For Rupert Murdoch, the timing could not be worse. Six years after the tabloid phone-hacking saga engulfed his media empire and torpedoed his bid for Sky, a federal investigation into another company controlled by the 86-year-old billionaire could undermine his latest offer for the European pay-TV group.

The sexual harassment scandal at Mr Murdoch’s Fox News Channel has already cost millions of dollars in payouts to victims after Roger Ailes, its former chairman, was fired last summer following allegations that he harassed a former presenter. Several other women came forward claiming similar treatment, including Megyn Kelly, then the network’s star presenter, and Laurie Luhn, a former Fox News talent booker, who was paid a secret $3.1m settlement by the channel in 2011 in exchange for her silence.

Yet the turmoil at the cable news channel is far from over. Fresh allegations of sexual harassment and verbal abuse have been levelled at leading presenter Bill O’Reilly, leading more than 20 companies to pull their advertising from his programme.

Meanwhile, federal prosecutors are investigating whether settlements for alleged harassment with Ms Luhn and potentially other Fox News employees were concealed from investors in 21st Century Fox, the network’s parent company, according to two people briefed on the probe. Investigators are looking into whether any financial misreporting was limited to the Luhn payment, or whether there was a more systemic effort to conceal payments.

Two former Fox News executives told the Financial Times of other occasions where settlements to former employees were not disclosed. These people claim that multiple women negotiated confidential settlements with Fox News over sexual harassment allegations and they claim those payments were moved around different Fox News budgets. “That’s what the feds are looking for,” one of the former executives says. 21st Century Fox declined to comment for this story.

The federal probe into potential misconduct in the US is gathering steam just as British regulators are deciding whether 21st Century Fox would be a “ fit and proper” owner of Sky — six years after the Murdochs abandoned their first attempt to buy the European broadcaster amid the phone-hacking scandal.

Laurie Luhn, Julie Roginsky and Megyn Kelly have all accused Roger Ailes of sexist behaviour © FT montage

This should be a golden era for Fox News given its popularity with Donald Trump voters — and the president. For more than 15 years Fox News has outperformed rivals such as CNN in the ratings. Its blend of news and hard-hitting conservative opinion from presenters such as Mr O’Reilly and Sean Hannity has been a winning formula, generating profits estimated at $1.5bn a year, according to SNL Kagan, the research firm. Even after the battering its reputation has received in recent months, Fox News is still attracting record audiences.

Yet even by the channel’s pugnacious standards, this has been a chaotic few weeks. Mr O’Reilly, presenter of The O’Reilly Factor and the channel’s biggest draw, was the subject of a weekend New York Times report about $13m of pay-offs to silence several women who complained about him sexually harassing them. Unlike Mr Ailes, who was dispatched shortly after an internal investigation into harassment allegations made by Gretchen Carlson, the former presenter, Mr O’Reilly has agreed a contract extension with Fox News. In a statement, Mr O’Reilly said his position made him “vulnerable to lawsuits”.

New allegations have drawn in other senior figures within the organisation. On Monday, Julie Roginsky, a Fox News contributor and political consultant, sued the network in a lawsuit that named Bill Shine, the channel’s co-president, as one of three defendants alongside Fox News itself and Mr Ailes. Enlisting the attorney who represented Ms Carlson, Ms Roginsky claimed the company ignored her complaints of harassment at the hands of Mr Ailes and that Mr Shine “retaliated” against her.

Soccer - FA Barclaycard Premiership - Bolton Wanderers v Sunderland...Sky TV cameras follow the action at the Bolton Wanderers versus Sunderland match
21st Century Fox has bid £11.7bn to buy the 61 per cent of Sky, the pay-TV group, that it does not already own

Dianne Brandi, the channel’s top legal officer, has been drawn into another lawsuit. Three black employees have alleged racial discrimination by Judith Slater, Fox’s long-time controller. Ms Slater was fired last month by Fox News, which said it had taken “prompt and effective remedial action.” However, one of the plaintiffs alleged she told Ms Brandi in 2014 about mistreatment by Ms Slater but nothing was done.

The Fox News probe began last autumn when Mr Ailes was fired following an internal investigation by Paul, Weiss, Rifkind, Wharton & Garrison. The law firm was hired to investigate claims that Mr Ailes had sexually harassed Ms Carlson; her lawsuit against the company led to a $20m settlement. That payment was reflected in a $35m charge in a 21st Century Fox regulatory filing in November: $10m of the remaining $15m related to confidential settlements negotiated with two alleged victims of harassment by Mr O’Reilly, Juliet Huddy and Laurie Dhue. They were both Fox News presenters who complained of harassment after the Carlson lawsuit became public, according to people with knowledge of the settlement.

But it is the earlier $3.1m payment to Ms Luhn in 2011 that appears to have caught the eye of federal investigators. She confirmed the payment in an interview with New York magazine last summer but it was never disclosed to executives at 21st Century Fox at the time, according to people close to the company — and it never appeared in the group’s financial statements.

