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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New UK defense minister appointed after scandal (AP)

LONDON – Britain's defense minister quit Friday in the face of an influence-peddling scandal focused on the role of a close friend who was present on scores of overseas trips despite having no government role

Liam Fox was replaced by Philip Hammond, 55, a veteran Conservative Party lawmaker who had been transport secretary.

Fox resigned Friday evening following days of allegations about the influence-peddling of a close personal friend who joined him on key foreign visits and posed as an unofficial aide.

The outgoing Fox became the first Conservative Party lawmaker to quit Britain's Cabinet since the country's coalition government was formed following an inconclusive election in May 2010.

Hammond, who is married with three children, is seen as a steady, reliable manager who will be charged with overseeing severe budget cuts at the defense department while managing the difficult war in Afghanistan.

Fox became cornered by questions over the policy influence of his 34-year-old friend Adam Werritty, who served as the best man at Fox's 2005 wedding and with whom he had once shared an apartment. Critics demanded to know who was funding the younger man's tours across the globe to join the minister on 18 overseas visits.

Questions were also raised about whether Werritty was representing groups interested in building ties with Fox to gain defense contracts, or seeking to curry favor with the British defense establishment.

Fox, 50, had initially insisted he planned to continue in his role leading Britain's armed forces, but he was sunk by continued disclosures over Werritty's activities.

"I mistakenly allowed the distinction between my personal interest and my government activities to become blurred," Fox told Prime Minister David Cameron in his resignation letter. "The consequences of this have become clearer in recent days. I am very sorry for this."

Cameron praised Fox's work, saying he had overseen changes at the defense ministry that would ensure the armed forces were "fully equipped to meet the challenges of the modern era."

"On Libya, you played a key role in the campaign to stop people being massacred by the Gadhafi regime and instead win their freedom," Cameron wrote.

Fox also played an important role implementing controversial budget cuts throughout the military.

Though Werritty did not have an official paid role with the defense ministry, he had business cards listing him as an adviser to Fox.

Fox, who was voted in to parliament in 1992, said he had no plans to quit the House of Commons.

However, he expressed regret at leaving his position while military operations are ongoing in Afghanistan and Libya.

"I am proud also to have played a part in helping to liberate the people of Libya, and I regret that I will not see through to its conclusion Britain's role in Afghanistan, where so much progress has been made," he said.

Fox was brought up on a public housing estate in Glasgow, Scotland's largest city and studied medicine at the University of Glasgow, where he became involved in politics.

Though he married his long term girlfriend Dr. Jesme Baird in 2005, he had been the frequent subject of speculation over his sexual orientation.

Critics further pressed Fox on the relationship with Werritty after he disclosed on Monday they had met 40 times since May 2010, including on business trips and family holidays overseas.

Werritty had previously worked for Fox's Atlantic Bridge organization, a now defunct charity that promoted hawkish foreign policy views and sought to become a forum for neo-conservatives in London and Washington.

Fox, who contended for the Conservative Party leadership but came in third in a contest won by Cameron in 2005, was closely allied to Margaret Thatcher, a patron of his charity. The ex-prime minister attended his 50th birthday party last month, though she is now 86 and usually too weak to go out in public.

The departed defense minister was known for favoring closer ties to the United States and had alienated some in his party with his views.

Main opposition Labour Party lawmaker Jim Murphy said Fox's actions in allowing Werritty access to visits, and to arrange a meeting in Dubai with a potential supplier had breached rules governing the conduct of ministers.

Supporter Louise Mensch, a Conservative Party legislator, said Fox's exit was regrettable.

"He was an outstanding Secretary of State for defense and a completely dedicated minister," she wrote on Twitter.

Britain's top civil servant is continuing an inquiry aimed at determining whether Fox breached rules, and whether Werritty profited personally.

Hammond is being replaced at the transport ministry by Justine Greening, a rising legislator within Prime Minister David Cameron's party.

___________

Associated Press Writer Meera Selva contributed to this report.

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Special report: Pension scandal shakes up Venezuelan oil giant (Reuters)

CARACAS (Reuters) – Venezuela received an enviable honor last month: OPEC said it is sitting on the biggest reserves of crude oil in the world -- even more than Saudi Arabia.

But the Venezuelan oil industry is also sitting atop a well of trouble.

The South American nation has struggled to take advantage of its bonanza of expanding reserves. And a scandal over embezzled pension funds at state oil company PDVSA has renewed concerns about corruption and mismanagement.

Retired workers from the oil behemoth have taken to the streets in protest. Their beef: nearly half a billion dollars of pension fund money was lost after it was invested in what turned out to be a Madoff-style Ponzi scheme run by a U.S. financial advisor who was closely linked to President Hugo Chavez's government.

The fraud case centers on Francisco Illarramendi, a Connecticut hedge fund manager with joint U.S.-Venezuelan citizenship who used to work as a U.S.-based advisor to PDVSA and the Finance Ministry.

Several top executives at PDVSA have been axed since the scandal, which one former director of the company said proved Venezuela under Chavez had become "a moral cesspool."

Pensioners are not the only ones still wondering how such a large chunk of the firm's $2.5 billion pension fund was invested with Illarramendi in the first place.

The question cuts to the heart of the challenges facing PDVSA, one of Latin America's big three oil companies alongside Pemex of Mexico and Brazil's Petrobras.

The Organization of the Petroleum Exporting Countries issued a report last month showing Venezuela surpassed Saudi Arabia as the largest holder of crude oil reserves in 2010.

PDVSA is ranked by Petroleum Intelligence Weekly as the world's fourth largest oil company thanks to its reserves, production, refining and sales capacity, and it has been transformed in recent years into the piggy-bank of Chavez's "21st Century Socialism."

The timing of the scandal is not good for Chavez: the charismatic, 57-year-old former coup leader underwent cancer surgery in Cuba in June and is fighting to recover his health to run for re-election next year. He needs every cent possible from PDVSA for the social projects that fuel his popularity.

MULTI-TASKING

The company does a lot more than pump Venezuela's vast oil reserves. Tapped constantly to replenish government coffers, PDVSA funds projects ranging from health and education to arts and Formula One motor racing. From painting homes to funding medical clinics staffed by Cuban doctors, the restoration of a Caracas shopping boulevard and even a victorious team at the Rio carnival, there's little that PDVSA doesn't do.

Jeffrey Davidow, a former U.S. ambassador to Venezuela who now heads the Institute of the Americas at the University of California, San Diego, points to the occasion when PDVSA senior executives turned down invitations to a regional energy conference at the last minute back in May, saying they were too busy because of PDVSA's leading role in the government's "Gran Mission Vivienda" project. It aims to build two million homes over the next seven years.

"In poorly-managed societies, national oil companies tend to be the most efficient organizations, so the government gives them more work to do, instead of letting them focus on being better oil companies," Davidow told industry executives in the ballroom at a luxurious La Jolla hotel.

That's the kind of criticism that Chavez, who has nationalized most of his country's oil sector since he was elected in 1999, says is rooted in a bankrupt "imperial Yankee" mind-set.

He purged perceived opponents from PDVSA's ranks in response to a crippling strike in 2002-2003 that slashed output, firing thousands of staff and replacing them with loyalists. Since then, the company has endured one controversy after another.

There was the "maleta-gate" affair in 2007, so-called after the Spanish word for suitcase, when a Venezuelan-American businessman was stopped at Buenos Aires airport carrying luggage stuffed with $800,000 in cash that U.S. prosecutors said came from PDVSA and was intended for Cristina Fernandez's presidential campaign in Argentina. Both Fernandez and Chavez denied the charge.

There have also been persistent allegations by industry experts and international energy organizations that Venezuela inflates its production statistics -- which PDVSA denies -- and a string of accidents, including the sinking of a gas exploration rig in the Caribbean last year and a huge fire at a giant oil storage terminal on an island not far away.

In a big blow to its domestic popularity, tens of thousands of tons of meat and milk bought by PDVSA's importer subsidiary, PDVAL, were left festering in shipping containers at the nation's main port last year, exacerbating shortages of staples on shop shelves. Opposition media quickly nicknamed the subsidiary "pudreval" in a play on the Spanish verb "to rot" - "pudrir".

In an apparent damage-limitation exercise after the pension scandal, five members of the PDVSA board were relieved of their duties in May, including the official who ran the pension fund. They were replaced by Chavez loyalists including the country's finance minister and foreign minister.

Gustavo Coronel, a former PDVSA director in the 1970s and later Venezuela's representative to anti-graft watchdog Transparency International, said the fraud had been going on right under the noses of the PDVSA board.

