Tribune Settles SEC Probe Into Circulation Reports
Wednesday, May 31, 2006
Tribune Co., the second-largest U.S. newspaper publisher, settled an investigation by the Securities and Exchange Commission that accused the company of reporting false circulation figures.
The SEC said Tribune inflated the reported circulation for two of its papers, Newsday and Hoy, a Spanish-language daily, in financial reports and press releases, from January 2002 through March 2004.
The settlement resolves an SEC probe of Tribune circulation claims that led to criminal charges against nine former employees and contractors of the two papers. All pleaded guilty in federal court. The SEC said in a statement that Tribune lacked sufficient internal controls to uncover the inflated circulation figures, which allowed the company to boost revenue by charging higher advertising rates.
"We launched an extensive internal investigation immediately after allegations of circulation improprieties were made regarding Newsday and Hoy," Dennis J. FitzSimons, Tribune's chairman and chief executive, said. "We gave the SEC and other federal, state and local authorities our full cooperation and began communicating with our advertisers from the outset."
Tribune announced yesterday that it will buy back a quarter of its outstanding shares for more than $2 billion. The company's stock rose $2.01, to close at $29.90. Shares rose by as much as 9.1 percent yesterday, the most in more than six years.
In closing its inquiry, the SEC ordered Tribune to "cease and desist" from violating laws related to its record-keeping and reporting, the company said in a statement. Newsday and Hoy circulation-related records were inaccurate "due to practices uncovered by the company," according to the statement, which said no fines or other sanctions were imposed by the SEC.
Tribune, which consented to an SEC administrative order, neither admitted nor denied wrongdoing, according to the agency.
Tribune has earmarked $90 million to reimburse advertisers overcharged because of the inflated numbers.
Prosecutors claimed that in 2004, Newsday managers recruited phony customers to buy copies of the paper. They also claimed that Hoy managers paid distributors to report fictitious sales in New Jersey, Chicago and Los Angeles to inflate the paper's circulation.
In a 2004 report, the Audit Bureau of Circulations, which verifies newspaper sales, said Hoy overstated daily circulation by 46.4 percent and Sunday circulation by 23.3 percent for the 12-month period ended September 30, 2003.
The group said Newsday overstated its daily circulation by 16.9 percent and its Sunday circulation by 14.5 percent in the same period.
The nine defendants who pleaded guilty in the case face up to 20 years in prison on charges of fraud, prosecutors said.
Tribune was one of several newspaper publishers investigated for improperly boosting circulation figures in recent years.
Journal Communications Inc., owner of the Milwaukee Journal Sentinel, said yesterday that it will pay $5.1 million to settle a suit claiming the paper inflated circulation numbers and overcharged advertisers.
Belo Corp.'s Dallas Morning News said it inflated circulation in 2004 and set up a fund to reimburse advertisers.