By Simon Miller

American News Corp institutional investors have added a complaint over the News of the World phone-tapping scandal to their allegations of nepotism within the company.

Following the closure of the News of the World, institutional investors in teh States, led by Amalgamated Bank, trustee for various LongView investment funds, along with Central Laborers Pension Fund and other public pension funds, have added the allegations to its complaints of corporate misconduct against News Corp - known as News International in the UK.

The group had originally filed against News Corp Chairman and CEO Rupert Murdoch following the purchase of his daughter. Elizabeth's, production company Shine and the new submission contains further detailing pre-existing allegations of abuse by Murdoch.

Shareholders allege that because the board did not intervene when it learned of these problems years ago, News Corp was forced to shut down News of the World, a 168-year-old business that was the largest-circulation English language newspaper in the world.

The shareholder group argue that the board should have exercised proper oversight and taken sufficient action since news of the hacking first surfaced at its subsidiary nearly six years ago.

Plaintiffs note that editors implicated in the affair – including Rebekah Brooks – were consistently promoted even while the scandal was unfolding. “Although the scandal first came to light in 2005…it is inconceivable that Murdoch and his fellow Board members would not have been aware of the illicit news gathering practices. And yet, the Board took no real action to investigate the allegations until 7July, 2011, when Murdoch selected two of his co-directors to deal with the imbroglio.”

The latest allegations supplement a lawsuit originally filed in May 2011 in Delaware Court of Chancery. Shareholders challenge News Corp.’s $615 million (£383 million) purchase earlier this year of Shine Group, a UK film and TV production company run and majority-owned by Rupert Murdoch’s daughter Elizabeth Murdoch, whose windfall share of the sale came to $250 million.

“The amended complaint documents a seemingly endless stream of self-dealing and disregard for corporate governance by News Corp’s board of directors,” said Mark Lebovitch of Bernstein Litowitz. “The latest revelations serve as the final straw for News Corp shareholders, who are now fighting to keep another Murdoch family member from joining the board and perpetuating the culture that has made News Corp a family fiefdom for so long.”

News Corp has been attempting to buy the entirety of BSkyB before the scandal and the deal is likely to be put on ice if not scrapped completely, leaving both News Corp and its takeover advisors UBS and Morgan Stanley to decide what action next.

The UK media watchdog Offcom will also have to consider its course of action and its chairman, and Morgan Stanley board member, Colette Bowe, will have to consider whether the scandal falls under its 'fit for purpose' remit rather than plurality of media issues.

Shares of News Corp were down 5.9 percent at $15.77 in morning trading.

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