"What this scandal shows is that Venezuela has become a moral cesspool, not only restricted to the public sector but to the private sector as well," he wrote on his blog.

"Money is dancing like a devil in Venezuela, without control, without accountability. Those who are well connected with the regime have thrown the moral compass by the side Venezuelan justice will not move a finger. Fortunately, U.S. justice will."

SHOW ME THE MONEY

U.S. investigators say Illarramendi, the majority owner of the Michael Kenwood Group LLC hedge fund, ran the Ponzi scheme from 2006 until February of this year, using deposits from new investors to repay old ones. He pleaded guilty in March to multiple counts of wire fraud, securities and investment advisor fraud, as well as conspiracy to obstruct justice and defraud the U.S. Securities and Exchange Commission. He could face up to 70 years in prison.

By those outside the circles of power in Venezuela, Illarramendi was seen as one of the "Boli-Bourgeoisie" -- someone who was already wealthy but grew much richer thanks to the "Bolivarian Revolution," named by Chavez after the dashing 19th century South American independence hero Simon Bolivar. In one widely-circulated image, Illarramendi is seen overweight and balding, wearing a dark blue overcoat and clutching a blue briefcase as he left federal court in Bridgeport, Connecticut after pleading guilty.

An ex-Credit Suisse employee and Opus Dei member in his early 40s who lived in the United States for at least the last 10 years but traveled frequently to Venezuela, Illarramendi is on bail with a bond secured on four U.S. properties he owns.

He was close to PDVSA board members and Ministry of Finance officials, but is not thought to have known Chavez personally. The son of a minister in a previous Venezuelan government, Illarramendi did enjoy some perks -- including using a terminal at the capital's Maiquetia International Airport normally reserved for the president and his ministers, according to one source close to his business associates.

His sentencing date has not been set yet, but a receiver's report by the attorney designated to track down the cash is due in September. In June, SEC regulators said they found almost $230 million of the looted money in an offshore fund.

That was just part of the approximately $500 million Illarramendi received, about 90 percent of which was from the PDVSA pension fund, according to the SEC.

PDVSA has assured its former workers they have nothing to worry about, and that the money will be replaced. But what concerns some retirees are allegations the company may have broken its own rules for managing its pension fund, which should have provided for more oversight by pensioners.

A representative of the retirees should attend meetings where the use of the fund is discussed, but no pensioners have been called to attend such a meeting since 2002.

PDVSA's investment in capitalist U.S. markets may seem to be incongruous given the president's anti-West rhetoric, but the scale of such transfers is not known, and the investment options for such funds at home in Venezuela are sharply limited, not least by restrictive currency controls.

Energy Minister Rafael Ramirez told Reuters that Illarramendi only had an advisory role with PDVSA, and that it ended six years ago. So quite how he came to be managing such a big chunk of the pension fund is a hotly debated topic. Ramirez said the pension fund had been administered properly, and that the losses were of great concern to the company.

In July, PDVSA boosted pension payments to ex-employees by 800 bolivars a month, or about $188. The government also allocated nearly half the income from a new 2031 bond issue of $4.2 billion to the company's pension fund -- probably to replenish deposits lost in the scandal.

Still, ex-PDVSA worker Luis Villasmil says his monthly stipend barely meets the essentials for him, his wife, a diabetic son and a niece. One morning in April, he rose early and met several dozen other PDVSA retirees to march in protest to the company's local headquarters in Zulia, the decades-old heartland of Venezuela's oil production.

"I never thought we would be in this situation," the 65-year-old told Reuters with a sigh. "I think PDVSA should show solidarity with the retirees and pay their pensions whatever happens because it is responsible. But that's not the heart of the issue, which is to recover the money if possible."

Ramirez, who once proclaimed that PDVSA was "rojo rojito" (red) from top to bottom, says the firm's 90,000 staff have nothing to worry about. "Of course we are going to support the workers," he told Reuters in March. "We will not let them suffer because of this fraud. We have decided to replace it (the lost money) and to make ourselves part of the lawsuit (against Illarramendi)."

ORINOCO FLOW

The latest scandal comes at a time when observers are focused on the future of PDVSA, given Chavez's uncertain health, next year's election and OPEC's announcement on reserves.

The producer group said in July that Venezuela leapfrogged Saudi Arabia last year to become the world's no.1 reserves holder with 296.5 billion barrels, up from 211.2 billion barrels the year before.

"It has been confirmed. We have 20 percent of the world's oil reserves ... we are a regional power, a world power," Chavez said during one typical recent TV appearance, scribbling lines all over a map to show where planned refineries and pipelines to the coast would be built.

The new reserves were mostly booked in the country's enormous Orinoco extra heavy belt, a remote region of dense forests, extraordinary plant life and rivers teeming with crocodiles and piranhas.

And there lies the rub. Not only is the Orinoco crude thick and tar-like, unlike Saudi oil which is predominantly light and sweet, it is also mostly found in rural areas that have little in the way of even basic infrastructure. It costs much more to produce and upgrade into lighter, more valuable crude.

So hopes now rest on a string of ambitious projects that Venezuela says will revitalize a declining oil sector, eventually adding maybe 2 million barrels per day (bpd) or more of new production to the country's current output of about 3 million bpd, while bringing in some $80 billion in investment.

The projects are mostly joint ventures with foreign partners including U.S. major Chevron, Spain's Repsol, Italy's Eni, Russian state giant Rosneft and China's CNPC, as well as a handful of smaller companies from countries such as Japan, Vietnam and Belarus. Even after the nationalizations of the past, investors clearly want a seat at the Orinoco oil table.

In June, Ramirez announced new funding for Orinoco projects this year of $5.5 billion through agreements with Chinese and Italian banks.

The question remains: will PDVSA have the operational capacity required as the lead company in each project, and will it be able to pay its share?

"Processing that extra heavy crude requires a lot of capital and equipment, and the climate is not good for that at the moment," said one regional energy consultant who has worked with PDVSA and asked not to be named.

There may be billions of barrels in the ground, but the pension scandal will only underline the risks going forward for foreign companies with billions of dollars at stake.

(Additional reporting by Emily Stephenson in Washington; Editing by Andrew Cawthorne, Claudia Parsons and Michael Williams)

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Second police chief quits as scandal pressures Cameron (Reuters)

LONDON (Reuters) – A second senior British policeman resigned Monday over the corruption scandal that has engulfed Rupert Murdoch's global media empire and forced Prime Minister David Cameron to defend his own position.

Scotland Yard's counter-terrorism chief, John Yates, quit a day after the head of the Metropolitan Police. The force faces a storm of questions from parliament and voters over officers' relationships with the Murdoch press and their failure to probe allegations of phone-hacking by the News of the World.

With events accelerating in an affair that has electrified public life and strained ties among Britain's press, police and politicians, Cameron curtailed a visit to Africa and defended himself from police criticism over his choice of the tabloid's former editor as government spokesman.

Though he faces no challenge yet to his leadership, some of his Conservative supporters began to raise the possibility, albeit remote, that Cameron might face pressure to go himself. He will return from Africa late Tuesday, rather than early Wednesday, to face a new parliamentary debate on the scandal.

Following the arrest Sunday of Murdoch's British newspaper chief Rebekah Brooks, a personal friend of Cameron and one of two top News Corp executives to resign on Friday, the Murdoch family's management of its global business interests was also being questioned by investors.

The company said it was setting up an independent ethics committee under Anthony Grabiner, a commercial lawyer and member of the upper chamber of parliament, the House of Lords.

Rupert Murdoch, 80, and his son and heir apparent James, 38, along with the 43-year-old Brooks, a former editor of the News of the World, will be quizzed by the media committee of the lower house Tuesday in what promises to be a fiery showdown.

News Corp shares were 3.7 percent down in New York. That was over 16 percent lower than when news broke on July 4 that police were investigating whether journalists in 2002 had hacked voicemail for a missing teen-ager who was later found murdered.

That has reignited a five-year-old scandal that once had seemed limited to spying on the rich, famous and powerful. Ten journalists have been arrested and released on bail.

POLICE CRITICIZE CAMERON

Police, under pressure for failing to probe more widely after the jailing of a News of the World reporter in 2007, have since said an inquiry they relaunched in January has the names of some 4,000 people who may have been spied on, including child crime victims and the parents of soldiers killed in war.

Yates, who was savaged by a parliamentary committee at a public hearing last week, had been the focus of complaints that in 2009 he reviewed evidence of phone-hacking by the News of the World and ruled that it did not merit reopening inquiries. The mayor of London said Yates, an assistant commissioner of the Metropolitan Police, had resigned rather than be suspended.

