Where's the criminal investigation of the Murdoch Empire? Shareholders to the rescue

Rupert Murdoch's former company, NDS, is accused of major cable hacking and piracy. This is the scandal that may bring Murdoch down and send him to criminal court.

By Michael Collins

There was something tawdry and disgusting about the phone hacking by Rupert Murdoch's News of the World. The News Corporation owned tabloid hacked the phone mails of several thousand citizens of Great Britain. Victims included celebrities, politicians, and even a murdered eleven year old kidnap victim.

But that wasn't enough to generate type of criminal investigation of News Corporation that would topple Rupert Murdoch and his clan from the throne of the $30 billion News Corporation.

The current revelations of cable television hacking, laid out in detail by Australia's Financial Review and the BBC, provide a more concrete connection between outright criminality and the Murdoch run media giant. This alleged criminal behavior involves hackers on the payroll of a former Murdoch controlled Israel based company, NDS, and the demise of cable television competitors in Great Britain, the United States, and Australia due to that activity.

These allegations are reinvigorating the institutional shareholders revolt that may be the end of the Murdoch clan's control of News Corporation.

Unlike the compromised privacy of citizens due to phone hacking, there is a concrete value that can be placed on the alleged cable hacking activity of the Murdoch controlled NDS . It's called monetary damages. Billions were lost by ventures that attempted to compete with Murdoch but were unable to do so due to compromised security that made their cable systems vulnerable cable piracy (i.e., stolen services). (On March 15, CISCO announced its intent to acquire NDS in late 2012)

Murdoch's NDS and Hackers

Rupert Murdoch's investment helped create NDS in 1988. He acquired the company in 1992. That year, NDS hired the controversial Ray Adams as an operational security officer. Adams was a former commander for the London Metropolitan Police (the Met) in charge of criminal intelligence. He retired from the Met under a cloud of suspicion to sign on with security firm Kroll Associates and then NDS. Adams colleagues at the firm included a former head of Israel's domestic intelligence, a former U.S. Army intelligence officer, and an Israeli (Yossi Tsuria) who had plotted a terrorist bombing of the Dome of the Rock mosque in Jerusalem.

One of Adams first tasks was to set up a website that served as a haven for cable television encryption hackers. Thioc.com operated for years as a test bed to test the security of cable encryption programs, vital to maintaining the security of cable television signals to homes. When a cable firm's security programs are compromised, the firm is subject to undetectable free access to its services. The results can be ruinous as Britain's ITV and others discovered.

There is no controversy as to the nature of Thioc.com. Both NDS and hackers admit that it was a hacker-friendly site. In an email obtained by the Financial Review, Ray Adams admitted that "I created THOIC and still consider it my baby" (email 1131February 10, 2000). According to NDS and Adams, Thioc.com was a test bed. According to hackers using the NDS funded site ($170,000 annually according to an Adams email), they broke the security encryption codes of several Murdoch competitors. These codes were taken by other hackers and used to steal the services of Canal+, a French cable company, ITV, a British cable competitor of Murdoch's BSKYB cable network (which used Canal+ encryption codes), and others.

Hackers spill the beans

Lee Gibling, an NDS supported hacker, emailed Ray Adams in early 2001 showing "Thoic.com members discussed how hackers could learn in its online forums to program software allowing them to hack into cable television." (Financial Review NDS email summary)

A 1999 email shows an NDS looking into a potential hack of ITV's, a direct competitor to BSKYB.

"Simply the boxed OnDigital [ITV's cable service] decoder with internal mod allowing freeview of all avaliable channels (100% undectectable 18 mth guarantee)" Shiloh, Yehonatan email 503, November 23, 1999

More to the point, in a Declaration to the United States District Court, Oliver Kommerling, noted hacker and employed by NDS, testified to the following.

NDS hacked the Canal+ smart card [used by ITV];
NDS engineers created a method "by which people would be able to circumvent the security measures" of Canal+; and
NDS then arranged for "Chris Tarnovsky to make the code available on the internet."
US District Court, San Francisco, April 18, 2002, Maynee Report pdf page 3

A Wired Magazine article in 2008 confirmed the role of Tarnovsky and the high stakes involved in the suit brought by Canal+ against NDS:

"Before Canal Plus's case against NDS died, Tarnovsky indicated to the company that Reuven Hazak had given him the Canal Plus code to post it on the internet. He reportedly told the French firm he would testify in the case, but later backed out, citing fear for his life and his family." Kim Zetter, Wired, April 21, 2008

Tarnovsky may have been concerned due to the suspicious death by hanging of another of the Thioc.com hackers, Boris Floricic (Tron) in Germany who had allegedly been involved in a 1998 hacking operation.

