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News Corp shareholders file new allegations

By Andrew Longstreth and Tom Hals

(Reuters) - The board of News Corp knew more than 10 years ago that its U.S. subsidiaries were illegally hacking competitors' computers, according to new court papers filed by the media company's shareholders on Tuesday.

Beyond phone hacking by some of the company's journalists in the UK, the News Corp board was also long aware of improper conduct at two U.S. subsidiaries, News America Marketing and NDS Group, shareholders said in the lawsuit.

"For more than a decade, News Corp subsidiaries have engaged in highly improper practices that have subjected News Corp to great financial and reputational damage," the complaint said.

The company's board "has not lifted a finger" to engage in any oversight of Chairman and Chief Executive Rupert Murdoch, even when it was provided with clear warnings that News Corp's business practices were illegal, the lawsuit said.

A News Corp representative was not immediately available to comment on the lawsuit. The complaint was filed in Delaware Chancery Court, the forum for many shareholder lawsuits involving big corporations, and is a revised version of an earlier case brought by the News Corp investors.

News America Marketing has been the subject of five lawsuits alleging anti-competitive behavior, including one by a competitor that claimed the unit hacked into its computer system on 11 separate occasions, according to shareholders. The litigation forced the company to pay out more than $650 million in settlements to three competitors, the plaintiffs said.

The plaintiffs are led by a trustee for several investment funds, the New Orleans Employees' Retirement System and Central Laborers Pension Fund. They want the company's top managers and directors, who include Washington, DC, lawyer Viet Dinh and former President of Spain Jose Maria Aznar, to pay unspecified damages.

News Corp has been engulfed in scandal since July, when it was revealed that phone hacking at its News of the World tabloid in the UK extended beyond celebrities and politicians to involve murder victims, including schoolgirl Milly Dowler, and British war dead.

British politicians plan to recall Murdoch's son James, chairman of the company's British newspaper arm, for further questioning on the scandal after employees contradicted his contention that he did not know the problem extended beyond "one rogue reporter."

The hacking scandal wiped billions of dollars off News Corp's market value, cost it two senior executives, forced it to drop a $12 billion bid for BSkyB and resulted in the shutdown of the 168-year-old News of the World.

News America Marketing is one of the largest U.S. providers of newspaper inserts, the advertising circulars that usually are part of a Sunday edition. Federal authorities, as part of a probe that began with so-far unsubstantiated claims that News Corp operatives illegally accessed phone records of September 11 victims, are reviewing lawsuits brought against News America by competitors.

One lawsuit filed by Floorgraphics, an in-store advertising firm, in 2004 accused News America of breaking into its computers and taking data that ultimately caused it to lose clients.

During the trial that followed, the founder of Floorgraphics testified that in July 1999, News America Chief Executive Officer Paul Carlucci, told him that, "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 case settled several days into the trial after News America agreed to buy Floorgraphics for $29.5 million.

The shareholder complaint filed Tuesday also highlights litigation that was filed against NDS, News Corp's smart card unit, by competitors.

NDS was accused of illegally extracting software code from competitors' cards used by satellite TV customers to unscramble signals. Some competitors accused NDS of making their software code available online for hackers, which allowed them to access satellite television without paying them.

In one case, French media conglomerate Vivendi alleged that NDS's actions caused it more than $1 billion in damages. The case was dismissed as part of a deal in which News Corp purchased an Italian pay-TV platform from Vivendi for $907 million, according to the shareholder complaint.

The plaintiffs in the shareholder case first filed the lawsuit in March over the company's agreement to buy Shine Group Ltd, a television and film production company run by Elisabeth Murdoch. The shareholders alleged that it was a sweetheart deal that reeked of nepotism.

The case is In re News Corp Shareholder Derivative Litigation, Delaware Chancery Court No. 6285.

(Reporting by Andrew Longstreth in New York and Tom Hals in Wilmington, Delaware; Editing by John Wallace, Gerald E. McCormick and Richard Chang)

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