News Corp. Shareholders Sue Over Phone Hacking Scandal

Claim filed in Delaware by angry investors

Last Updated: July 11, 2011 @ 9:19 AM

A group of institutional investors  sued News Corp. on Monday, alleging rampant nepotism and failed corporate governance at the company in the ongoing British phone hacking scandal.

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The filing added new claims to an existing lawsuit originally filed over News Corp's purchase of Shine, Elisabeth Murdoch's television production company, for $615 million.

Referring to the phone scandal, the complaint reads:

"These revelations show a culture run amuck within News Corp and a Board that provides no effective review or oversight."

Click here for the full complaint

The suit alleges that News Corp. CEO Rupert Murdoch must have known about the alleged illegal phone hacking at News of the World, which was shut down on Sunday. 

"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 (ex-editor Rebekah) Brooks and (ex-editor Andy) Coulson ran.  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 investors suing News Corp are led by Amalgamated Bank, trustee for various LongView investment funds, along with Central Laborers Pension Fund and other public pension funds.

“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-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 group sued after News Corp's purchasd Shine, the television production company owned by Elisabeth Murdoch, CEO Rupert's daughter, bought by News Corp. earlier this year.

The suit essentially blames the board for being a rubber stamp to Murdoch's leadership, which it claims has robbed shareholders of value in the company.

"The News Corp Board has totally  abdicated its responsibility of independent oversight, and has become a rubber-stamp for the desires of its domineering CEO," reads the complaint alleging excessive compensation for Murdoch in addition to the nepotism. 

"In addition, the board’s lax oversight over Murdoch has allowed him and/or his senior executives to embroil News Corp in illegal behavior.  More importantly, these examples demonstrate that the Board is unwilling or unable to prevent Murdoch from running News Corp in any way he sees fit."