Saturday, September 24, 2005
A grand jury in the Eastern District of New York (Brooklyn) issued a subpoena in July to Time Inc. for documents related to its circulation figures for the company's various magazines. The investigation focuses on whether media companies have overstated the number of copies that have been purchased as opposed to distributed for free; those figures are important in setting advertising rates, particularly the number of paid subscriptions and news stand sales as opposed to free copies. Earlier this year, three former employees of newspapers owned by the Tribune Co. were charged with fraud for inflating paid circulation figures at Newsday and Hoy (see U.S. Attorney's Office press release here). An AP story (here) discusses the investigation.
One interesting aspect of the investigation is that, according to a Time spokeswoman identified in the AP story, the company received the grand jury subpoena approximately two months ago. Only now, however, is the information coming out, and I could not find any public disclosure of the subpoena in company filings as of Sept. 23. In its 10-Q filed in early August (here), the Time disclosed the government's investigation related to accounting issues involving AOL, which resulted in a large settlement and appointment of an outside monitor. The grand jury subpoena seems to have fallen through the cracks, or perhaps it was not viewed as "material" information that a reasonable investor would consider important. Then again, when a substantial portion of a company's revenue and income is tied to advertising, an investigation of possible fraud in the basis for those rates sure seems material to me, but then I'm not a very good investor, either. (ph)