Sky Broadcasting, Britain's biggest commercial television company, and accepted the resignations of two top executives.

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Cassandra Vinograd, Danica Kirka, Meera Selva and Robert Barr contributed to this report

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Cassandra Vinograd, Danica Kirka, Meera Selva and Robert Barr contributed to this report from London.

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Murdoch defends papers as Cameron pledges hacking probe (Reuters)

LONDON (Reuters) – Rupert Murdoch promised full cooperation on Wednesday to resolve a scandal shaking his media empire after British Prime Minister David Cameron promised an inquiry into what he called "disgusting" phone hacking by a newspaper.

Responding in parliament to allegations that the News of the World eavesdropped on voicemail for victims of notorious crimes, including child murders and suicide bombings, Cameron said he was "revolted" and would order inquiries, probably into both the specific case and more widely into Britain's cut-throat media.

The opposition, keen to highlight Cameron's own ties to Murdoch and to two former editors at the eye of the storm, noted that any inquiry would not start, let alone finish, for months if not years. Critics accused the Conservative government of trying to bury the embarrassment of the long-running saga.

Murdoch, whose News International group faces boycotts from advertisers and readers as well as questions over a takeover bid for broadcaster BSkyB, made a rare public statement to say he too found the hacking, and reports of buying tips from police, "deplorable and unacceptable" and would ensure transparency.

But the 80-year-old Australian-born American media magnate made clear he was standing by Rebekah Brooks, the 43-year-old head of his British newspaper operation. She was editor in 2002 when, police say, a News of the World investigator listened to -- and deleted -- voicemails left for the cellphone of missing 13-year-old Milly Dowler, who was later found murdered.

Cameron said: "We do need to have an inquiry, possibly inquiries, into what has happened." The prime minister faces questions over his own judgment in appointing Brooks'successor as editor, Andy Coulson, as his spokesman. Coulson quit Cameron's office in January, but denies knowing of any hacking.

Cameron, who regularly hosts Brooks at his home, said: "We are talking about murder victims, potentially terrorist victims, having their phones hacked into. It is absolutely disgusting."

In a further twist to the affair, a spokesman for Finance Minister George Osborne confirmed media reports that police had told the senior cabinet minister that his name and home number were in notes kept by two people jailed for phone hacking.

"FULLY COOPERATE"

Murdoch said in his statement: "Recent allegations of phone hacking and making payments to police with respect to the News of the World are deplorable and unacceptable.

"I have made clear that our company must fully and proactively cooperate with the police in all investigations and that is exactly what News International has been doing and will continue to do under Rebekah Brooks' leadership."

The leader of the opposition Labour party, Ed Miliband, said Cameron had made a "catastrophic error of judgment" in hiring Coulson as his communication director and said Brooks, a high-flying Murdoch confidante, should resign her current post. She says she knew of no illegal hacking while editing the paper.

When its royal correspondent and an investigator were jailed in 2007 for hacking into the cellphones of royal aides to break a story about an injury to Prince William's knee, the newspaper insisted it was a case of one rogue reporter.

After campaigning by celebrities and politicians who suspected they too had been spied on, police launched a new inquiry in January and, following the arrests of several journalists, the affair has taken on dramatic new proportions.

Shares in Murdoch's News Corp, which also controls Fox television, the Wall Street Journal, London's Times and the New York Post among other titles, were down over 5 percent in New York, while shares in BSkyB fell more than 2 percent.

Major advertisers abandoned the News of the World.

Speaking for one carmaker Lance Bradley said: "Mitsubishi Motors in the UK considers this type of activity-- especially in such a distressing case-- to be unbelievable, unspeakable and despicable ... This is where we draw the line."

Internet campaigns and the actor Hugh Grant urged readers to boycott the paper which, if successful, may prove more damaging than political condemnation to Britain's best-selling Sunday paper, read by some 7.5 million people on sales of 2.6 million.