In stepping down as Britain's top policeman Sunday, Yates's boss Paul Stephenson, commissioner of the Metropolitan Police, said he could not carry on while investigations continue into the appointment by his force of a former deputy editor of the News of the World as a public relations consultant.

Stephenson also made an unusual, if veiled, personal attack on the prime minister by contrasting Cameron's defiant reaction to revelations about his spokesman Andy Coulson with the police chief tendering his resignation in response to the hiring of Neil Wallis, Coulson's former deputy, as an adviser.

Stephenson noted that Cameron had appointed Coulson in 2007, shortly after Coulson resigned as the paper's editor following the jailing of a reporter for hacking. And he said Wallis had, until this month, not been linked to the scandal at all.

"Unlike Mr. Coulson, Mr. Wallis had not resigned from News of the World or, to the best of my knowledge, been in any way associated with the original phone-hacking investigation," Stephenson said.

Picking up on that, opposition Labor leader Ed Miliband highlighted the "sharp contrast" between Cameron and the police response, but he stopped short of calling outright for the prime minister, in office for only 14 months, to resign.

Cameron, beginning a two-day trip to Africa which had already been curtailed by the need to deal with the scandal, said the case of the government and police was not comparable.

"I don't believe the two situations are the same in any shape or form," he told a news conference in Pretoria.

"There is a contrast with the situation at the Metropolitan Police, where clearly the issues have been around whether or not the investigation is being pursued properly."

Cameron also said parliament would delay its summer recess by a day to let him address lawmakers again Wednesday.

POLITICAL FALLOUT

Cameron, a 44-year-old former public relations executive, revived Conservative fortunes after taking the leadership in 2005, winning power last year after 13 years of Labor rule.

Many see the scandal as his biggest test to date.

His deputy prime minister Nick Clegg, leader of coalition partners the Liberal Democrats, rubbished any suggestion of Cameron's resignation Monday -- analysts note that Clegg's party's own dismal poll ratings after its first taste of power in 70 years ensures they will not provoke an early election.

Asked whether Cameron might be forced out over the scandal, Clegg replied: "Of course not. Let's keep some perspective."

However, some commentators said his troubles were not over.

"This crisis has understandably shaken the Cameron circle. Some dared to hope the storm had passed," wrote Andrew Grice, political editor of the Independent newspaper. "Yesterday they realized the storm is still gathering pace. It could last for years. No one knows where it will end, least of all Mr Cameron."

Iain Dale, a prominent Conservative commentator, wrote on his blog: "I can't believe I am even writing this, but it is no longer an impossibility to imagine this scandal bringing down the prime minister, or even the government."

Yet, he said, that remained far-fetched, as did Toby Young, a commentator blogging at the Conservative-supporting Daily Telegraph, who cited Cameron's assured demeanor in public and efforts to highlight Labor's own long relationship with the Murdoch press as reasons for expecting the crisis to blow over.

"I don't rule out the prime minister being toppled by this scandal," Young wrote. "I just don't think any of the details that have emerged so far, or his handling of the crisis, put him in serious jeopardy."

MURDOCHS UNDER FIRE

The affair has prompted Murdoch to shut down the 168-year-old News of the World, Britain's top-selling Sunday paper, and to drop a bid for highly profitable BSkyB that was a key part of News Corp's global expansion in television. That in turn has raised questions from investors over the family's management.

"People would rather be cautious and mark it down rather than find a reason to defend it," said Jackson Leung at News Corp shareholder Invesco of the multinational's share price.

James Murdoch is the executive most in the firing line, many analysts believe, following the resignations Friday of Brooks and of her former colleague in London Les Hinton, head of Murdoch's Dow Jones & Co, publisher of the Wall Street Journal.

Shares in British pay-TV network BSkyB, in which News Corp owns 39 percent, were little changed Monday, still 15 percent down on their July 4 level after political uproar forced Murdoch last week to drop the $12-billion buyout bid.

Some minority shareholders said James Murdoch may have to step aside as chairman of the broadcaster.

Labor leader Miliband, who wants to block any future takeover of BSkyB by Murdoch, called for new rules to curb how much of Britain's media could be controlled by one proprietor: "Concentrations of power damage our culture," he said.

Murdoch, who some media commentators say at first misjudged the strength of public anger against a man who has influenced British politics for decades, published apologies in several rival newspapers at the weekend. He also apologized in person to the parents of the murdered schoolgirl whose phone was hacked.

His company, and Cameron's government, are likely to face many uncomfortable moments over the coming months as the police investigation and public inquiry more ahead. However, interest among voters may wane, with an election not likely before 2014.

"If the story continues and starts affecting the government it will obviously be huge. But phone-hacking has been going on for years so why has it gone so big all of a sudden?" said London teacher Robert Rogers, 26.

"It's terrible the victims have had their privacy invaded. But after tomorrow it will all blow over and will be forgotten in a week."

(Additional reporting by Jodie Ginsberg in Pretoria and Stephen Mangan, Christina Fincher, Sven Egenter, Ralph Gowling and Michael Roddy in London; Writing by Alastair Macdonald; Editing by Myra MacDonald)

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Brooks arrested in hacking scandal (Reuters)

LONDON (Reuters) – Rebekah Brooks, the former head of Rupert Murdoch's UK newspaper business, was arrested on Sunday in the latest twist of a phone-hacking scandal that has tainted British police and politicians and shaken the tycoon's global media empire.

Several sources familiar with the situation said Brooks, 43, was being questioned as part of an investigation into allegations of illegal voicemail interception and police bribery at the News of the World tabloid she once edited.

Brooks quit as head of News International, the British unit of Murdoch's News Corp, on Friday, but has denied she knew of the alleged hacking of thousands of phones, including that of a murdered schoolgirl.

The revelations have shocked the public and raised concerns not only about unethical media practices but about the influence Murdoch has wielded over successive British leaders and allegations of cozy relationships between some of his journalists and the police.

With politicians from Australia to the United States demanding to know if similar abuses occurred elsewhere in Murdoch's global media business, the 80-year-old has been forced on the defensive and the position of his son James as heir-apparent has been called into question.

In Britain, Prime Minister David Cameron has come under fire for his friendship with Brooks and for employing another former News of the World editor, Andy Coulson, as his press secretary even after Coulson had quit the paper in 2007 following the jailing of a reporter for phone-hacking.

"The waters are very definitely lapping around the Murdochs' own ankles," Chris Bryant, a member of parliament for Britain's opposition Labor Party who has campaigned for years against press malpractice, told Reuters.

Tim Bale, politics professor at the University of Sussex, told Reuters: "I think this was pretty uncomfortable for Cameron already and it will get more uncomfortable now over the next week.

"It brings the whole thing closer to him. If one believes all the talk of a Chipping Norton set, it reinforces this impression of a cozy elite at the top of the media/political complex," he added, referring to a town in Cameron's affluent countryside constituency where Brooks also has a home.

Brooks and Rupert and James Murdoch are due to be questioned in Britain's parliament on Tuesday, including over reports that News International misled parliament during earlier hearings.

But Brooks' spokesman said her arrest may cast doubt on whether she could appear before politicians.

"I think there will clearly be some discussions between her lawyers and the select committee on whether it is still sensible for her to appear," David Wilson told Reuters, adding she was "shocked" by the arrest.

"Anything that will be said at the select committee hearing could have implications for the police inquiry."

Adrian Sanders, a Liberal Democrat politician who sits on the parliamentary media committee, questioned the timing of the arrest and said he hoped it would not scuttle the hearing.

"If this is designed to take the spotlight off the police, at the same time as in a sense giving a shield to Rebekah Brooks, that's a very serious matter indeed," he told BBC television news.

TOUGHNESS AND CHARM

The flame-haired Brooks became the focus of widespread anger over the phone-hacking scandal but was initially protected by Murdoch, who guided her rise through the male-dominated world of UK tabloid journalism to become editor of the News of the World in 2000 and the Sun's first female editor in 2003.

Flying into London a week ago to take charge of the crisis, Murdoch appeared before journalists with his arm around her. Asked what was his first priority, he gestured at her and replied: "This one."

Known for her networking skills, Brooks rose quickly through the ranks of tabloid journalists, combining a tough demeanor that could intimidate hardened 'hacks' with an ability to charm largely male editors.

But her initial refusal to quit, and a faltering speech she delivered when she closed the News of the World and ended the careers of dozens of colleagues, prompted some journalists to say she was out of touch.