The Canal+ suit against NDS posed a major risk for the Murdoch Empire. Canal+ claimed just what the hackers confirmed and filed suit for billions. Had NDS lost the suit, the damages would have been staggering due to this and other pending suits by other cable companies.

News Corporation acquired Canal+ from its French parent, Vivendi, and the suit ended. All of the material collected by Canal+ team became the property of NDS. NDS denies any wrong doing in this or any other case of cable hacking for profit.

The BBC's Panorama television show documented a much broader set of hacking activities by NDS including interviews with hackers.

Where is law enforcement?

The London Metropolitan Police (the Met), has done nothing. BSKYB is located in London and any claimed illegal activities would fall under the Met's jurisdiction.

The London Metropolitan Police bungled several promising investigations that could have broken the current phone hacking fiasco years ago by fingering Murdoch's News Corporation as the main perpetrator. A detailed deposition given to the phone hacking inquiry by a senior Met officer described how two top Met officials (the commissioner and assistant commissioner) stifled investigations when matters came too close to the powerful in London.

Ray Adams, the NDS security head who launched the hacker web site, was twice investigated for shielding gangsters before retiring from the Met. The damaging findings of the internal investigations were kept form a subsequent high profile investigation of a racially motivated murder in 1993 where Adam's behavior was called into question. Was the Met protecting Adams? Is is still protecting Adams?

The U.S Department of Justice has failed to follow up on the cable hacking charges, a major cyber crime despite the evidence brought forth in the Canal+ trial. In fact, in 1998, the U.S. Customs Service partnered with NDS in a sting operation to catch cable pirates in the state of Washington. The sting backfired when the stolen cable security codes became available to cable pirates. Direct TV, then owned by General Motors, lost millions as a result of the operation. Had Justice been a little more curious in 1998, the subsequent hacking and cable piracy would have been prevented.

Where is the United States Department of Justice? How much more smoke do they need to see before they suspect a major fire?

Shareholders to the rescue

A major shareholder revolt emerged during the early stages of the News Corporation phone hacking scandal. Institutional investors launched a law suit and corporate governance actions against the Murdoch management of News Corporation. The opening sentence of the suit takes aim at Rupert Murdoch and his family: "Rupert Murdoch (“Murdoch”) – News Corp’s founder, Chairman, Chief Executive Officer and controlling shareholder – habitually uses News Corp to enrich himself and his family members at the Company’s and its public shareholders’ expense."

In October 2011, shareholders mounted a bid to disapprove the reelection to the News Corporation board of Rupert Murdoch and son's James (then chairman of BSKYB) and Lachlan. The main target was James Murdoch then head of News International during the phone hacking scandal and chairman of BSKYB. There was a 35% vote of disapproval. A separate action in November 2011 targeted James position as chairman of BSKYB. That also failed although both efforts were impressive.

The Christian Brothers Investment Services filed a proxy proposal on April 2 to replace Murdoch with an independent board chairman in light of the ongoing scandals. Reuters quoted the investment firm's Julie Turner, director of social responsible investment, as saying, "With current arrangements, the company is stepping into the scandal with a flawed corporate governance structure."

Why it's about NDS

Yesterday, James Murdoch voluntarily stepped down as the chairman of BSKYB. AP quoted Murdoch as saying,

"I am aware that my role as chairman could become a lightning rod for BSKYB and I believe that my resignation will help to ensure that there is no false conflation with events at a separate organization." (AP, April 3, 2012)

During the phone hacking phase of the Murdoch scandals, James had retained his position as BSKYB chairman with an 81% approval by shareholders (BSKYB has its own shares, 39% are controlled by Murdoch, who seeks to buy the remaining 61%). The recent revelations of alleged NDS cable security hacking and damages started on March 14. Today, without any shareholder vote of disapproval, James stepped down.

The timing of the resignation by James from the immensely profitable BSKYB is related to the emerging cable piracy scandal.

James Murdoch and brother Lachlan both worked for NDS in 2002?

What was their role in the company?

Wouldn't they be up to their necks in any illegal activities by NDS?

What did Rupert's sons, both tapped as heir apparent (at different times) to be chairman of News Corporation, tell their father about NDS?

What sources other than his two sons were there for Rupert Murdoch to determine the nature of allegedly illegal cable piracy?

While the Met, the U.S. Department of Justice, and other legal authorities sit on the sidelines, shareholders seem to know the score and demand action.

END

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