NEW YORK — As the circulation scandal saw its first arrests Wednesday — three men were taken into custody on fraud charges relating to inflated figures at Newsday and Hoy — there are indications the magazine industry could also be in federal prosecutors’ sights.

Edward Smith, Robert Garcia and Richard Czark, former employees of Newsday and the Spanish-language newspaper Hoy, were arrested Wednesday. Smith and Garcia were arraigned in Brooklyn federal court on charges that included paying their own workers to buy copies of Newsday from street vendors being monitored by the Audit Bureau of Circulations. They pleaded not guilty and each was released on a $250,000 secured bond. Czark was arrested in South Carolina and will be arraigned in the Brooklyn court in the next 10 days. If convicted, each defendant faces a maximum sentence of 20 years in prison and a $250,000 fine.

In a statement distributed by the Justice Department, U.S. Attorney Roslynn Mauskopf said, “Today’s arrests … are intended to restore transparency and fairness to the newspaper and magazine marketplace.” It was her inclusion of the word “magazine” in connection with indictments of former newspaper employees that indicated an ongoing Justice Department investigation into circulation could affect that sector of the publishing business as well.

While the U.S. Attorney’s Office said Wednesday, “We cannot comment on an ongoing investigation,” a source close to the investigation said records for a number of publications and publishing firms have been subpoenaed, and indicated that magazines may be on the agenda. However, the source had no knowledge of any individual magazines being targeted.

The accuracy of magazine and newspaper circulation figures has been under the spotlight for several years, beginning with the scandal at Gruner + Jahr USA’s YM and Rosie. In January, G+J stated that auditors had disqualified the bulk of its subscriber roster, causing five of its six titles to miss their rate base in 2004. It also filed a civil suit against subscription agent Publishers Communications Systems for falsifying subscriptions. G+J sold off its four remaining women’s titles to Meredith Corp. last month and is negotiating with potential buyers for its two remaining U.S. magazines, Fast Company and Inc. G+J is still seeking $10 million in damages from PCS to cover advertiser refunds.

This story first appeared in the June 16, 2005 issue of WWD. Subscribe Today.

At the time the PCS suit was filed, many in the industry believed this was simply another chapter in G+J’s circulation struggles. But several executives, including circulation consultant and vice chairman of USA Pubs Chip Block, said soon after that incident this was an industrywide problem not limited to G+J.

Since then, the ABC has become more stringent in its documentation requirements for publishers and subagents. Michael Lavery, the ABC’s president, who was traveling Wednesday and could not be reached for comment, told WWD in February, “We’re into a new climate of accountability.”

In March, EBSCO Consumer Marketing Services, one of the biggest agents in the U.S., servicing Time Inc., Hachette Filipacchi Media and Conde Nast (like WWD, a unit of Advance Publications Inc.), was censured for improper record-keeping by the ABC. This followed an earlier censure in the summer of 2004 of Synapse, a subagent owned by Time Warner, for failing to collect subscription payments on time. Sanctions against Synapse have since been lifted.

“We have been conducting a series of seminars with agents, illustrating for them the kind of records ABC needs,” John Payne, senior vice president of communications at the ABC, said Wednesday, making it clear he didn’t think an examination of the magazine industry was necessarily linked to the Newsday and Hoy investigations. “We’re certainly working very diligently to verify all aspects of claimed circulation [in the magazine business],” Payne said. “We’ve spent a lot of time on it in the past few months, educating agents and publishers.”

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