The News of the World, which published its final edition a week ago, is alleged to have hacked up to 4,000 phones including that of murdered 13-year-old Milly Dowler, sparking a furor that forced Murdoch to close the paper and drop a $12 billion plan to buy all of highly profitable broadcaster BSkyB.

Murdoch, who some media commentators say at first misjudged the strength of public anger, published apologies in several British newspapers at the weekend.

He lost another loyal executive on Friday when Les Hinton, another former head of his UK newspaper business, resigned as chief executive of Murdoch's Dow Jones & Co which publishes The Wall Street Journal.

"There are no excuses and should be no place to hide ... We will continue to cooperate fully and actively with the Metropolitan Police Service," News International said in an announcement on Sunday.

Leading British politicians renewed calls for greater media plurality and press regulation -- a direct threat to Murdoch's empire, which includes The Sun, The Times and Sunday Times broadsheets, and 39 percent of BSkyB.

The Sunday Telegraph reported that members of the board of BSkyB, where James Murdoch serves as chairman, are due to meet in a special session on July 28 to discuss his future.

If James were to be felled by the scandal, British media speculated that his sister Elisabeth could secure the eventual succession to their father.

The scandal has also embroiled Britain's police, who are accused of being too close to News Corp, of accepting cash from the now defunct News of the World and other newspapers, and of not doing enough to investigate the phone-hacking allegations that surfaced as far as back as 2005.

In 2003 Brooks admitted that the News of the World had made payments to police in the past but could not remember any specific examples.

(Additional reporting by Keith Weir and Georgina Prodhan, Writing by Elizabeth Piper, Editing by Mark Trevelyan)

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Murdoch apologizes for hacking scandal (Reuters)

LONDON (Reuters) – "We are sorry," Rupert Murdoch said in British newspapers on Saturday, as News Corp tried to quell the uproar over a phone-hacking scandal that has shaken the company and claimed its top two newspaper executives.

In full-page adverts, Murdoch pledged "concrete steps" to resolve the issue in a bid to regain the initiative after losing Les Hinton, head of Dow Jones, publisher of the Wall Street Journal, and Rebekah Brooks, head of News Corp's British newspaper arm, on Friday.

But some questioned if the apologies and resignations would allay public and political anger over allegations the Murdoch-owned News of the World newspaper hacked thousands of phones, including that of a murdered 13-year-old girl.

The scandal forced Murdoch to close the best-selling Sunday paper, and drop a $12 billion plan to buy full control of highly profitable pay-TV operator BSkyB.

"The News of World was in the business of holding others to account. It failed when it came to itself," Murdoch said in a rare show of contrition.

"We are sorry for the serious wrongdoing that occurred. We are deeply sorry for the hurt suffered by the individuals affected," added the note, signed by Murdoch.

More apologies are expected to be published in British Sunday newspapers, headlined, "Putting right what's gone wrong."

The spotlight now turns to Murdoch's son and presumed successor, James, who took over the European operations of News Corp as the crisis was beginning. He and Murdoch, along with Brooks, face a grilling in Britain's parliament on Tuesday.

The attempts at conciliation included Murdoch's personal apology on Friday to the parents of Milly Dowler in what appeared to be an admission the News of the World, then edited by Brooks and overseen by Hinton, had in 2002 hacked into the voicemails of their missing daughter who was later found murdered.

That allegation reignited a five-year-old scandal and may have also broken the grip that Murdoch, 80, held over British politics for three decades as leaders from Margaret Thatcher, through Labour's Tony Blair to current Conservative Prime Minister David Cameron sought his support.

SKEPTICISM ON APOLOGY

British parliamentarian John Prescott, asked by the BBC on Saturday if Murdoch's apology changed anything, replied, "Absolutely not.

"For him to say I'm sorry -- it was only 24 hours ago in America in the Wall Street Journal that (Murdoch said) they were only minor offences. ... This is a man desperately trying to save his company and ditching everybody else in the process," Prescott said.

Lawmaker John Whittingdale, head of the parliamentary committee that will question the Murdochs and Brooks, told Reuters on Friday that while an apology was long overdue, investigations into wrongdoing had a long way to go.

Cameron has pledged a judge-led inquiry, and police are renewing their efforts. Questions are being asked over how much News Corp and executives at newspaper arm News International knew about phone hacking, and whether authorities were misled.

In his note, Murdoch admitted that "simply apologizing is not enough," but posting the message could help Murdoch regain his grip on events that in recent days spun out of his control.

"It's a good strategy. The problem is it's too late. Is it repairing the damage? No. But the strategy is that it's trying to move the story into a second phase," said Charlie Beckett of the London School of Economics' Polis journalism think tank.

"The big question mark is how vulnerable is Rupert ultimately, but James in particular, and Rebekah and Les in terms of what they were told and ignored," he added.

GASPS, STUNNED SILENCE

Hinton stepped down as the British phone hacking scandal surrounding News Corp began to spread to the United States. He was the highest-ranking executive yet to resign over the crisis.

"I have watched with sorrow from New York as the News of the World story has unfolded," Hinton wrote in a memo after stepping down as head of Dow Jones.

"That I was ignorant of what apparently happened is irrelevant and in the circumstances I feel it is proper for me to resign from News Corp, and apologize to those hurt by the actions of the News of the World," he added.

At the Wall Street Journal, news of Hinton's departure was greeted by gasps and a stunned silence, despite much speculation in London and New York that he could be toppled by the scandal.

Brooks had resisted pressure to quit, but finally resigned as chief executive of News International after a chorus of calls for her to go. She said remaining had made her a "focus of the debate" and detracted from resolving issues at the company.

The flame-haired and sharp-tongued executive and former editor of News of the World was a favorite of Murdoch, who only days ago described Brooks as his first priority.

Cameron had also called on Brooks to resign. His closeness to her and also his decision to hire former News of the World editor Andy Coulson as his communications chief, embarrassed the prime minister and raised doubts over his judgment.

On Friday, Cameron tried to put the issue behind him by releasing a list of meetings he has had with media executives.

It emerged that Coulson visited Cameron in March, two months after quitting his job on Cameron's staff amid allegations of phone hacking while he was a newspaper editor. Coulson was arrested last week over the issue and later released on bail.

"In inviting Andy Coulson back, the prime minister ... invited someone back to thank him for his work, who worked for him for several years. That is a normal human thing to do, I think that shows a positive side to his character," British Foreign Secretary William Hague told BBC radio on Saturday.

(Reporting by Mohammed Abbas; Editing by Peter Cooney)

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Murdoch pulls BSkyB bid amid UK hacking scandal (AFP)

LONDON (AFP) – Rupert Murdoch dramatically dropped his bid for control of pay-TV giant BSkyB on Wednesday, bowing to pressure from the British government over the phone-hacking firestorm at his newspaper empire.

Hours before Britain's three main parties were set to back an extraordinary parliamentary vote calling for the withdrawal of the bid, Murdoch's US-based News Corp. said it was now "too difficult to progress in this climate".

Prime Minister David Cameron welcomed the news, saying the Australian-born tycoon should focus on cleaning up his business after the scandal which forced the closure of the News of the World tabloid on Sunday.

After decades as Britain's political kingmaker, Murdoch has seen his empire threatened by a wave of public outrage over the hacking of voicemails belonging to people including a murdered girl and the families of dead troops.

"We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies but it has become clear that it is too difficult to progress in this climate," said News Corp. deputy chairman Chase Carey.

Carey said News Corp., which wanted to purchase the 61 percent of shares in BSkyB it did not own for ￡7.8 billion (8.6 billion euros, $12.5 billion), would remain a "committed long-term shareholder" in BSkyB.

The 80-year-old Murdoch had pushed for the bid as the broadcaster's portfolio includes live English Premier League football and blockbuster films, and this year reached its target of 10 million household subscribers.

Only a few months ago it looked like a sure thing, but the tide of scandal engulfing the News of the World the government put it on ice for at least six months on Monday by referring it to a competition watchdog.

Ed Miliband, the leader of the main opposition Labour party who had proposed the parliamentary motion urging Murdoch to drop the bid, said it was a "victory for the people".

"People thought it was beyond belief that Mr Murdoch could continue with his takeover after these revelations," he said.

A statement from Cameron's Downing Street office said: "We welcome the news. As the prime minister has said, the business should focus on clearing up the mess and getting its own house in order."

The scandal has spread out from Murdoch's newspapers to include the police, members of which allegedly received payments from the News of the World, to politicians accused of being too cosy with Murdoch.

The British premier has himself felt the heat as his media chief from 2007-2010 was former News of the World editor Andy Coulson, who was arrested on Thursday over allegations of voice hacking and paying off policemen.