Sales of News Corp's daily sister paper the Sun never recovered in Liverpool after it offended the city's football fans in the wake of the 1989 Hillsborough stadium disaster.

"We need an inquiry that uncovers all the practices and the culture, not just of the News of the World but all tabloid journalism in this country," said Grant, a fixture of the gossip columns, who says he was a victim of phone hacking.

BROADCASTER BID

Though analysts believe the chances of the BSkyB purchase being derailed are slim, the watchdog which oversees Britain's broadcasting industry issued a statement pointing out that it had a duty to assess whether holders of a broadcasting license are 'fit and proper'. Murdoch is trying to buy the 61 percent of the BSkyB pay-TV group that it does not already own.

"There has been a shift in the last three days, there is now a consensus that this needs full and proper scrutiny," media consultant Steve Hewlett told Reuters.

Police have been criticized for being slow to investigate the phone-hacking claims but reject suggestions this was because of alleged payments to officers. The head of the Metropolitan Police Paul Stephenson said allegations of "inappropriate payments" to some officers were under investigation.

British politicians have said in the past they feared criticizing any of the Murdoch papers because they feared their own private lives might be exposed.

Among further allegations, families of Londoners killed by Islamist suicide bombers in 2005 said police had told them their voicemail messages may have been intercepted.

Graham Foulkes, whose son David was one of 52 people who died in the 7/7 bombings, told BBC radio he was contacted by police after they found his private contact details on a list as part of the investigation into hacking claims.

"We were using the phone frantically trying to get information about David and where he may have been and ... talking very intimately about very personal issues, and the thought that these guys may have been listening to that is just horrendous," Foulkes said. Relatives are preparing to mark the sixth anniversary of the attacks on Thursday.

News International said it would be contacting the Defense Ministry about reports the phone numbers of British soldiers killed in Iraq and Afghanistan were found in the files of a private investigator jailed for hacking phones.

"If these allegations are true we are absolutely appalled and horrified," it said in a statement.

On Tuesday the company said new information had been provided to police. The BBC said the material related to e-mails appearing to show payments to police officers for information and were authorized by Coulson when he was editor.

Commentators suggested information about the payments had been released to deflect attention from Brooks, who unlike Coulson is still a key part of Murdoch's business. The Guardian, a left-leaning daily which has taken a lead in investigating the scandal, said News International would also be saying that Brooks was on holiday at the time of key alleged incidents.

"If Rebekah falls then who is next? Well it's James Murdoch," said media consultant Hewlett, suggesting that keeping her in her position served to protect her superior, Murdoch's son James, from criticism. "This feels to me like a firewall."

Media commentator Stephen Barnett said Brooks's position seemed at risk but that Murdoch would likely support her: "If she has 100 percent backing of Rupert Murdoch then clearly she is untouchable and more importantly it shows that Murdoch himself thinks the company is untouchable," he said.

The Guardian said police investigating the phone-hacking claims were now turning their attention to all high-profile cases involving the murder or abduction of children since 2001.

The key allegation is that journalists, or investigators hired by them, took advantage of often limited password security on mobile phone voice mailboxes to listen to messages left for celebrities or people involved in major stories.

What has particularly outraged many was the suggestion, made by police to the family of Milly Dowler, that a News of the World investigator not only hacked into her mailbox during the six months of 2002 that she was missing but also deleted messages to make room for more -- misleading police and giving her family false hope she was still alive and well.

The child's killer was tried only this year and convicted just last month, refreshing painful memories of the case.

The parents of two 10-year-olds taken and murdered by a school caretaker in the town of Soham in 2002 -- one of Britain's most notorious crimes in recent years -- have been contacted by police probing hacking at the News of the World.

(Additional reporting by Georgina Prodhan, Michael Holden, Keith Weir, Olesya Dmitracova, Stefano Ambrogi and Alastair Macdonald; Editing by Jon Boyle)

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