News Corp. Shareholders Amend Lawsuit Amid Tabloid Scandal
NEW YORK -- News Corporation shareholders already suing Rupert Murdoch's media conglomerate over its $675 million purchase of daughter Elisabeth Murdoch's production company, have amended their earlier lawsuit given new revelations regarding how top executives handled the News of the World phone hacking scandal.
Jay Eisenhofer, co-managing director of the law firm Grant & Eisenhofer and co-lead counsel to shareholders, told The Huffington Post that the scandal "demonstrates the breakdown in the corporate governance at News Corp. in terms of the board of directors not having effective oversight of this company."
"You can see the board of directors is absent and silent," Eisenhofer said. "This is total deference to the Murdochs and what they want to do here."
So far, News Corp.'s board hasn't criticized the family's handling of a scandal that now threatens the media conglomerate Murdoch has built over the past half-century.
On Thursday, News International -- the conglomerate's British newspaper subsidiary -- abruptly shut down the profitable News of the World tabloid to try and squash the scandal that could derail News Corp.'s $12 billion deal for satellite broadcaster company BSkyB. And new details continue to emerge as the scandal widens. The Guardian reported Monday that other News International papers illegally obtained former Prime Minister Gordon Brown's legal records and medical records for him and his family. (See latest revelations here).
The scandal has reached the upper levels of Murdoch's empire. News International chief executive Rebekah Brooks is under pressure to resign, while News International chairman James Murdoch and Dow Jones chief executive Les Hinton -- who ran News International during the hacking -- face increasing scrutiny over their roles in investigating the matter over the past few years. Andy Coulson, a former News of the World editor and media chief for Prime Minister David Cameron, has already been arrested.
"These revelations should not have taken years to uncover and stop," reads the lawsuit, filed in Delaware Chancery Court. "These revelations show a culture run amuck within News Corp and a Board that provides no effective review or oversight."
The suit alleges that "given the close relationships with Murdoch, Brooks and Coulson, it is inconceivable that Murdoch and his fellow Board members would not have been aware of the illicit news gathering practices at the newspapers that Brooks and Coulson ran." And yet, it reads, "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."
Amalgamated Bank, which controls 1 million shares (or 0.003% of News Corp. stock), according to the Guardian, is joined in the suit by several municipal and union pension funds.
The original suit focused on charges of "nepotism" relating to News Corp.'s decision to purchase the Shine production company and the amended one continues to direct such claims at Rupert Murdoch. "Officer and controlling shareholder -- habitually uses News Corp. to enrich himself and his family members at the Company's and its public shareholders' expense," the suit reads. "Plaintiffs bring this shareholder derivative and class action because recent self-interested transactions and revelations about News Corp.'s operations giving rise to this action are the proverbial straws that break the camel's back."
A News Corp. spokesperson declined to comment on the amended lawsuit.
News Corp. share prices have dropped since news of the scandal broke, along with those for BSkyB, given the increased likelihood that the deal could be killed.
Still, News Corp.'s second biggest shareholder continues to back the Murdoch family. Saudi billionaire Prince Alwaleed bin Talal told Reuters Sunday he's "not thinking of selling anything."
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First Posted: 07/11/11 01:34 PM ET Updated: 09/10/11 06:12 AM ET