Sec Probes Circulation Scandal

NewsInc, Oct 18, 2004

Apparently all the publicly traded newspaper companies have received letters in recent weeks from the Securities and Exchange Commission, asking them to cooperate in an investigation of industry circulation practices. The requests come in the wake of inflated circulation reports at papers in New York, Dallas and Chicago and also follow a flurry of shareholder lawsuits.

The New York Times reported on Wednesday that Dow Jones, Gannett, Knight Ridder, McClatchy, the Times Co. and the Washington Post Co. had all received letters. In the wake of the story, Knight Ridder, the Times Co. and the Post Co. all acknowledged the receipt of correspondence from the SEC.

The Audit Bureau of Circulations, a non-profit group that monitors circulation reporting at most daily newspapers, said that it too was helping the federal agency.

Two other companies -- Belo and Tribune -- told the Associated Press that they were also cooperating with SEC investigators. Belo's Dallas Morning News and Tribune's Newsday and Hoy of Long Island, N.Y. are among the papers that have admitted in recent months that they inflated circulation figures.

Hollinger International Inc., another public company that has admitted to inflating circulation figures at its Chicago Sun-Times and other papers, refused to confirm that the company had been contacted by the SEC.

The SEC declined to comment on any investigation.

Both the Times and the AP took pains to point out that those companies that received letters were not necessarily accused of any wrongdoing, but rather that their cooperation would help the SEC understand common newspaper circulation reporting practices.

The Times reported that "those informed of the questions that the commission has been asking," said they were focused on the kinds of practices -- throwing papers onto doorsteps of people who were not subscribers, yet counting them as paid, and paying distributors or giving them gifts to not return unsold papers -- that have been reported in Dallas, New York and Chicago.

And the SEC is not the only governmental body interested in bad circulation reporting: a grand jury in New York has served subpoenas to the principals of the Newsday and Hoy circulation scandals, Newsday reported last week.

The paper said that the grand-jury activity was instigated by the New York Asset Forfeiture Task Force, an ad-hoc law enforcement group that includes the New York City and Nassau County police departments, the U.S. Treasury Department and the U.S. Justice Department. The circulation investigation is being run by the U.S. Postal Service and the SEC.

Experts quoted by Newsday were surprised that the asset-forfeiture group was behind the subpoenas, suggesting that the government may be using the Racketeer Influenced and Corrupt Organizations Act (RICO) to prosecute. Most often, RICO is used to prosecute those in organized crime or in gang-related activities.

Newsday said it was helping the task force. "This cooperation includes sharing information gathered from Tribune's internal audit of Newsday's circulation practices and procedures," company spokesman Stu Vincent told his paper.

Well, once the SEC and the RICO guys have gone through the newspaper circulation books with the proverbial fine-tooth rake, perhaps advertisers and stockholders will stop being skitterish.