Liberty Scraps Home Shopping Network Deal : Television: In dropping acquisition bid, company cites reports of grand jury investigation into alleged financial misconduct.

Liberty Media Corp. has dropped its bid to acquire full ownership of Home Shopping Network because of allegations about financial misdeeds at the cable TV network.

Last year Liberty acquired a 65% stake in the St. Petersburg, Fla.-based home shopping channel and had plans to acquire the remaining shares.

In a statement, Liberty said it is canceling the bid because of reports about a grand jury probe investigating alleged financial misdeeds at Home Shopping Network and because of a lawsuit filed against the channel by its former general counsel. The investigation and lawsuit could lead to an “indefinite delay of the merger,” Liberty said.

It is unclear what effect the decision to scrap the deal with Home Shopping Network will have on Liberty’s anticipated merger with QVC Inc. Liberty is the controlling shareholder in the rival shopping channels, and analysts had expected Liberty to merge the two companies.

Home Shopping Network, which pioneered the rapidly growing industry of so-called electronic retailing, has been rocked in recent weeks by bizarre allegations that company executives accepted bribes from suppliers, secretly profited from ties to vendors and had links with the Gambino organized-crime family.

Charges of financial misdeeds were made against Home Shopping Chairman Roy Speer and Lowell Paxon, the company’s former president. Now the subject of a federal grand jury investigation, the charges were first publicly disclosed in separate civil lawsuits against the company and a divorce proceeding involving a former general counsel.

Both Speer and Paxon have denied the charges in published reports, but Liberty has set up a special committee of Home Shopping’s board of directors to investigate the allegations.

How badly the charges damage Liberty’s plans for Home Shopping Network remain to be seen. If charged and convicted of improprieties, Home Shopping could lose the valuable broadcast licenses to 12 UHF TV stations it owns.

The incident could also have a negative effect throughout the home shopping industry, which is emerging from years of image problems and caution among investors.

The biggest reason for the overnight about-face in the home shopping industry has been the entry of Barry Diller, the former chairman of Fox Inc. who bought a 3% stake in QVC last year and plans to use the cable TV shopping channel as a platform into the high-tech, interactive TV era now at hand.

Due to the complex and overlapping interests of the cable TV industry, Diller has been assisted in his involvement with QVC by Liberty and Philadelphia-based cable TV operator Comcast Corp.

Liberty was spun off two years ago from Denver-based cable giant Tele-Communications Inc. The company, now controlled by TCI Chief Executive John C. Malone, has stakes in more than half a dozen cable TV networks, including Black Entertainment TV, Encore, Court TV and Prime Sports Channels Networks.