U.S. Prosecutors Probing Fox's Sexual Harassment Disclosures

(Bloomberg) -- Federal prosecutors are investigating whether 21st Century Fox Inc. should have disclosed to investors that it made secret settlement payments to female on-air hosts who alleged sexual harassment.

The investigation came to light in New York state court on Wednesday when a lawyer, Judd Burstein, said a client he didn’t identify had received a grand-jury subpoena from federal prosecutors in New York. Burstein, who was in court on a case against Fox, said he was later told by prosecutors in Manhattan that the securities unit is investigating “sexual -harassment issues” at the company.

The investigation centers on whether Fox’s settlement payments to women alleging harassment were so material that they should have been disclosed to investors, according to a person familiar with the matter who declined to be named because details of the probe aren’t public.

Andrew Levander, a lawyer for Fox, said in court that the company hadn’t received a subpoena and would cooperate with an investigation.

“We have been in communication with the U.S. Attorney’s office for months,” according to statement from Fox News. “We have and will continue to cooperate on all inquiries with any interested authorities.”

Jim Margolin, a spokesman for U.S. Attorney Preet Bharara in New York, declined to comment.

Harassment Claims

Fox has been plagued by reports of alleged sexual harassment in its ranks since last summer, when former anchor Gretchen Carlson filed a lawsuit against former Fox News’ chief executive Roger Ailes. She ultimately left the network and was paid a $20 million settlement, after alleging that Ailes “sabotaged her career because she refused his advances.”

Her accusations were followed by claims of harassment from other women, including Fox News host Andrea Tantaros. The scandal also engulfed one of the network’s biggest stars, Megyn Kelly, who said that Ailes harassed her. Ailes was ousted from the network he co-founded and succeeded by Rupert Murdoch, who controls the media and entertainment group.

More recently, Fox was reported to have settled allegations of sexual harassment against its most-popular anchor, Bill O’Reilly. Fox News, which accounts for an estimated quarter of Fox’s profit, has stayed on top in cable news ratings despite the internal turmoil. 

Burstein represents Tantaros, who sued Fox and Ailes in August. She seeks almost $50 million in damages and claims the network acts as a defender of family values while operating like a "sex-fueled cult." Her lawsuit came on the heels of Ailes’s resignation from the network following an investigation of similar accusations in a case by former anchor Gretchen Carlson.

Settlement Offer

Outside of court, Burstein said Fox had offered Tantaros $1 million to settle the claims.

Federal securities laws require companies to properly account for payments in their internal books and records so that shareholders can track spending, said Stephen Crimmins, a former SEC enforcement lawyer who now works for Murphy & McGonigle. He’s not involved in the case.

New York State Supreme Court Justice David B. Cohen granted a request by Ailes and Fox to have Tantaros’s suit resolved in arbitration, saying that the claims "clearly fall" within the scope of her work as they relate to the behavior of officers and employees of the company. At the hearing, Levander said it was “beyond the pale” for Burstein to disclose the investigation in court.

Fox had called Tantaros an "opportunist" who was suspended after she wrote a book without receiving permission. “The court granted Fox News’s motion to send Andrea Tantaros’s case to arbitration where it always belonged,” according to Fox News’s statement.

--With assistance from Matt Robinson

To contact the reporters on this story: Christian Berthelsen in New York at cberthelsen1@bloomberg.net, Chris Dolmetsch in New York at cdolmetsch@bloomberg.net, Anousha Sakoui in Los Angeles at asakoui@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Paul Cox