Whether Rupert Murdoch's 21st Century Fox lands in hot water with federal prosecutors over payments made to resolve sexual harassment claims at Fox News could boil down to a few key issues:
Were Murdoch and other high-level corporate officers aware of the payments, and did they conspire to shield the alleged misconduct within Fox News from investors? How many and how large were the payments made by former Fox News Chairman and Chief Executive Roger Ailes?
A former prosecutor and a corporate governance expert said Thursday that companies have a legal obligation to disclose matters that would be material to investors.
"Corporations have the discretion to disclose more than what may actually be required to report," said Jacob S. Frenkel, an Washington attorney and former federal prosecutor. "If Mr. Ailes was at risk of being terminated as part of this, then there potentially would be something for consideration for disclosure."
Federal prosecutors in New York began reviewing Fox's handling of the matter after the sexual harassment scandal exploded last summer when former anchor Gretchen Carlson sued Ailes, claiming she lost her job because she refused to sleep with the powerful Fox News chairman.
Ailes previously had allegedly used corporate money to make one or more secret payments to resolve claims brought by other women who worked for him. Fox on Wednesday acknowledged that it has been "in communication with the U.S. attorney's office for months" and that it was cooperating with authorities.
Fox disclosed in regulatory filings last fall that it had spent about $35 million to settle claims — including the $20-million settlement paid to Carlson — and "potential litigations" surrounding Ailes.
But prosecutors are examining whether Fox properly disclosed previous payments. They are particularly interested in a $3.15-million payment that was made in 2011 to Laurie Luhn, a former Washington-based Fox News employee who lined up guests for Fox News programs, according to two people familiar with the investigation but were not authorized to discuss it.
Companies are not obligated to report every settlement to investors.
"It is a pretty high bar," said Charles Elson, who is director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "It depends on whether the event was considered material … whether a reasonable investor would consider the information important in deciding whether to invest in a company."
The amount of money might not have risen to the level that would require a public disclosure, Elson said. A handful of multimillion-dollar settlements would not make a dent in the finances of Fox, which generates nearly $30 billion a year in revenue. "It might be pretty small potatoes," he said.
Still, Frenkel said the size of the payments would not be the only factor. A series of payments, for example, could reveal broader management problems that would interest investors.
Also unclear is whether Ailes made the payments without the knowledge of his bosses.
"It's pretty clear that those above [Alies] should have been made aware of this matter," Elson said. "It might not be a question of breaking a law but following internal corporate protocols and practicing good corporate governance."
A Fox spokesperson declined to discuss the settlements.
Ailes was ousted in July as sexual harassment allegations began piling up.
News of the federal investigation surfaced during a court hearing in New York on Wednesday when Judd Burstein, the attorney for another Fox News personality, Andrea Tantaros, said that another one of his clients had been subpoenaed to discuss the matter. Burstein did not reveal which client was asked to appear before a federal grand jury. He did not respond to requests for comment.
Tantaros, who until last April had been a co-host on a Fox News daytime show, has sued Fox, claiming she was removed from her on-air role in retaliation for making a sexual harassment complaint against Ailes. Ailes has denied wrongdoing and his attorney did not respond for comment.
Times staff writer Stephen Battaglio contributed to this report.