Cameron told parliament earlier Wednesday he would support the non-binding motion, and announced the details of a full public inquiry into phone hacking, which he said would also include links between politicians and the press.

"There is a firestorm that is engulfing parts of the media, parts of the police and indeed parts of the political system," said Cameron.

He said the inquiry would have the power to summon newspaper proprietors, and warned that executives found guilty of wrongdoing could be barred from future roles in British media.

Murdoch, his son James -- the chairman of BSkyB and an executive at News Corp. -- and Rebekah Brooks, chief executive of News International, News Corp's British newspaper arm, have been called to give evidence to lawmakers next week.

It was reported separately Wednesday that Tom Crone, News International's legal manager, had left the company after 26 years.

In the United States, Senate Commerce Committee Chairman Jay Rockefeller called for an investigation to see if the phone-hacking scandal had spread to Murdoch's US operations, saying there could be "severe" consequences.

News Corp's shares have plummeted in the past week, and the Murdoch-owned Wall Street Journal reported that the media tycoon was considering selling off his remaining British newspapers, The Times, The Sunday Times and The Sun.

Shares in BSkyB were trading down 1.0 percent at 685 pence in late London deals after the announcement, but News Corp. shares gained 1.8 percent on the US Nasdaq index.

The Australian arm of News Corp. separately announced a review of its editorial expenditure over the last three years in a bid to reassure the public that illegal phone-hacking practices in Britain had not taken place there too.

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UK tabloid writes own obit amid hacking scandal (AP)

LONDON – Writing the obituary for their own newspaper, News of the World's journalists prepared their final edition Saturday as Britain's media establishment reeled from the expanding phone-hacking scandal that brought down the muckraking tabloid after 168 years.

Small clues gave the tone of the London newsroom away — from a commemorative T-shirt bearing a "Goodbye, cruel News of the World, I'm leaving you today" worn by one staffer, to editors typing tributes to the tabloid's journalistic victories into newspaper text boxes.

Rupert Murdoch, whose media empire owns the paper, will arrive in London on Sunday on a scheduled visit, a person familiar with his itinerary told The Associated Press on condition of anonymity because of the sensitivity of the matter.

He is facing a maelstrom of criticism and outrage over the sequence of events set off by allegations the paper's journalists paid police for information and hacked into the voicemails of young murder victims and the grieving families of dead soldiers.

The recent revelations culminated in the decision to close the paper and put 200 journalists out of work.

The paper's editor, Colin Myler, offered words of encouragement and sympathy to his staff on a "very difficult day."

"It's not where we want to be and it's not where we deserve to be," he said in a memo to staff seen by Britain's Press Association. "But I know we will produce a paper to be proud of."

The contents of the front page were privy to "only a special few," according to Helen Moss, a news and features editor who offered refreshments to journalists camped outside the tabloid's headquarters in a bizarre death watch of sorts.

"I expect it'll be a massive tribute to 168 years of history ending today," she said, describing an "extremely emotional" newsroom.

Much of the emotion continued to focus on New International — a subsidiary of Murdoch's News Corp. — which took the decision to jettison the paper on Thursday after the new allegations sparked a fierce backlash and the flight of advertisers.

The scandal exploded this week after it was reported that the News of the World had hacked the mobile phone of 13-year-old murder victim Milly Dowler in 2002 while her family and police were desperately searching for her. News of the World operatives reportedly deleted some messages from the phone's voicemail, giving the girl's parents false hope that she was still alive.

That ignited public outrage far beyond any previous reaction to press intrusion into the lives of politicians and celebrities, which the paper has acknowledged and for which it has paid compensation to some prominent victims, including actress Sienna Miller.

Revelations that journalists paid police for information added fuel to the fire, prompting calls for a boycott and causing dozens of companies to pull their advertising from the paper amid fears they would be tainted by association.

James Murdoch — tipped by many as a likely successor to his father — then announced Thursday that this Sunday's edition of the tabloid would be its last and all revenue from it will go to "good causes."

The closure was seen by some as a desperate attempt by the media conglomerate to stem negative fallout and thus save its 12 billion-pound ($19 billion) deal to take over satellite broadcaster British Sky Broadcasting.

But the British government has signaled that deal will be delayed because of the crisis and the scandal has continued to unfold with the announcement of three arrests linked to the matter on Friday.

Andy Coulson — a former News of the World editor and ex-communications chief to Prime Minister David Cameron — was arrested Friday, as was Clive Goodman, an ex-News of the World royal reporter, and an unidentified 63-year-old man. All three have since been released on bail.

The developments have turned up the heat on Britain's media industry amid concerns a police investigation won't stop with the News of the World.

It has also cast new scrutiny on the cozy relationship between British politicians and the powerful Murdoch empire, putting the media baron's company on the defensive.

Many journalists and media watchers have expressed astonishment that Rebekah Brooks, who was editor of News of the World when some of the hacking allegedly occurred, was keeping her job at head of News Corp.'s U.K. newspaper operations while the paper's 200 employees were laid off.

She told lawmakers she had "no knowledge whatsoever" of the Milly Dowler hacking or any other case while she was editor, according to a letter published by Britain's home affairs select committee on Saturday.

"I also want to reassure you that the practice of phone hacking is not continuing at the News of the World," she said in response to the committee's request for new evidence. "For the avoidance of doubt, I should add that we have no reason to believe that any phone hacking occurred at any other of our titles."

While she has been portrayed as a villain in the unfolding story, Brooks — with strong connections to British politics and decades of experience behind her — has insisted she is the right person to lead News International through the crisis.

Upping the ante, the Church of England threatened to pull nearly 4 million pounds of investments from News Corp. "if does not hold senior executives to account ... for the gross failures of management at the News of the World."

The church's ethical investment advisory group said Sunday it wrote to News Corp. saying closing News of the World was not a "sufficient response" to the "utterly reprehensible and unethical" practices uncovered at the tabloid.

Murdoch has opted to remain largely silent amid the fallout, issuing one official statement that made clear Brooks would remain at the helm.

He spoke briefly to reporters in Sun Valley, Idaho on Saturday, where he was attending a media conference. When asked whose decision it was to close the paper he said, "It was a collective decision."

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Julie Jacobson contributed to this report from Sun Valley, Idaho.

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Cassandra Vinograd can be reached at http://twitter.com/CassVinograd

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British PM's ex-aide arrested over tabloid scandal (AFP)

LONDON (AFP) – Police arrested David Cameron's ex-media chief and a former royal reporter over Britain's tabloid phone hacking row Friday as the prime minister promised urgent inquiries into the spiralling scandal.

Cameron looked rattled during the toughest press conference of his year in power, but he defended his decision to hire Andy Coulson, the former editor of Rupert Murdoch's News of the World tabloid, which is to shut this weekend.

He admitted the scandal went to the heart of the British establishment, saying: "The truth is, we have all been in this together -- the press, politicians and leaders of all parties, and yes, that includes me."

Cameron said he gave Coulson a "second chance" after he quit the News of the World in 2007 when two people were jailed over hacking. Coulson then resigned from Cameron's Downing Street office in January, citing pressure over the claims.

"The decision to hire him was mine and mine alone, and I take full responsibility for it," Cameron said, adding however that Coulson "became a friend and is a friend".

Murdoch caused astonishment on Thursday when he killed off the 168-year-old News of the World, Britain's biggest selling Sunday paper, amid claims that it hacked the voicemails of a murdered girl and the families of dead soldiers.

Cameron announced that he would set up a public inquiry led by a judge into the furore around the paper, as well as a second inquiry into the way in which the British press is regulated.

"These are the questions that need answering: Why did the first police investigation fail so abysmally? What exactly was going on at the News of the World? And what was going on at other newspapers?" he said.

Minutes after the prime minister spoke, London's Metropolitan Police arrested the 43-year-old Coulson by appointment at a South London police station "in connection with allegations of corruption and phone hacking".

The corruption allegations refer to alleged improper payments to police officers by the paper when Coulson was editor of Britain's biggest-selling Sunday newspaper from 2003 to 2007.

He remained in custody late Friday.

Police said they had also on Friday re-arrested Clive Goodman, the News of the World's former royal editor, one of the two men who was jailed in 2007 for hacking the voicemails of Princes William and Harry.

Goodman, 53, was apprehended at his house in Surrey, south of London, on corruption charges.

Police said they had also raided the offices of another British tabloid, the Daily Star Sunday, where Goodman had worked as a freelance reporter over the past year.

