Alison Frankel

News Corp deal: a new way to police corporate political spending?

Alison Frankel
Apr 22, 2013 21:43 UTC

On Monday, the directors and officers of Rupert Murdoch’s News Corp agreed to settle a derivative suit accusing them of breaching their duty to shareholders by failing to avert the phone-hacking scandal at the company’s British newspapers. News Corp’s insurers will pay $139 million, in what shareholder lawyers atGrant & Eisenhofer called the largest-ever cash settlement of derivative claims in Delaware Chancery Court. The settlement, which comes as News Corp prepares to split its news and entertainment branches into two publicly traded companies, was produced after several months of mediation that took place while the company’s motion to dismiss was pending before Vice Chancellor John Noble.

The cash portion of the deal (which will be eventually reduced by legal fees paid to G&E, co-lead counsel fromBernstein Litowitz Berger & Grossmann and several other plaintiffs firms that managed to grab a piece of the case) is obviously the big news, but among the many corporate governance enhancements detailed in the memorandum of understanding between News Corp and shareholders, you’ll find what appears to be a historic concession by the company: News Corp has agreed to disclose its campaign and political action committee contributions to shareholders and its lobbying and Super PAC spending to the board. According to two advocates for corporate political transparency, this settlement apparently marks the first time that shareholders have used the vehicle of a derivative suit to obtain enhanced disclosure of corporate political spending. “I think it’s terrific,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington (CREW). “Any way to force companies to disclose spending is good for democracy.”

Earlier this year, you may recall, New York State’s public employee pension fund brought a books-and-records suit against Qualcomm, seeking to force the chipmaker to tell shareholders about its political spending. (Notably, the New York fund, like shareholders in the News Corp case, was represented by Mark Lebovitch of Bernstein Litowitz.) I said at the time that the novel tactic of suing corporations under the Delaware law that grants shareholders the right to request corporate books and records could be a breakthrough in the post-Citizens United effort to force companies to admit their political spending. Qualcomm certainly knuckled under. In February, less than six weeks after the New York fund sued, the previously opaque corporation agreed to disclose online all of its contributions to candidates and parties, as well as donations to Super PACs and trade associations.

News Corp’s newly agreed-upon disclosures aren’t as robust as Qualcomm’s. The company said it would tell shareholders about contributions to all state and local candidates (direct corporation contributions to candidates for federal office are prohibited) and political action committees. It also agreed to disclose all donations to political nonprofits that are specifically earmarked as independent expenditures on behalf of a particular candidate or party and all spending in support of or opposition to ballot measures. But the settlement only requires the company to inform the board, and not shareholders, about Super PAC and trade association contributions over $25,000. Nevertheless, the settlement puts News Corp’s political transparency obligations in black and white, and that’s a real accomplishment for shareholders of such a politically active corporation.

Will other shareholders take advantage of pending derivative suits to obtain additional disclosure of corporate political spending? I hope so. The Securities and Exchange Commission continues to mull beefed-up disclosure requirements, and groups like the Center for Political Accountability continue to push for shareholder resolutions demanding transparency. The center’s director, Bruce Freed, told me that he expects the “proven vehicle” of shareholder resolutions to lead the way in improving transparency in corporate political spending. (Such resolutions, according to CPA, have prompted 120 companies to enhance their disclosures.) Sloan of CREW, however, told me that between the Qualcomm and News Corp settlements, “I think you’ll be seeing people looking at this more and more.”

News Corp and the FCPA paradox

Alison Frankel
Feb 28, 2012 16:33 UTC

For the Justice Department’s Foreign Corrupt Practices prosecutors, last week was the best of times and the worst of times. A federal judge in Houston sentenced the former CEO of the Halliburton spin-off KBR Inc. to 30 months in prison for his role in a 10-year scheme to pay $182 million in bribes to Nigerian officials in order to secure $6 billion in military oil and gas contracts. Albert Stanley’s sentencing marked the end of one of the DOJ’s most successful FCPA prosecutions, in which KBR agreed to pay $579 million in criminal fines and disgorged profits — the second-highest fine in an FCPA case at the time the guilty plea and Securities and Exchange Commission settlement was announced in 2009. The KBR case is an FCPA paradigm, a classic demonstration of the law’s power to expose and punish corruption that would otherwise have stayed in the shadows.

The Stanley sentencing came a day after the end of the Justice Department’s biggest FCPA blunder, the so-called Africa sting charges against more than 20 defendants accused of agreeing to pay bribes to Gabon officials who supposedly controlled military contract awards. U.S. District Judge Richard Leon in Washington granted the DOJ’s motion to dismiss charges against all of the defendants who hadn’t pleaded guilty, after prosecutors failed to obtain any convictions in the first two Africa sting trials. Leon took the opportunity to castigate prosecutors for a “very, very aggressive conspiracy theory” that turned out to be unsupported by “the necessary evidence to sustain it.” I’ve written about the troubling backstory of the Africa sting prosecution, in which the government set up an operation center and deployed a highly compromised informant specifically to manufacture FCPA charges, with federal agents all the while texting one another about the attention they’d get when news of the case broke.

Leon is the second federal judge with harsh words for the government in an FCPA case. In December, U.S. District Judge Howard Matz in Los Angeles threw out the conviction of Lindsey Manufacturing and two Lindsey executives after concluding that the prosecution had “gone badly awry.” In the Lindsey case, according to Matz, agents wrongfully obtained a warrant and misled the grand jury, and prosecutors compounded the errors by failing to turn over evidence to defense lawyers.

Who gets to sue News Corp?

Alison Frankel
Jul 19, 2011 22:33 UTC

Well, here’s a big shocker: Grant & Eisenhofer and Bernstein Litowitz Berger & Grossmann aren’t the only shareholders’ firms that think Rupert Murdoch’s News Corp is ripe for the picking. It’s been a little more than a week since G&E and Bernstein amended the complaint in their already-underway Delaware Chancery Court shareholder derivative suit against the News Corp board to include allegations from the British phone-hacking and bribe-paying scandal. Turns out that’s plenty of time for other shareholder lawyers to fire up their word processors and lodge their own complaints.

On Friday, a Massachusetts union pension fund represented by Labaton Sucharow filed a Delaware derivative suit. And on Monday, Manhattan federal court docketed a derivative complaint filed by Glancy Binkow & Goldberg on behalf of an individual News Corp shareholder. So now what? Who gets to control the shareholder litigation against Murdoch’s embattled company?

There’s no clear answer to that question, which means we may be in for a tussle between the Delaware and New York plaintiffs firms. As I mentioned in a post yesterday, Chancery Court judges are increasingly irritated that shareholders are filing mergers and acquisition and corporate governance suits in courts outside of Delaware. But there’s no formal framework for determining where cases like this should proceed. (That’s in contrast to federal securities class actions, in which the litigation process is strictly governed by the Private Securities Litigation Reform Act.)