Posted 21 Sept 2011

A prominent group of US banks and investment funds with substantial investments in News Corporation has issued a fresh legal complaint accusing the company of widespread corporate misconduct extending far beyond the phone-hacking excesses of News of the World.

The legal action, lodged in the Delaware courts, is led by Amalgamated Bank, a New York-based chartered bank that manages some $12bn on behalf of institutional investors and holds about 1 million shares of News Corporation common stock. Its lawsuit is aimed against the members of News Corp's board, including Rupert Murdoch himself, his sons James and Lachlan, and the media empire's chief operating officer, Chase Carey.

In the complaint, the shareholders accuse the board of allowing Murdoch to use News Corp as his "own personal fiefdom". In addition to the phone-hacking scandal at the News of the World, the complaint focuses on the controversial business tactics of two News Corp subsidiaries in America, its advertising arm News America Marketing and a manufacturer of satellite TV smart cards called NDS Group Plc.

In legal documents, the shareholders allege that the two companies were accused by multiple parties of "stealing computer technology, hacking into business plans and computers and violating the law through a wide range of anti-competitive behaviour".

The complaint draws on several lawsuits and trial transcripts in which the News Corp subsidiaries were prosecuted by rival businesses for alleged misconduct. In the case of News America, the company reached settlements with three separate competitors amounting to $650m.

In one trial, involving an advertising company called Floorgraphics, evidence was presented to the jury that News America had broken into its rival's secure computer systems at least 11 times.

The chief executive of News America, Paul Carlucci, was also quoted as having told Floorgraphics: "If you ever get into any of our businesses, I will destroy you. I work for a man who wants it all, and doesn't understand anybody telling him he can't have it all."

The complaint says that as Carlucci and Murdoch talk regularly, "it is inconceivable that Murdoch would not have been aware about the illegal tactics being employed by NAM to thwart comptetition".

In the case of NDS, the shareholder complaint refers to lawsuits launched by rivals Vivendi and EchoStar, who accused the company, which News Corp acquired in 1992, of illegally extracting the code of its smart cards used to unscramble satellite TV signals and charge subscribers. In court documents, Amalgamated Bank says NDS posted the Vivendi code on the internet, allowing hackers to break into broadcasts for free and inflicting more than $1bn in damages on its competitor.

In a separate case, EchoStar accused NDS of illegally intercepting one of its satellite television broadcasts, and a court injunction was obtained preventing the News Corp subsidiary from "intercepting or receiving, anywhere in the US, EchoStar's satellite television signal without authorisation".

Jay Eisenhofer, a lawyer representing Amalgamated Bank and its other leading complainants, the New Orleans Employees' Retirement System and Central Laborers Pension Fund, said the details of the alleged misconduct at News America and NDS were significant as they suggested a wider culture of improper behaviour that went beyond the illegality at the now-defunct News of the World.

"These cases establish a pattern of misconduct that extends far beyond the UK subsidiary. It demonstrates a corporate culture that allows this sort of misconduct to take place over a very long period of time."

Eisenhofer pointed out that several members of the News America and NDS boards were also directors of News Corp.

The latest complaint from Amalgamated and its co-plaintiffs provides the most detailed and serious allegations yet against News Corp for alleged business improprieties carried out within the US. The company is already under investigation by the FBI, which is looking into suggestions that News of the World reporters tried to gain access to the phone records of 9/11 victims.

The justice department is also carrying out a wide-ranging inquiry in the wake of the phone-hacking scandal into News Corp's corporate behaviour to see whether any US laws were broken.

There was no immediate response from News Corp to the allegations.