In a Tuesday full of bad news for Rupert Murdoch, including confirmation that his son James would have to testify again before Parliament about News Corp.'s sprawling phone hacking scandal, perhaps the most troubling news flash came in the form of fresh charges in a shareholder lawsuit.
The suit targets Murdoch's senior managers, as well as News Corp.'s Board of Directors, for "refusing to curb serial wrongdoing" inside the company. The suit also alleges that Murdoch helped foster a culture of misconduct; a culture that's damaging News Corp.'s reputation and costing it hundreds of millions of dollars in legal fees.
The target of the shareholders' ire though, isn't News Corp.'s scandalous behavior in Britain; it's News Corp.'s scandalous behavior in the United States. Specifically, the shareholder charges, amended to an existing lawsuit, focus on previous allegations that a News Corp. subsidiary engaged in of computer hacking the United States.
The realization that News Corp.'s hacking scandal may be widening here where federal investigators are giving the old case a fresh look, represents an ominous turn for Murdoch. He can ill-afford to have that scandal blossom here, and has taken great pains to suggest that the phone hacking scandal in Britain represented an isolated incident of criminality within News Corp.
The problem, as The Wall Street Journal recently noted, is that if U.S. investigators are able to show a pattern of misconduct at News Corp.'s American entities, especially in light of the phone-hacking debacle in the U.K., then a criminal case could be made against Murdoch's company; a criminal case that would expose the company to all kinds of financial and political fallout.
Given the fact that News Corp. previously admitted that its U.S. computers were used to hack a competitor's secure website, showing a pattern of corrupt, anti-business practices might not be that difficult.
Indeed, in recent years News Corp. has paid out nearly $700 million to settle lawsuits that accused one subsidiary in particular, News America Marketing (NAM) of unfair business practices. And that's one of the reasons disgruntled shareholders, including prominent U.S. banks and investment funds, filed fresh charges on Tuesday.
As one of the complaint attorneys told the Guardian:
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.
Also note that the complaint insists "It is inconceivable that Murdoch would not have been aware about the illegal tactics being employed by NAM to thwart competition."