SEC Brings Settled Charges Against Tribune Group

by Glen Shapiro, LawAndTax-News.com, New York

01 June 2006

The US Securities and Exchange Commission on Tuesday 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 United States District Court for the Eastern District of New York in connection with the same scheme.

The Commission's order found 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 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.

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.

Glenn S. Gordon, Associate Regional Director of the SEC's Miami office, stated that:

"Accurately reporting paid circulation figures is even more material to investors as competition with the Internet and other electronic media builds. Publishers must be certain that they have internal controls in place to facilitate accurate reporting of circulation information."

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.

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