US pension schemes sue News Corp

US pension funds and other institutional investors have filed an amended complaint alleging "rampant nepotism" and "failed corporate governance" at News Corp in light of the ongoing British phone hacking scandal.

In addition to pre-existing allegations of abuse by News Corp chairman and CEO Rupert Murdoch, the amended complaint addresses revelations involving News Corp's Sunday tabloid the News of the World, whose editors admitted to hacking the mobile phones of a raft of public officials, celebrities, members of the royal family and 13-year-old murder victim Milly Dowler.

Shareholders led by Amalgamated Bank, trustee for several LongView investment funds, along with Central Laborers Pension Fund and other public pension funds, allege because the board did not intervene when it learned of these problems years ago, News Corp was forced to close the News of the World. The 168-year-old title was the largest-circulation English language newspaper in the world.

Securities and corporate governance law firms Grant & Eisenhofer and Bernstein Litowitz Berger & Grossmann are serving as co-lead counsel for the plaintiff shareholders.

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.

It is thought as many as 4,000 individuals may have been the target of unlawful phone call intercepts, including British soldiers killed in Afghanistan and victims of terrorist attacks.

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 the News of the World had "failed to get to the bottom of repeated wrongdoings that occurred without conscience or legitimate purpose".

James Murdoch also acknowledged he personally approved the payment of nearly £2m to silence two lawsuits against the company and admitted: "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," the shareholders argued in their complaint. "(They) show a culture run amok within News Corp and a board that provides no effective review or oversight."

Plaintiffs also noted editors implicated in the affair - including Rebekah Brooks - were consistently promoted even while the scandal was unfolding. Brooks was formerly editor of the News of the World and is now chief executive of News Corp subsidiary News International.

"Although the scandal first came to light in 2005...it is inconceivable Murdoch and his fellow board members would not have been aware of the illicit news gathering practices," the complaint said. "And yet, the board took no real action to investigate the allegations until 7 July, 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 challenged News Corp's $615m purchase earlier this year of Shine Group 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 $250m.

The complaint noted: "(Rupert) Murdoch did not even pretend there was a valid strategic purpose" for the Shine deal, as he proudly boasted its goal was to bring his daughter back into the News Corp. fold so she can join his board.

"Murdoch has treated News Corp like a family candy jar, which he raids whenever his appetite strikes."

Shareholders are seeking to block the firm from appointing Elizabeth Murdoch to the company's board of directors, and to put an end to Rupert Murdoch's use of company assets to serve personal and family agendas, without regard for public shareholders, said a release from Grant & Eisenhofer.

"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.

Speaking to Investment Week's sister title Global Pensions, he said the amended complaint is a natural extension of the original claim of poor corporate governance.

Mark Lebovitch of Bernstein Litowitz added: "The amended complaint documents a seemingly endless stream of self-dealing and disregard for corporate governance by News Corp's board of directors.

"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."

The complaint was filed in Delaware Chancery Court on the evening of 8 July.

News Corp was unavailable for immediate comment.