News Corp. shareholders amend suit, accuse board of allowing Rupert Murdoch to oversee ‘illegal’ operations in U.S., broad pattern of corruption

Dylan Stableford

After a summer's worth of high-stakes corporate scandal and intrigue, the phone-hacking case against News Corp. has gone fairly quiet--at least in the United States. But that could all change, now that a group of shareholders have filed an amended class-action lawsuit against Rupert Murdoch and other senior executives on Tuesday in Delaware. Among other things, the suit claims that the phone-hacking scandal has been severely mismanaged, battering the company's reputation and threatening its market value--and is part of "a broader, historic pattern of corruption" at the media giant.

The group--led by New York's Amalgamated Bank--filed its original suit in March, accusing News Corp.'s board of "paying for nepotism" when it agreed to a $615 million acquisition of the Shine Group, the British TV production company run by Rupert Murdoch's daughter Elisabeth. (Elisabeth Murdoch was supposed to get a seat on News Corp.'s board as part of the sale, but has since withdrawn her name from consideration.)

The amended 117-page complaint, filed Tuesday in Delaware's Court of Chancery in Wilmington, argues that alleged illegal activity--"computer hacking, privacy breaches and extreme anticompetitive behavior"--at a pair of News Corp. U.S. subsidiaries, News America Marketing and NDS, should have been a red flag for the company's board members.

The shareholders argue that five separate lawsuits lobbed against News America Marketing, an in-store marketer, had foreshadowed "the phone hacking conducted by News of the World." Murdoch, chief operating officer Chase Carey and chief financial officer David Devoe, the suit claims, sat on the boards "of both U.S. units at the time the events occurred."

A spokeswoman for News Corp. did not immediately respond to The Cutline's request for comment.

The shareholders contend that the internal investigation launched by Murdoch into the phone hacking affair has been inadequate "given that the two directors leading the 'probe' are a close personal advisor of Murdoch and a family friend."

The News Corp. board "has disregarded its fiduciary duties by allowing the Company's founder, CEO, Chairman and controlling shareholder, Rupert Murdoch, to use News Corp as his own personal fiefdom," the complaint states. "The Board has not lifted a finger to engage in any oversight of Murdoch's rule, even when it was provided with clear and unmistakable warnings that News Corp.'s business practices were not only unethical, but also illegal.

"Worse yet, the Board in bad faith allowed itself to become an outright accomplice to Murdoch's self-interested breaches of duty, repeatedly approving transactions whose core purpose was to entrench Murdoch and consolidate his control, and to siphon value away from News Corp and its shareholders for the benefit of Murdoch, his family, and his friends."

"The revelations surrounding News Corp.'s corporate governance lapses get worse with each new disclosure," Jay Eisenhofer, a lawyer for the shareholder group, said in a statement. "The illicit phone hacking and subsequent cover-ups at News of the World were part of a much broader, historic pattern of corruption at News Corp., under the acquiescence of a board that was fully aware of the wrongdoing, if not directly complicit in the actions."

The shareholders are seeking unspecified damages--together with a declaration that the "defendants breached their fiduciary duties" and permitted "rampant and continued illegal conduct." The suit is looking to hold the board accountable and "to ensure that in the future, value is created for the public shareholders, rather than only for Murdoch and his loyalists."

The filing comes on the same day that the select British parliamentary panel investigating phone hacking in the U.K. recalled James Murdoch, Rupert's son and deputy chief operating officer, to testify in the case.

Earlier this month, two former News International executives--ex-News of the World editor Colin Myler and Tom Crone, a lawyer for the publication--challenged James Murdoch's testimony, alleging that they informed him of an email that suggested phone hacking at the company was not an isolated incident.

You can scroll down for the entire amended suit.

Amended News Corp. Complaint