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WASHINGTON--- The Securities and Exchange Commission has charged publisher Tribune Company with reporting falsified circulation figures from at least January 2002 to March 2004 for two of its newspapers in New York, Newsday and the Spanish-language Hoy. The Commission issued an order finding that Tribune failed to uncover Newsday and Hoy's inflated circulation figures because it lacked sufficient internal controls to detect the schemes at those papers.
In a separate proceeding, nine former employees and contractors of Newsday and Hoy pleaded guilty to various criminal charges in the U.S. District Court for the Eastern District of New York in connection with the same scheme.
The Commission's order finds that from January 2002 through March 2004, Tribune disseminated inflated circulation figures for Newsday and Hoy in reports it filed with the Commission and in press releases and at earnings conferences. In addition, Tribune allegedly misstated its accounts receivable and payable, as well as its circulation revenues and expenses, because the company did not have sufficient internal controls to detect the circulation inflation schemes at Newsday and Hoy, the SEC said.
Prosecutors said that Newsday and Hoy generated fictitious newspaper sales in order to inflate their circulation figures. Circulation figures are a metric used by publishers and advertisers to negotiate advertising rates and newspapers that report higher circulation figures are likely to receive greater revenue from advertisement sales. In 2004, after acknowledging that Newsday and Hoy had inflated their circulation figures, Tribune recognized $90 million in pre-tax charges to settle advertisers' anticipated claims related to the inflated figures.
Linda Chatman Thomsen, director of the Commission's Division of Enforcement, said, "Circulation figures are a key measure used by publishers and advertisers to establish advertising rates. Because publishers typically generate the majority of their revenues from advertising sales, they must ensure that the circulation figures they report to the public are accurate so as not to mislead investors about the profitability of their most significant business operation."
According to the Commission's order, Newsday and Hoy's publishers set ambitious circulation goals for their newspapers. In order to meet those goals, circulation personnel generated fictitious newspaper sales by, among other means, entering into various sham agreements with dealers and distributors and by shifting the accounting for unsold newspapers to days that did not affect the calculation for the newspapers' circulation. The Commission's order finds that Newsday and Hoy's circulation personnel falsified certain records in connection with these fictitious sales.
The Commission's order also finds that Tribune failed to uncover Newsday and Hoy's inflated circulation figures because it did not have sufficient internal controls to detect the schemes used by the circulation personnel. Tribune's failure to detect the schemes led it to report inflated circulation figures and trends and misstate its circulation revenues and expenses in annual and quarterly reports it filed with the Commission from January 2002 to March 2004. Relying on the inflated figures, Tribune also reported in press releases, earnings conferences and other public statements that Newsday was successfully competing against other daily newspapers in its market and that Hoy was the largest Spanish-language newspaper in New York, the SEC said.
The Commission's order directs Tribune to cease-and-desist from committing or causing any violations or any future violations of the Securities Exchange Act of 1934. Tribune consented to the issuance of the order without admitting or denying any of the Commission's findings. In determining to accept its offer of settlement, the Commission considered remedial acts promptly undertaken by Tribune and the cooperation that Tribune afforded the Commission's staff. 5-31-06
© 2006 North
Country Gazette
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