Posters are held up as James Murdoch (left) , Deputy Chief Operating Officer and Chairman and Chief Executive Officer, International News Corporation and Rupert Murdoch, Chairman and Chief Executive Officer, News Corporation give evidence to the Culture, Media and Sport Select Committee in the House of Commons in central London on the News of the World phone-hacking scandal.
James and Rupert Murdoch face MPs over the phone-hacking scandal in 2011

Aided by the US Postal Inspection Service, which typically takes on fraud and mail-related cases, prosecutors from the US Attorney’s Office in the southern district of New York have subpoenaed witnesses. At least two of those individuals, including Mark Kranz, a former Fox News chief financial officer, have been offered immunity in return for their testimony. Witnesses were due to start testifying in the coming days. A lawyer for Mr Kranz did not respond to requests for comment,

Under US securities laws companies are required to disclose “material” events, loosely defined as something a reasonable investor would want to know. It is unlikely the Luhn payment alone would have been material to 21st Century Fox, given the size of the company: it also owns the Fox movie studio, broadcast network and cable channel portfolio. However, people who have been briefed on the federal probe say investigators want to find out if similar concealed payments were made to other alleged victims.

Fox News budgets were not transparent under Mr Ailes’ leadership. Budgetary squeezes raised suspicions among executives that money generated by Fox News was being used to pay off women who had complained of harassment. Fox News would be generating millions of dollars a year, “making record profits”, one executive recalls. “And then suddenly we wouldn’t be allowed to travel or buy supplies. It was ridiculous.”

Two people with knowledge of the company’s finances said settlements to former employees were paid out in large amounts in the form of salary long after the individuals had left the organisation. It is not uncommon for companies to resolve settlements through salary distributions but employees in the payroll department at Fox News were instructed by senior executives to delete manually the names of individuals receiving confidential settlements paid as salary, the two people said.

Damaging allegations, secret pay-offs to buy the silence of victims and a criminal investigation provide striking parallels between the upheaval at Fox News and the phone-hacking scandal at Mr Murdoch’s UK tabloid newspapers. That scandal erupted into the public consciousness in 2011 when it emerged that News of the World reporters had hacked the voicemail of murdered schoolgirl Milly Dowler.

The ensuing outcry forced Mr Murdoch to shelve plans to buy Sky, but six years on, he has returned with a new bid and this time the Murdochs are privately more confident that they will prevail. Yet with a lengthy US investigation into Fox News likely and more people coming forward alleging harassment, the question is whether the new Sky bid will suffer the same fate as the last one.

News Corp, the Murdoch-controlled media company, split in 2013 into 21st Century Fox, which owns Mr Murdoch’s entertainment assets and Fox News, and News Corp, the home of Mr Murdoch’s newspaper portfolio. 21st Century Fox owns 39 per cent of Sky and has bid £11.7bn for the shares it does not own but faces an extensive review by Ofcom, the UK communications watchdog. Over the next few months, Ofcom will consider whether Sky and its chairman, James Murdoch — Mr Murdoch’s son, and the chief executive of 21st Century Fox — are “fit and proper” to hold and operate a UK broadcasting licence.

It is not clear whether the US investigation of Fox News would fall into the scope of the fit and proper person test, although Ofcom’s guidelines are sufficiently wide to allow it to consider foreign investigations. The regulator declined to comment but Claire Enders, the founder of Enders Analysis, a media research firm, said the investigation “may weigh negatively” on Ofcom’s deliberations. “It doesn’t look that great from the outside if federal prosecutors are pursuing things,” she says.

Sky’s share price has been stuck between £9.70 and £10 since Fox confirmed its bid in December. Some investors and analysts say the fact the shares are well below the offer price of £10.75 a share reflects doubts that the merger will clear all the regulatory and political hurdles it faces.

British opponents of Mr Murdoch’s plans to take control of Sky have seized on the investigation as justification to block the bid. In written evidence to Ofcom a cross-party group that included Ed Miliband, the former leader of the Labour party, Vince Cable, the Liberal Democrat former business secretary and Ken Clarke, former Conservative chancellor, argued that the bid should be blocked, saying there was “clear evidence” of a “pattern of secrecy and a lack of transparency about corporate failure” at Mr Murdoch’s companies, which was “being repeated at Fox News”.

One reason for the similarities between the harassment scandal and the phone-hacking saga may lie in Mr Murdoch’s approach to business and management. He inspires fierce loyalty among his top lieutenants, backing them when they want to take risks and giving them leeway to make decisions — as long as they deliver results. This hands-off approach may explain why phone-hacking and the Fox News harassment scandal continued for several years without any intervention.

Multiple former Fox executives say that harassment appears to have been an entrenched part of the workplace culture at the broadcaster. Much of that culture remains in place with executives who were close to Mr Ailes still in senior positions at the company. “To change the culture they have to get rid of four of five people,” a former executive says.

Mr Ailes was known to scoff privately at the notion that he could be reined in by 21st Century Fox executives. “He was making so much money for them he knew he was bulletproof,” says one formercolleague.

Charles Elson, director of the Center for Corporate Governance at University of Delaware, says the ownership structure at Mr Murdoch’s companies is partly to blame for oversight failures. 21st Century Fox and its sister company, News Corp, are effectively controlled by the Murdoch family through a dual class share structure that “breeds an environment where problematic governance can be fostered”, he says.

People close to the company reject that suggestion. They point to the overhaul in the parent company’s reporting structure and the introduction of strict new controls in the aftermath of the phone-hacking scandal — and the company’s swift response in commissioning the independent investigation after Ms Carlson’s allegations. Mr Ailes was relieved of his position within days.

While the prosecutors leading the federal investigation into the disclosure of settlements get down to work, Mr Murdoch and his family will hope their new Sky bid is not given a knockout blow by the latest scandal to hit their empire.

Additional reporting by David Bond

Get alerts on FOX News Network LLC when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article