Case 1:11-cvM4947PGG Document 71 Filed 04/30/14 Page 1 of 115 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x LEWIS WILDER, as Trustee for the Lewis Civil Action No. 1:1 ]-cv-04947-PGG Wilder Revocable Trust, 12/10/20 10, and IRON WORKERS LOCAL UNION NO, 17 CLASS ACTION PENSION FUND, ECE Case Plaintiffs, CONSOLIDATED SECOND AMENDED auD CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL AVON PENSION FUND, Administered by SECURITIES LAWS Bath & North East Somerset Council, Individually and on Behalf of All Others Similarly Situated, Lead Plaintiff, vs. JURY DEMANDED NEWS CORPORATION, NI GROUP LTD., K RU PERT MIJRDOCH JAMES MURDOCH, LES HINTON and REBEKAH BROOKS, Defendants, x 9369711 Case 1:11-cv-04947-PGG Document 71 Filed 04/30/14 Page 2 of 115 TABLE OF CONTENTS Page I. INTRODUCTION ...............................................................................................................1 II. JURISDICTION AND VENUE ........................................................................................10 III. PARTIES ...........................................................................................................................10 IV. DEFENDANTS' CONTROL OVER NEWSCORP AND EACH OTHER ...................... iS A. NewsCorp Dominated and Controlled News Int'l, NGN and the U.K. Papers.....................................................................................................................iS B. The Murdochs Dominated and Controlled All Aspects of NewsCorp's Operations, Including Its Operations in the U.K. .................................................. 19 V. NEWSCORP' S CONCEALED AND ILLEGAL NEWSGATHERING ACTIVITIES PRIOR TO THE CLASS PERIOD .............................................................23 A. 2005-06: NewsCorp Gets Caught Hacking, and Creates Its "Rogue Reporter" Cover Story ...........................................................................................26 B. 2007: Hinton Lies to Parliament, Gets Promoted to CEO of Dow Jones ..............28 C. 2008: Defendants Are Confronted with the "For Neville" E-mail, and Pay Gordon Taylor £1,000,000 to Keep Quiet .............................................................33 VI. DEFENDANTS CONTINUE THE COVER UP DURING THE CLASS PERIOD ........36 VII. FRAUDULENT STATEMENTS, OMISSIONS AND COURSE OF BUSINESS ..........42 A. NewsCorp's Standards of Business Conduct ......................................................... 43 B. NewsCorp Press Releases - July 9 and 10, 2009....................................................50 C. Testimony to Parliament - July 21, 2009 (Crone and Myler) ...............................57 D. Testimony to Parliament— September IS, 2009 (Hinton) .....................................61 F. Responses to Parliament Report - February, 20 10 ................................................66 F. Denial of New York Times Hacking Report - September 2010 .............................69 G. Annual Shareholder Meeting and Centre of Policy Studies Speech - October2010..........................................................................................................70 H. Denials of a Reputation Crisis at NewsCorp - April 8, 2011 ................................73 9369711 Case 1:11cv-04947-PGG Document 71 Filed 04130/14 Page 3 of 115 Page VIII. DUTY TO CORRECT FRAUDULENT STATEMENTS AND MATERIAL OMISSIONS.................................................................................................... 77 A. Failure to Correct Prior Misrepresentations.......................................... 79 B. Failure to Disclose Risks to Completion of BSkyB Acquisition .......... 86 IX, ADDITIONAL ALLEGATIONS OF RELIANCE, MATERIALITY, LOSS CAUSATION AND DAMAGES .................................................................... 88 A. Presumption of Reliance (Fraud on the Market Allegations) .............. 88 B. Theory of Loss Causation and Damages ............................................. 90 X. CLASS ACTION ALLEGATIONS ................................................................. 100 XI. CLAIMS FOR RELIEF... .................. - ........ ............................................... -- 102 XII. PRAYER FOR RELIEF ................................................................................... LOS XI1I. JURY DEMAND ............................................................................................. 