How a small private equity firm took on ‘behemoth’ Fox — and won

On the Sunday following the 2020 US election, hours after lawyer Sidney Powell told Fox viewers that election machine-maker Dominion was “flipping votes” against Donald Trump, Hootan Yaghoobzadeh received an unexpected visit from his parents to his Upper West Side home.

“They just showed up,” recalls the New York-based investor, whose private equity firm Staple Street owns a controlling stake of Dominion.

“They were just worried for me personally because we are immigrants, we came to this country when I was five from Iran . . . and my parents thought they saw the beginnings of what led them to leave their home.”

Almost immediately, Yaghoobzadeh and his partners began crafting a plan that drew on their extensive financial backgrounds. “We were going up against a behemoth,” Yaghoobzadeh said of Rupert Murdoch’s Fox Corporation. “We had to be faster, better and smarter, but we knew we had the truth on our side.”

On Tuesday, Yaghoobzadeh’s mother stood behind him on the steps of a Delaware courthouse, as he expressed his pride in “exposing the truth and holding those who knowingly spread lies accountable”.

The $787.5mn settlement Fox paid to end the case is one of the largest defamation payouts ever. Yaghoobzadeh’s small Manhattan investment firm, with roughly 20 employees, had taken on conservative media billionaire Murdoch, and won.

Staple Street’s involvement started years earlier, with a buyout deal so unremarkable it was not covered by the mainstream business press.

In 2018, it invested $38mn to acquire a majority stake in Dominion at a $80mn valuation. After the 2020 election, it planned a number of acquisitions to take advantage of Dominion’s scale, executing a private equity roll-up strategy that has become common in industries such as car washes, dental practices and waste removal.

That plan went out the window in November 2020 as Fox News personalities like Maria Bartiromo and Lou Dobbs aired repeated claims that Dominion was involved in a plot to steal the election from Trump, alleging the company had bribed election officials and that it had once done the bidding of late Venezuelan leader Hugo Chávez.

The onslaught came as a surprise. “When you are being accused of treason on national television, you know you have a crisis on your hands,” said Yaghoobzadeh.

Before founding Staple Street shortly after the 2008 financial crisis, Yaghoobzadeh and others at the firm had cut their teeth on white-knuckle distressed debt investments and “special situations” at Cerberus, one of the most feared investment houses on Wall Street.

Cerberus had experience in high-stakes court battles for control of companies requiring the fortitude not to yield to threats or better resourced foes. In 2009, it salvaged its investment in Chrysler despite the US carmaker’s bankruptcy.

Those instincts would prove useful. Staple Street “understood that if [Fox] sensed even an ounce of weakness then we would lose”, said Yaghoobzadeh.

One of the firm’s first calls went to Tony Fratto, a former spokesman for George W Bush’s administration who knew many of Fox’s stars, and who ran the Washington-based Hamilton Place Strategies, a communications firm now renamed Penta. He now heads communications for Goldman Sachs.

Fratto and his team were “not cheap”, a person familiar with their hiring said, but Staple Street knew they “needed to pay for professional crisis management”. A deal was struck for a campaign they thought would last just two months.

The newly assembled comms team started sending polite requests for Bartiromo and others to investigate the veracity of the conspiracy theories emanating from the Trump campaign and its allies. After that failed, Fratto and his team shifted tack, and began sending “Setting The Record Straight” messages to the network’s executives, reporters and producers.

“Maria in particular was once the foremost financial journalist [in the US],” a person familiar with the strategy at the time said. “She knows how to find out whether a company is owned by the Venezuelans.”

Those emails and texts would form the basis of a complaint filed by Dominion in Delaware in March 2021, seeking $1.6bn in damages.

While the legal team assembled by Staple Street knew there must have been internal communications at Fox to help their case, they could not have predicted how many emerged. Fox’s lawyers handed over millions of documents with a variety of juicy revelations, including that primetime host Tucker Carlson thought Powell was “lying”, while fellow star Laura Ingraham believed she was a “complete nut”.

In its defence, Fox planned to tell the jury that Trump’s allegation of election fraud “was about as newsworthy as you can possibly imagine”, a person familiar with their plans said, and characterise the case as a high-stakes proxy battle for press freedom in which it had fulfilled “its journalistic duty”.

Fox contended Dominion’s lawsuit was “a political crusade in search of a financial windfall” for the company and its “private equity owners”. At trial, it intended to argue that if there were any damages suffered by Dominion, they were “nowhere close” to $1.6bn, the person familiar said.

Indeed, Staple Street’s investment in Dominion was already a success as its court battle intensified. Filings with the Securities Exchange Commission show that Dominion’s value had roughly tripled between 2018 and 2021, growing profitable enough for Staple Street to repay more than $30mn in acquisition debt.

Court documents also show Staple Street had recovered much of its original investment through dividends Dominion paid its owners. An expert it hired valued Dominion not far from the near-$800mn settlement it ultimately received.

The proceeds from the settlement are essentially pure profit to Staple Street, which stands to make hundreds of millions of dollars. The cash will be distributed to Dominion’s owners including Staple Street, chief executive John Poulos, and some senior employees.

There was no separate provision for Fox to pay the company’s legal fees, so its recovery is likely to be substantially lower than $787.5mn, as plaintiffs’ lawyers on contingency contracts typically command about a third of the settlement sum. Corporate taxes must also be paid.

First Amendment scholars expressed disappointment that Dominion did not hold on for a trial, which Catherine Ross, a professor of law at George Washington University, said “could have drawn a very bright line about when news organisations go too far”.

Yaghoobzadeh, a Jewish refugee from the Iranian Revolution, acknowledged the devastating emails unearthed were an “upside” to Dominion’s pursuit of a lucrative damages payout.

But he rejected any suggestion that Dominion, and by extension Staple Street, only ever had money in mind.

“We wish this never happened to us,” he said. “They gave us no choice.”