In a statement, the paper said officers had requested computer material linked to Goodman "to cross-check it with his activities in his News of the World role", adding that there was no suggestion he had acted improperly at the Daily Star Sunday.

The shock closure of the News of the World was widely seen as a way to quell the scandal and save the bid by his News Corp. for control of the satellite broadcaster BSkyB, on which the British government is due to decide.

Shares in BSkyB plunged 3.94 percent to 780.5 pence in late morning deals Friday, topping the fallers board on the FTSE 100 index.

It was also seen as a way of protecting Rebekah Brooks, the embattled head of Murdoch's British newspaper wing, News International, who was editor of the News of the World from 2000 to 2003, when some of the allegations also date from.

Cameron said of reports she had offered her resignation: "In this situation, I would have taken it."

Brooks however told the 200 sacked staff at the News of the World office on Friday that she felt "betrayed" and that she would try to find them jobs across the company, Sky News reported.

The last edition of the unashamedly sensationalist tabloid will be on Sunday, ending a long history of publishing sex scandals but also hard-hitting investigations including into recent Pakistani cricket match-fixing claims.

British newspapers on Friday mourned the passing of their scandal-hit comrade.

The Daily Mail ran with the headline "The Paper that Died of Shame", and bemoaned the "downfall of a fine British institution" while The Daily Telegraph opted for "Goodbye, cruel World".

Murdoch will reportedly replace it with a Sunday edition of The Sun, his daily tabloid, which is Britain's biggest selling newspaper.

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Ex-Cameron aide arrested in UK hacking scandal (AP)

By JILL LAWLESS and ROBERT BARR, Associated Press Jill Lawless And Robert Barr, Associated Press – 56?mins?ago

LONDON – Prime Minister David Cameron's former communications chief and an ex-royal reporter were arrested Friday in a phone hacking and police corruption scandal that has already toppled a major tabloid and rattled the cozy relationship between British politicians and the powerful Murdoch media empire.

The 168-year-old muckraking tabloid News of the World was shut down Thursday after being engulfed by allegations its journalists paid police for information and hacked into the phone messages of celebrities, young murder victims and even the grieving families of dead soldiers. Its last publication day is Sunday.

The hacking revelations horrified both ordinary Britons and advertisers, who pulled their ads en masse. News International, the British arm of Rupert Murdoch's News Corp., killed the paper in hopes of saving its 12 billion pound ($19 billion) deal to take over satellite broadcaster British Sky Broadcasting. But the British government on Friday signaled the deal would be delayed as a result of the crisis.

"Given the events of recent days, this will take some time," Cameron said.

A billion pounds ($1.6 billion) was wiped off the value of BSkyB Friday, with shares closing down 7.6 percent in London as investors recoiled at the bad news.

"The pressure on the stock has really been driven by a sense News Corp. is not taking in the severity of its political issues and the embarrassment they are causing the prime minister," said industry analyst Claire Enders.

British broadcast regulator OFCOM — which has a duty to ensure media owners are "fit and proper" — said it was "monitoring the situation closely."

The police investigation into the phone hacking drew uncomfortably close to the prime minister Friday with the arrest of Andy Coulson, Cameron's once-powerful communications chief and a former editor of News of the World.

Coulson, 43, was arrested Friday morning on suspicion of corruption and "conspiring to intercept communications."

Police also arrested Clive Goodman, the former News of the World royal editor who served a jail term in 2007 for hacking into the phones of royal aides. This time the arrest was on suspicion of making illegal payoffs to police for scoops.

Detectives searched Coulson's house in London and Goodman's home south of the city Friday, as well as the newsroom of a second tabloid, the Daily Star Sunday. That paper is owned by Richard Desmond's Northern & Shell media conglomerate, and Goodman has done work for the paper since his release from jail.

The Daily Star Sunday said detectives spent two hours at its offices and took away a disc containing a record of Goodman's computer activity. The paper said there was "no suggestion whatsoever" that Goodman acted improperly during his shifts at the Star.

Allegations of phone hacking by the News of the World first surfaced more than five years ago, but the original police investigation — which saw Goodman and another man jailed — has now been criticized as incomplete and compromised by new bribery allegations.

The Metropolitan Police reopened the hacking inquiry earlier this year, and say they are looking at the names of over 4,000 people as possible victims.

Cameron, realizing that the crisis was knocking at his 10 Downing St. door, moved quickly to distance himself from it. Like predecessors including Labour Prime Ministers Gordon Brown and Tony Blair, Cameron courted the powerful Murdoch empire, whose endorsement is considered capable of swinging elections.

And he's not the first prime minister to hire a former journalist as his top communications aide — Blair's powerful aide Alastair Campbell also had a tabloid background.

On Friday, Cameron acknowledged that British politicians and the press had become too close and promised investigations into both the tabloid's actions and future media regulation.

"The truth is, we've all been in this together," Cameron told reporters at a hastily arranged news conference. "Party leaders were so keen to win the support of newspapers that we turned a blind eye to the need to sort this issue. The people in power knew things weren't right but they didn't do enough quickly enough."

Coulson quit as editor of News of the World after Goodman and private investigator Glenn Mulcaire were jailed in 2007 for hacking into the phones of royal aides. Coulson maintained he knew nothing of the hacking, and was hired soon after as Cameron's director of communications, but resigned in January as it became clear the hacking at the tabloid had been widespread.

Opposition Labour Party leader Ed Miliband had urged Cameron to apologize for "the appalling error of judgment he made in hiring Andy Coulson." Cameron refused, saying Friday that Coulson remained a friend, but clearly moved a further step away from his former aide.

"(Coulson) gave me assurances," Cameron said. "He said he had resigned because of what had happened, but he didn't know the hacking had taken place."

"I took a conscious choice to give someone who had screwed up a second chance," Cameron said. "He worked for me, he worked for me well, but actually he decided in the end the second chance wouldn't work, he had to resign all over again for the first offense."

Cameron said press self-regulation by the Press Complaints Commission had failed and a new body, independent of the media and the government, was needed to properly enforce standards.

Cameron suggested his friend Rebekah Brooks, editor of the News of the World at the Time of the worst hacking allegations, should have resigned as chief executive of News International.

Many observers expressed astonishment that 43-year-old Brooks was keeping her job while the paper's 200 staff were laid off. Enders said the Murdoch group has shown, "an almost maniacal desire to protect Ms. Brooks at all costs."

Brooks met her staff Friday and confirmed she was staying.

Cameron also said there were questions to be answered by James Murdoch, the heir-apparent to his father's media empire.

"I want everyone to be clear: Everything that has happened is going to be investigated," Cameron said.

He said a judge will be appointed to lead a thorough investigation of what went wrong at the News of the World, including alleged bribery of police officers, and a second inquiry to find a new way of regulating the press.

Bets on Ladbrokes that Cameron would be the next Cabinet member to leave the British government were briefly suspended Friday after a flurry of wagers triggered an automatic halt. The bet was put back up, however, at the same price, 33 to 1.

The scandal exploded this week after it was reported that the News of the World had hacked the mobile phone of 13-year-old murder victim Milly Dowler in 2002 while her family and police were desperately searching for her. News of the World operatives reportedly deleted some messages from the phone's voicemail, giving the girl's parents false hope that she was still alive.

That ignited public outrage far beyond any previous reaction to press intrusion into the lives of politicians and celebrities, which the paper has acknowledged and for which it has paid compensation to some prominent victims, including actress Sienna Miller.

Dozens of companies pulled their advertising from the paper this week, fearing they would be tainted by association. James Murdoch then announced Thursday that this Sunday's edition of the tabloid would be its last and all revenue from it will go to "good causes."

News International has not said whether it will put another paper into the Sunday market that has been dominated for decades by News of the World. But according to online records, an unnamed U.K. individual this week bought the rights to the domain name "sunonsunday.co.uk."

The British government gave its qualified approval in June to Murdoch's News Corp. purchasing the 61 percent of British Sky Broadcasting that it doesn't already own, on the condition it spins off news channel Sky News as a separate company.

But Culture Secretary Jeremy Hunt said Friday there had been a huge number of responses to a public consultation on the takeover, said to exceed 100,000 submissions, and that will delay the approval process.

Despite the public outcry, many analysts think Britain will still sanction the takeover but delay it until at least September.

BSkyB's shares closed down 7.6 percent at 750 pence ($12).

Shares in the Nasdaq-listed News Corp., which owns 39 percent of BSkyB, were down 3.5 percent at $16.82 around midday in New York.

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Danica Kirka and Raphael G. Satter contributed to this report.

