-By Henry Blodget

July 9, 2011- Bombshell news out of London, as the News Corp phone-hacking scandal continues to reverberate.

A member of the British Parliament, Alan Johnson, has said that James Murdoch "could face prosecution" over his role in the phone-hacking, the Telegraph has reported.

Johnson says that Murdoch could be exposed to charges under a law that covers the "criminal liability of directors," in which senior execs can be prosecuted for not just criminal behavior but for not knowing something they should have known. James Murdoch admitted in a statement to News Of The World earlier this week that he approved out-of-court settlements over privacy violations in which he was not in full possession of the facts.

Importantly, the MP did not say that Murdoch is under criminal investigation–only that he theoretically "could face prosecution."

If James Murdoch gets dragged into a criminal proceeding, the phone-hacking scandal will have done far more than clobber News Corp's reputation in Britain and jeopardize its acquisition of the rest of satellite broadcaster BSkyB (which is far more important financially and strategically than any newspaper the company owns).

James Murdoch is being groomed to take over the company when his father retires. The threat of criminal prosecution, therefore, could throw this succession plan into doubt.



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