So, once more, let's revisit one of the things that got us here, and I do not mean the CueCat or TXCN or ill-fated expansions into Tarrant and Collin counties. I'm talking circulation scandal, of course, and the federal lawsuit that will not die.
At the end of last week, the Belo Corp. finally filed its motion to dismiss the class-action circulation-fraud lawsuit suit against The Dallas Morning News' parent company, which is on life support in U.S. District Judge Sidney Fitzwater's court. It comes more than two months after lead plaintiff Operating Engineers Construction Industry and Miscellaneous Pension Fund, representing Belo stockholders who purchased the stock between May 12, 2003, and August 6, 2004, filed an amended complaint in federal court here that insists not only did Belo higher-ups know about the juicing of circulation numbers but encouraged and demanded it. That suit names as its six defendants Robert Decherd, News publisher and CEO Jim Moroney III and Jack Sander, Belo's president of media operations, among others. Also named is Barry Peckham, who was the executive vice president in charge of circulation till he resigned on August 5, 2004—when Belo issued a press release admitting that "an internal investigation...has disclosed practices and procedures that led to an overstatement in circulation, primarily in single copy sales." Belo bosses fessed up to the fact the company overstated daily delivery numbers by 1.5 percent and Sunday stats by 5 percent--which didn't amuse the advertisers who paid for ads based on phony circ numbers or shareholders who discovered their Belo stock was equally inflated.
Belo's internal audit was concluded in September 2004. According to a press release issued at the time, the investigation "found that the circulation overstatement at The Morning News resulted from the aggressive pursuit of circulation goals by former senior circulation managers, accompanied by inadequate procedures to monitor and verify distribution and returns of newspapers." The investigation also found that "trip and cash incentive contests for contractors; employee bonuses; low newspaper wholesale rates; and, pressure related to the attainment of circulation growth" helped lead to "the reporting of inaccurate circulation figures."
Hey, that's what the plaintiffs say in their lawsuit against Belo. Of course, they claim Belo managers weren't stunned to find this out, since they were the reasons it happened in the first place. Belo, of course, says, more or less, Yeah, it happened, but it wasn't on purpose. That's what Fitzwater said on March 30, when he initially tossed out the case. Far as he was concerned, Belo bigwigs were just acting like every other boss who tells an employee to do his job or find another one. So, what's in the new complaint, and what does Belo have to say about it?
In their May filings, the plaintiffs have 142 pages of allegations contained beneath headings such as "Scheme to Overstate Circulation" and "Distributors Refuse to Participate in a Bogus Audit" and "The Truth is Revealed" and "Belo's False Public Financial Statements." Oh, yeah: The thing reads like a thriller, if you have a low thriller threshold and find things like audits, home-delivery cancellations and the late-night disposing of unsold papers thrilling. There are unflattering characterizations of Belo management ("Moroney and Decherd both sent repeated messages to everyone at TDMN concerning...the termination of 'large' groups of employees...and the 'daily obligation' of the remaining employees to do whatever was necessary to increase circulation") and allegations of cooked books. Probably the most interesting part of the plaintiffs' complaint is the reference on page 18 to the 15-year veteran newspaper distributor who, on January 10, 2003, sent a letter to Decherd in which he informed the big boss "that he had been told by circulation managers that he would have to lie about the amount of papers he had sold." This is the same distributor who allegedly has in his possession some 12 audiotapes on which his superiors instruct him "to lie on circulation audit documents," according to the lawsuit. The suit also says:
"With the letter to Decherd, the distributor sent an audiotape he had made the prior week of voice mail messages and conversations with a State Regional Manager and State Zone Manager telling him to lie about his circulation figures--clear evidence of the scheme to inflate circulation figures at TDMN...During the course of numerous phone conversations, the State Zone Manager and State Regional Manager told that distributor that he had no choice but to participate in the bogus audit because upper management had set the circulation figures."This distributor--whose every allegation Belo dismisses in its motion to dismiss, insisting this person only showed "concerns" about wrongdoing but never any proof that Belo higher-ups knew what was happening--also claims that after telling Decherd about what was happening, a handful of Belo execs started hounding the distributor for the tapes. The suit alleges they bribed the distributor (whose gender is never revealed) with a lifetime contract to distribute papers, or something close to it. "In fact," says the suit, "these executives were in a frenzy to get a hold of and permanently destroy this damning evidence that threatened to expose their whole scheme, saying things like, 'Do you know what this will do to TDMN?' and 'We can't let those tapes out.'"
Perhaps if and when Fitzwater throws out this complaint we will get to hear those tapes; for now, they're but a tease in this ongoing tale.
In its not-quite-as-long motion to dismiss--and Peckham's separate filing, since he's no longer a Belo employee--Belo says anything their distributors and their managers did, they did on their own. They wanted those trips, so they fudged those numbers. They wanted those bonuses, so they destroyed those unsold papers. And far as that distributor with the tapes goes, why would he report the scam to Decherd and Peckham if they were the architects of the scam? That'd be "pointless," says Belo's response. Far as Decherd and Moroney and the rest were concerned, the numbers were good--till they discovered they weren't, and then they set out to fix it. Simple as that. The cynic might charge theirs is the Sergeant Schultz defense, but that's their story, and they're sticking to it. It worked the last time.
Peckham, in his legal filings, says he shouldn't be included in the suit because he wasn't "a member of senior management, nor on the Executive Committee, at Belo." He claims he was drawn into this because he resigned on the same day the circulation scandal broke. Apparently, that was just a coincidence, even though he did oversee...uh....lessee...yeah, circulation. And "even if he were aware of any such [circulation] overstatements," says his response, "Peckham made no statements to the investing public, directly or indirectly, and is not attributed to be the source of any misstatements, if any were made." I believe this is the legal defense known as distancing.
Anyway, the plaintiffs will file their own motion opposing Belo's motion by Labor Day, after which Fitzwater will rule whether to dismiss the whole thing one more time. Oh, and one more thing: The Dallas County District Attorney's Office is still looking into this too. Really. --Robert Wilonsky