109 Ii 936971 Case 1:11-cvM4947PGG Document 71 Filed 04/30/14 Page 4 of 115 I. INTRODUCTION This is a securities class action on behalf of the purchasers of publicly-traded common stock ofNews Corporation ("NewsCorp" or the "Company") during the period from July 8, 2009 to July 18, 2011, inclusive (the "Class Period") who meet the requirements for membership in the Class, as defined in ¶193 below, against NewsCorp, its wholly-owned subsidiary News International Ltd., now known as NI Group Ltd., ("News Int'l"), and certain of their officers and directors for violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") 2, NewsCorp is worldwide media conglomerate based in New York City. NewsCorp's operations are tightly controlled by K. Rupert Murdoch, its founder, CEO and Chairman of the Board, his son James Murdoch, and their network of close associates and cronies, including defendants Rebekah Brooks and Les Hinton, This case arises from a long-running scheme by defendants to conceal the existence and extent of illegal and unethical newsgathering practices at News Int'l - the publisher of NewsCorp's flagship newspapers in the United Kingdom, where Rupert Murdoch started building his media empire - and the risks those activities presented to NewsCorp's worldwide reputation and financial success. 3. Over the past decade, or longer, at least two News Int'l newspapers - the Ne;t's of the Work/and The Sun - were regularly paying private investigators and police officers substantial sums of money to obtain private information to develop leads for news articles. Private investigators working at the direction of News Int'l reporters and editors, and with the knowledge and consent of senior executives, hacked into thousands of cell phone numbers to obtain voice mails that were used as the basis of stories reported in the newspapers - a practice that became known as "phone hacking." NewsCorp newspapers in the U.K. also regularly paid bribes to police detectives and 9369711 Case 1:11-cvM4947PGG Document 71 Filed 04/30/14 Page 5 of 115 other government officials for information used in their stories, also with the knowledge or tacit consent of senior executives. 4. Phone hacking was widely practiced by NewsCorp's British newspapers from 2001 or earlier until as late as 2010 or 2011 Senior executives of both NewsCorp and News int'l, including James Murdoch and Brooks, were expressly told about the practices and permitted them to continue, Other NewsCorp and News int'l executives, including Rupert Murdoch and Hinton, also knew of, or willfully blinded themselves to, the existence and extent of the practices. All defendants failed to exert their control to prevent the activities from occurring, continuing or being publicly concealed. 5. Defendants could not have concealed the extent of NewsCorp's phone hacking activities and police bribes for as long as they did without the active involvement or tacit approval of Rupert and James Murdoch and their confidants - including Hinton and Brooks - who they had appointed to run NewsCorp's business in Britain. Rupert Murdoch's position as NewsCorp's chairman and CEO gave him extensive control over its operations, as did his family's control of voting shares under the Company's dual class share structure, Rupert Murdoch' s unfettered control over NewsCorp's operations permitted him to pack its Board of Directors - and the boards of important subsidiaries like News Int'l - with friends, family members and close associates who would not - and did not —question how the business was being run, or demand further inquiry when allegations of phone hacking and bribery surfaced. 6. News Intl and its key officers, with the knowledge and approval of senior NewsCorp executives, including the Murdochs, actively sought to conceal the full extent of the Company's illegal newsgathering practices from governmental officials, industry regulators, investors and other members of the public, including by proffering false testimony to Parliament, concealing the results of internal investigations, requesting Scotland Yard to refrain from following up on evidence of -2- 936971 1 Case 1:11-cvM4947PGG Document 71 Filed 04/30/14 Page 6 of 115 widespread hacking, and making substantial secret payments to private litigants to prevent evidence of the activities from being presented in public court proceedings. For example: (a) In 2005, Scotland Yard commenced an investigation into News Int'l's phone hacking following reports that a cell phone belonging to the royal family had been hacked by News ?t the World royal editor Clive Goodman with the assistance of a private investigator, Glenn Mulcaire. Scotland Yard arrested Goodman and seized evidence from Mulcaire showing that other News Int'l reporters were also involved in phone hacking. Police shared that information with Brooks, who then shared it with other executives. However, Brooks and other executives knew that police had failed to conduct any follow up investigation, or question the other reporters and editors identified in the documents seized from Mulcaire, indeed, it appears Brooks requested them not to do so.