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Britain's News of the World to shut after scandal (AFP)

LONDON (AFP) – Media mogul Rupert Murdoch dramatically ordered the closure of the News of the World tabloid Thursday as a spiralling scandal over illegal phone hacking threatened to taint the rest of his business empire.

The axing of the 168-year-old tabloid, which will print its last edition on Sunday, comes after it faced claims that it hacked the phones of a murdered girl, dead soldiers' families, celebrities, politicians and royals.

"Having consulted senior colleagues, I have decided that we must take further decisive action with respect to the paper," said Murdoch's son James, chairman of News International, the British newspaper wing of Rupert Murdoch's News Corp.

"This Sunday will be the last issue of the News of the World," he added.

The final edition would be free of advertising and any proceeds from the paper would go "to causes and charities that wish to expose their good works to our millions of readers," he said in a statement.

Prime Minister David Cameron -- who had himself faced pressure for his ties to Murdoch's empire -- said the closure of the paper should not distract from an ongoing police investigation into the hacking.

"What matters is that all wrongdoing is exposed and those responsible for these appalling acts are brought to justice," Cameron's Downing Street office said in a statement.

"As the Prime Minister has made clear, he is committed to establishing rigorous public inquiries to make sure this never happens in our country again."

Cameron's former communications director Andy Coulson was editor of the tabloid at the time of much of the hacking.

James Murdoch admitted that the paper, known for its racy diet of sex and scandal but also for its undercover investigations, had lied to parliament and to the public in its earlier statements on the long-running scandal.

He said that if allegations that a private investigator working for the tabloid hacked the voicemail of Milly Dowler, a 13-year-old girl who was later found murdered, were true, they were "inhuman".

"The News of the World is in the business of holding others to account. But it failed when it came to itself," he added. "Wrongdoers turned a good newsroom bad and this was not fully understood or adequately pursued."

James Murdoch said the conviction in 2007 for phone hacking of the paper's royal correspondent Clive Goodman and private investigator Glenn Mulcaire had failed to cure the problem.

The closure of the paper sparked immediate speculation that Rupert Murdoch was offering it as a sacrificial victim to save his bid for control of pay-TV giant BSkyB, which is the subject of a government decision.

There has also have been reports in recent weeks that Murdoch was planning to replace the News of the World in any case with a Sunday version of The Sun, his daily tabloid, which is Britain's biggest selling newspaper.

A News International spokeswoman would not comment when asked by AFP whether a "Sunday Sun" was planned.

The spokeswoman said the News of the World employed 200 staff, adding: "They will be able to apply for other jobs within the company."

The death blow for the News of the World came on Thursday when veterans' charity the Royal British Legion dropped its campaign partnership with the paper over claims in the Daily Telegraph that an investigator hired by the tabloid may have accessed the voicemails of relatives of dead soldiers.

Supermarket giant Sainsbury's, mobile phone operator O2, energy supplier Npower and high street stores Dixons, Boots and Specsavers had joined a growing list of companies to pull advertising from the paper.

Meanwhile Scotland Yard said up to 4,000 people may have had their voicemails accessed by the News of the World and added that it was probing claims that the paper had paid policemen for information.

Cameron on Wednesday promised an inquiry into the phone hacking scandal, including into allegations that police failed to properly investigate the allegations when they were first made several years ago.

But opposition leader Ed Miliband on Thursday urged the prime minister to distance himself from two former editors of the paper during the period covered by the scandal.

Cameron has dined on several occasions with Rebekah Brooks, now chief executive of News International and a former editor of the paper.

Coulson, who succeeded Brooks as editor, quit as Cameron's media chief in January over the claims after being questioned by police.

Murdoch notably abandoned his support for the Labour party and backed Cameron's Conservatives ahead of a general election last year.

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News of the World shutting down amid scandal (AP)

LONDON – News International James Murdoch says he's satisfied that embattled executive Rebekah Brooks had no knowledge of phone hacking while she was editor of the scandal-ridden News of the World.

His comments came just hours after the Murdoch media empire unexpectedly jettisoned the News of the World on Thursday, the best-selling tabloid at the center of the phone hacking scandal.

The tabloid, long known for its dubious undercover reporting techniques, had gravely offended the British public by hacking into the cell phone voicemail of a missing teenage girl, possibly even interfering with the police investigation into her murder.

But Murdoch expressed confidence in Brooks' leadership during an interview broadcast on British media.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

LONDON (AP) — The Murdoch media empire unexpectedly jettisoned the News of the World on Thursday, the best-selling tabloid at the center of an ugly phone hacking scandal.

The tabloid, long known for its dubious undercover reporting techniques, had gravely offended the British public by hacking into the cell phone voicemail of a missing teenage girl, possibly even interfering with the police investigation into her murder.

What was an acceptable, if illegal, tactic used to gather scoops on drug-using celebrities, philandering politicians or cheating film stars suddenly became completely unacceptable when missing children, the relatives of soldiers slain in Afghanistan or the families of victims of London's 2005 terror attacks were targeted.

Rupert Murdoch's son, James Murdoch, who heads European operations for the paper's parent company, said the 168-year-old weekly newspaper would publish its last edition on Sunday, without ads. The closure was spurred in part by the decision by many large advertisers to withdraw their ads in protest of the paper's gross intrusions of privacy.

News International says shuttering the scandal-wracked News of the World will cost about 200 tabloid staffers their jobs. Journalists at the paper had no advance word of the decision.

However, some analysts said decision may make strategic business sense for Rupert Murdoch if it allows him to salvage a controversial bid to fully take over the broadcaster British Sky Broadcast in a deal estimated at 12 billion pounds ($19 billion). Murdoch might even be able to fill the gap left by the News of the World with one of his other media properties.

"News Corp. has taken a bold decision to stop printing the News of the World and close the title. Mr. Murdoch was clearly not willing to jeopardize his bid for BSkyB," said markets analyst Louise Cooper of BGC Partners in London. "Murdoch has shown what a brilliant operator he really is."

She said the financial impact of the paper's closure will be small to parent company, far less than the value wiped off of News International's stock price by the hacking scandal.

News International spokeswoman Daisy Dunlop denied rumors that The Sun, the News of The World's sister paper that publishes Monday through Saturday, would become a seven-day operation to pick up the slack and restore Murdoch's financial position in the vital Sunday market.

"It's not true at the moment," she said.

She said employees laid off in the closure will be able to apply for other jobs within the sprawling media company.

The news of the shutdown and mass job loss sparked outrage at the paper's headquarters, especially because Rebekah Brooks — the editor in charge at the time, now one of Murdoch's top lieutenants — is keeping her highly paid executive position as News International chief.

The abrupt decision to shut the newspaper follows an extraordinary three days in which multiple revelations about intrusive phone hacking cost the paper its advertising base and reader support. The tabloid was found to have hacked into the phone message of a teenage murder victim and was suspected of targeting the relatives of slain soldiers in its quest to produce attention-grabbing headlines.

Britons of all stripes said they were disgusted and revolted by the Rupert Murdoch-owned newspaper's tactics and British lawmakers held an emergency debate on Parliament on Wednesday in which many condemned the paper.

The tabloid's executives had already admitted the widespread hacking of cell phones used by celebrities, film stars, royal aides and politicians and reached cash settlements with prominent victims. But the intrusion into — and possible interference with — an ongoing murder investigation of a child proved to be the final straw in losing the public's trust.

Police are now examining 4,000 names of people who may have been targeted by the paper.

Murdoch said in a memo to staff that all revenue from the final issue, which will carry no ads, would go to "good causes."

The announcement took British media-watchers — and the newspaper's staff — by surprise.

The News of the World, which sells close to 3 million copies a week, has acknowledged that it hacked into the mobile phone voice mails of politicians, celebrities and royal aides. A reporter and a private investigator working for the paper were jailed for phone hacking in 2007.

But in recent days the allegations have expanded to take in the phones of missing children who were found slain, the relatives of terrorist victims and families of soldiers killed in Afghanistan.

James Murdoch said if the allegations were true, "it was inhuman and has no place in our company."

"Wrongdoers turned a good newsroom bad," he said, "and this was not fully understood or adequately pursued."

"While we may never be able to make up for distress that has been caused, the right thing to do is for every penny of the circulation revenue we receive this weekend to go to organizations — many of whom are long-term friends and partners — that improve life in Britain and are devoted to treating others with dignity," he said.

Shares in News Corp. were up 1.6 percent at $18.22 on the Nasdaq index in New York, though they have fallen from above $18.50 since Tuesday.

Some of the tabloid's tactics had involved illegal payoffs to police officers for tips and information.

