Thursday, June 1, 2006
Nine former employees and contractors entered guilty pleas to conspiracy to commit mail fraud for reporting inflated circulation numbers to the Audit Bureau of Circulations (ABC) that were then used to set advertising rates for two newspapers. The newspapers involved are Newsday, which is primarily in Long Island, and Hoy, a Spanish-language paper distributed throughout the U.S. A press release issued by the U.S. Attorney's Office for the Eastern District of New York (here) describes the role of ABC as conducting "annual audits of circulation numbers that publishers certify bi-annually and functions as an industry watchdog to insure the integrity of data that publishers provide to advertisers. Membership in ABC earns publishers credibility with advertisers, who rely on ABC-audited paid circulation data to decide whether to place advertisements in a publication and to negotiate advertising rates. In general, advertisers pay higher advertising rates to publishers whose paid circulation numbers exceed those of its competitors." The press release described the scheme: "From approximately 2000 and continuing through 2004, Newsday circulation executives and managers repeatedly manipulated paid circulation numbers to make it appear as if more newspapers were being sold than was in fact the case, then forwarded the inflated data to ABC for dissemination to publishers . . . The fraudulent conduct at Hoy involved many of the same techniques and several of the same participants as at Newsday."
The SEC filed an administrative Cease-and-Desist Order (here) against the Tribune Company, the owner of Newsday and Hoy, prohibiting future violations of the financial reporting provisions of the federal securities laws because its quarterly and annual filings included the inflated circulation figures. There was no sanction imposed as part of the administrative proceeding. (ph)