UK Phone Hacking Scandal Leads To New Shareholder Charges
A group of institutional investors of News Corp. has filed an amended complaint alleging rampant nepotism and failed corporate governance at the company and adding a series of fresh claims tied to the media giant’s role in the ongoing British phone hacking scandal.
Besides further detailing pre-existing allegations of abuse by News Corp. Chair and CEO Rupert Murdoch, the amended complaint addresses revelations involving News Corp.’s UK-based tabloid, News of the World, whose editors have admitted to hacking the cell phones of numerous public officials, celebrities, members of the royal family, and a 13-year-old girl who had been abducted and murdered. Shareholders allege that because the board did not intervene when it learned of these problems years ago, News Corp. was forced to shutter News of the World, a 168-year-old business that was the largest-circulation English language newspaper in the world.
Securities and corporate governance law firms Grant & Eisenhofer P.A. and Bernstein Litowitz Berger & Grossmann LLP are serving as co-lead counsel for plaintiff shareholders, led by Amalgamated Bank, trustee for various LongView investment funds, along with Central Laborers Pension Fund and other public pension funds.
The shareholder group accuses News Corp.’s board of failing to exercise proper oversight and take sufficient action since news of the hacking first surfaced at its subsidiary nearly six years ago. As many as 4,000 individuals may have been the targets of unlawful phone call intercepts, including British soldiers killed in Afghanistan and victims of terrorist attacks, according to the shareholder group.
The shareholders assert that, in perhaps the most egregious incident to come to light, investigators hired by News of the World admitted to erasing messages on the cell phone of the young murder victim, Milly Dowler, leading police to mistakenly believe she may have been still alive. The newspaper’s reporters, with the admitted knowledge of senor Rupert Murdoch loyalists, also paid off police officials in exchange for information on numerous investigations, the shareholders allege.
News of the World’s former editor Andy Coulson, who became a media strategist for British Prime Minister David Cameron, was arrested for his role in the affair on July 8, as was the paper’s former royal family correspondent. Coulson, along with the paper’s most recent editor-in-charge Rebekah Brooks, are believed by the shareholders to have had explicit knowledge of the phone hacking activities as part of the paper’s zeal in pursuing sensational stories.
In what the New York Times called “a statement of strikingly self-critical apology,” News Corp. executive James Murdoch – son of company Chairman and Chief Executive Rupert Murdoch – admitted that News of the World had “failed to get to the bottom of repeated wrongdoings that occurred without conscience or legitimate purpose.” James Murdoch further acknowledged that he personally approved the payment of nearly £2 million to silence two lawsuits against the company and admitted that “I now know that I did not have a complete picture when I did so. This was wrong and is a matter of serious regret.”
“These revelations should not have taken years to uncover and stop,” shareholders argue in their complaint. “[They] show a culture run amuck within News Corp and a Board that provides no effective review or oversight.” Plaintiffs note that editors implicated in the affair – including Rebekah Brooks – were consistently promoted even while the scandal was unfolding. “Although the scandal first came to light in 2005…it is inconceivable that Murdoch and his fellow Board members would not have been aware of the illicit news gathering practices. And yet, the Board took no real action to investigate the allegations until July 7, 2011, when Murdoch selected two of his co-directors to deal with the imbroglio.”
The latest allegations supplement a lawsuit originally filed in May 2011 in Delaware Court of Chancery. Shareholders challenge News Corp.’s $615 million purchase earlier this year of Shine Group Ltd., a UK film and TV production company run and majority-owned by Rupert Murdoch’s daughter Elizabeth Murdoch, whose windfall share of the sale came to $250 million. As the complaint notes, “[Rupert] Murdoch did not even pretend that there was a valid strategic purpose” for the Shine deal, as he proudly boasted that its goal was to bring his daughter back into the News Corp. fold so she can join his Board.
The complaint adds: “Murdoch has treated News Corp. like a family candy jar, which he raids whenever his appetite strikes. Ignoring the distinction between public and family business, the Board has repeatedly permitted Murdoch to: (i) intertwine rampant nepotism in the conduct of Company business; (ii) undertake actions designed to maintain his control over News Corp.; (iii) use News Corp. resources for his own personal and political objectives; and (iv) reward himself handsomely with excessive compensation.”
Among other redress, shareholders are seeking to block News Corp. from adding Elizabeth Murdoch to the company’s board of directors, and to put an end to Rupert Murdoch’s alleged use of company assets to serve personal and family agendas, without regard for public shareholders.
“News Corp.’s behavior has become an egregious collection of nepotism and corporate governance failures, with a board completely unwilling to provide even the slightest level of adult supervision,” said Jay Eisenhofer, co-managing director of Grant & Eisenhofer and co-lead counsel to shareholders. “The result has been a piling on of questionable deals, a waste of corporate resources, a starring role in a blockbuster scandal, and a gigantic public relations disaster. It is way past time that the News Corp. board step in and initiate serious changes to the company’s corporate governance.”
The fact that the board has been so passive despite years of misconduct is a testament to how lacking in independence its members are from the Murdoch family, shareholders allege. This has led to a “Murdoch discount” in the marketplace.
“The amended complaint documents a seemingly endless stream of self-dealing and disregard for corporate governance by News Corp.’s board of directors,” said Mark Lebovitch of Bernstein Litowitz. “The latest revelations serve as the final straw for News Corp shareholders, who are now fighting to keep another Murdoch family member from joining the board and perpetuating the culture that has made News Corp. a family fiefdom for so long.”