The Independent Press Complaints Commission announced a review Thursday into the corruption charges, which are apparently based on information provided to London police this week by the tabloid.

Police Commissioner Paul Stephenson said Thursday that any officers who took illegal payments should face criminal prosecution.

"I am more than ashamed — I am determined to see them in a criminal court," Stephenson said.

The involvement of the independent commission means police will have impartial outside help in determining whether officers should face corruption charges.

Deborah Glass, deputy commissioner of the Independent Police Complaints Commission, said she will personally supervise the investigation into the possible News of the World payoffs. She said she wants to assure the public that the police have done everything possible to identify offenders.

Many in Britain have long assumed that some police got bribes from journalists. The practice was admitted in 2003 by Rebekah Brooks, then the editor of The Sun — another Rupert Murdoch tabloid — and now chief or Murdoch's U.K. newspaper operations, in testimony before Parliament. But details about suspected corruption are starting to emerge because of the increased focus on shoddy journalistic practices at Britain's highly competitive tabloids.

Brian Paddick, a former senior police commander, told the BBC that journalists used to make clandestine cash payoffs to police in envelopes handed over at a drive-thru fast food restaurant near the News International headquarters in London.

Sometimes the reporters sought information about celebrities in trouble — Paddick cited a 2010 car crash in north London involving singer George Michael, who was using marijuana and alcohol at the time — and sometimes they were making deals regarding ongoing police investigations.

Paddick said sometimes payoffs were "jeopardizing serious criminal investigations by giving out confidential information that could be useful to criminals."

Police officials have said only a handful of police are suspected of receiving payments, but declined to say how many.

Paddick, a former London mayoral candidate who may run again in 2012, said one journalist said he had paid 30,000 pounds ($50,000) for police information.

"All of this is done in a very clandestine way," said Paddick, who added he had never personally seen money being exchanged.

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Spreading phone hacking scandal touches UK nerves (AP)

LONDON – Britain's phone hacking scandal intensified Wednesday as the scope of tabloid intrusion into private voice mails became clearer: Murder victims. Terror victims. Film stars. Sports figures. Politicians. The royal family's entourage.

Almost no one, it seems, was safe from a tabloid determined to beat its rivals, whatever it takes.

The focal point is the News of the World — now facing a spreading advertising boycott — and the top executives of its parent companies: Rebekah Brooks, chief executive of News International, and her boss, media potentate Rupert Murdoch.

In his first comment since the latest details emerged, Murdoch said in a statement Wednesday that Brooks would continue to lead his British newspaper operation despite calls for her resignation.

The scandal, which has already touched the office of Prime Minister David Cameron, widened as the Metropolitan Police confirmed they were investigating evidence from News International that the tabloid made illegal payments to police officers in its quest for information.

The list of potential victims also grew. Revelations emerged Wednesday that the phones of relatives of people killed in the July 7, 2005, terrorist attacks on London's transit system, as well as those tied to two more slain schoolgirls, may also have been targeted.

The true extent of the hacking is not yet clear — and may not be known for months as inquiries unfold.

Graham Foulkes, whose 22-year-old son David died in the 2005 terrorist attacks, was told by police that he was on a list of potential hacking victims.

"I just felt stunned and horrified," Foulkes told The Associated Press. "I find it hard to believe someone could be so wicked and so evil, and that someone could work for an organization that even today is trying to defend what they see as normal practices."

Foulkes, who plans to mourn his son on Thursday's sixth anniversary of the attack, said an independent investigation is needed because the police were compromised by accepting payoffs from the tabloid.

"The police are now implicated," he said. "The prime minister must have an independent inquiry and all concerned should be prosecuted."

Foulkes also demanded the resignation of Brooks, the former News of the World editor who is now chief executive of News International, the U.K. newspaper division of Murdoch's News Corp. media empire. News Corp. owns a swath of newspapers, including News of the World, the Sun, and the Wall Street Journal.

"She's gotta go," Foulkes said. "She cannot say, oops, sorry, we've been caught out. Of course she's responsible for the ethos and practices of her department. Her position is untenable."

Brooks, one of the most powerful women in British journalism, maintains she did not know about the phone hacking. She said she will continue to direct the company.

Foulkes also challenged Murdoch — a global media titan with newspaper, television, movie and book publishing interests in the United States, Britain, Australia and elsewhere — to meet with him to discuss the intrusion into his privacy.

"I doubt he's brave enough to face me," he said.

In Parliament, lawmakers held an emergency debate to call for the prosecution of those responsible for hacking into the phone of Milly Dowler, the 13-year-old murder victim whose case touched off the scandal, and others.

The Dowler case touched a raw national nerve because the paper is accused of hampering the police investigation by deleting some of Milly's phone messages, which gave her parents and police false hope that she was still alive after she disappeared in 2002.

Cameron called for inquiries into the News of the World's behavior as well as into the failure of the original police inquiry to uncover the extent of the hacking. Potential victims have cited the tabloid's payoffs to police as the reason the allegations did not surface earlier.

"We are no longer talking here about politicians and celebrities, we are talking about murder victims, potentially terrorist victims, having their phones hacked into," Cameron said.

"It is absolutely disgusting, what has taken place, and I think everyone in this House and indeed this country will be revolted by what they have heard."

British media reported that the parents of two other schoolgirls, Holly Wells and Jessica Chapman, who were murdered in a sensational 2002 case, had been informed by police that they were investigating whether the News of the World hacked their telephones.

Many Britons were horrified.

"It's heartless and inconsiderate that they'd do it to victims and family of murder victims," said Danny Wright, 25, of Liverpool.

He said it was wrong to hack into celebrities' phones but far worse to target victims' families "because of what they've been through."

Bob Satchwell, executive director of the Society of Editors, said the Dowler case was crucial.

"That's why the case has gotten so big," he said. "If celebrities or politicians have their phones intercepted, that's one thing, but the idea that they were doing this while a little girl was missing and a police inquiry was going on makes it a really gross intrusion."

Satchwell said it has become politically sensitive not only because Cameron's communications chief Andy Coulson was forced to resign because of his earlier stewardship of the tabloid, but because lawmakers opposed to Murdoch's growing media power in Britain want to slow his takeover of other properties.

He said the hacking of Milly's phone was revealed just as government regulators are preparing to decide whether Murdoch can take full control of British Sky Broadcasting.

"You have to ask yourself why that happened right now," he said, cautioning that the public has yet to see clear evidence of illegal phone hacking except for two News of the World employees — reporter Clive Goodman and investigator Glenn Mulcaire — who have already served time in jail.

When police arrested Mulcaire, they seized 11,000 pages of notes, including the phone numbers of many suspected hacking victims. But in most cases the police have not yet made clear who was actually hacked.

Actor Hugh Grant said Wednesday that he had been asked to testify at a police inquiry into the hacking allegations. The actor has often claimed he believes his phone was hacked by News of the World.

The scandal has its roots in the tabloid's efforts to scoop its competitors with news about the royal family. Representatives of the royals complained to police in late 2005 that some of their voice mails had been hacked into.

The police inquiry focused on Goodman and Mulcaire, who were jailed in 2007 for the hacking. Executives said at the time that they were the only employees involved, but that has been undermined by a series of arrests at the newspaper earlier this year and by the company's willingness to settle with other victims.

The tabloid's parent company, News International, has insisted it is working closely with police and has a zero-tolerance policy for any wrongdoing or sketchy tactics.

Virgin Holidays canceled several ads due to run in the Sunday newspaper this week. Car makers Ford UK and Vauxhall and Halifax bank also said they have suspended advertising.

Mumsnet — a popular online community for mothers — removed ads from Murdoch broadcaster Sky after its members complained about the tabloid hacking.

Tuna Amobi, an equities analyst with Standard & Poor's, said in a research note Wednesday that the advertising boycott by some companies was not significant for a company as large as News Corp. But he remained "wary of potential regulatory fallout (if not ultimate derailment)" of its pending deal to take over BSkyB.

Phone-hacking featured prominently on the home pages Wednesday of the Wall Street Journal, another Murdoch publication, and the paper mentioned its ties to the scandal-ridden tabloid in the fifth-to-last paragraph of a lengthy piece. The Journal's article made no mention of Murdoch himself.

Murdoch's other properties — tabloids among them — did not distance themselves from the story — phone-hacking revelations were front and center on the Sun's website and Sky news replaced its featured stories home page box with a "breaking news" banner and multiple hacking-related stories. The Sun noted, however, that rival tabloids "have also been accused of dodgy and illegal activities while pursuing stories."

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

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