LOS ANGELES (CN) – Los Angeles Times fired an auditor for blowing the whistle on a scheme to pad circulation numbers, the man and his company claim in court – claims the newspaper called “utterly baseless.”
Tom Daley and Daley Technology Systems sued the L.A. Times and its parent companies Tribune Media and Tribune Publishing in Superior Court on Wednesday, alleging breach of contract, fraud, negligent misrepresentation and whistleblower violations.
Daley says he performed contract services for the newspaper from 2007 to 2013. In 2013, the Times awarded him a $6.4 million contract to develop a comprehensive advertising sales program that would have netted his company $2.2 million.
At some point, Daley says he became aware of “past fraudulent behavior at the Times, whereby the Times entered into agreements to ‘buy its own newspapers’ and count the purchases as part of its circulation,” the complaint states.
“This fraud was designed to deceive the Times’ advertisers and was very similar to a situation involving newspapers Newsday and Hoy, which led to federal arrests and convictions of Tribune employees. In fact, while the U.S. Attorney in New York was prosecuting employees of Tribune regarding Newsday and Hoy, the Times was engaging in essentially the same illegal activities in Los Angeles. As with the Newsday and Hoy case, the fraud perpetrated here was performed by high-level executives.”
No high-level executives are parties to the complaint.
Newsday and Spanish-language publication Hoy settled their circulation fraud case with the feds in 2007 and paid a $15 million fine. Nine people pleaded guilty to participating in that scheme, including contractors, midlevel executives and a former vice president of Newsday.
In the wake of that case, Tribune sold Hoy and reimbursed advertisers who were overcharged because of the padded circulation figures. The company said it overhauled its circulation operations after the incidents came to light in 2004.
Daley says he notified law enforcement and the L.A. Times of his suspicions, and claims he knows of other cases of “systematic circulation and advertisement fraud in numerous other business programs that they operate, all of which were designed to deceive the advertisers and subscribers.”
At the newspaper’s request, Daley met with outside counsel Jean-Paul Jassy, of Bostwick & Jassy, and the Times’ vice president of planning and analysis Jay Lorick to discuss Daley’s allegations. The meeting took place on Feb. 12, 2013.
“Before and during that meeting, Daley was asked several times what monetary gain he sought from the Times in providing the information,” Daley says in his complaint. “In response, Daley stated that he did not want any money or other benefits from the Times, but instead wanted the Times to ‘do the right thing,’ correct the problem and make sure the illegal conduct ‘does not happen again.’
“Daley also stated that because he works with the Times and his work supports his livelihood, he wanted assurances that he would not be subjected to retaliation for bringing this information to the attention of the Times. He was assured by the Times’ legal counsel and by Lorick that no retaliation would ever occur. In fact, Lorick stated emphatically to Daley that the Times would never retaliate against him.”
Neither Lorick nor Jassy are parties to the complaint.
After the meeting, Daley says, he continued feeding information about circulation padding – and documentation – to the paper and its attorneys, while continuing to perform his contract work and receiving promises of no retaliation.
“However, after providing the documents and information to the Times concerning the illegal behavior, things started to change,” Daley says in the complaint. “When Lorick and others at the Times realized that Daley was performing a $6.4 million contract with the Times, Lorick and other executives at the Times immediately set out to retaliate against Daley and sabotage the contract.
“In late April 2013, Lorick wrote an email to Daley asking, ‘Who in Advertising Business Development are you working with,'” the complaint continues. “Within a few days, the Times canceled all meetings with Daley and refused to permit Daley and his company to continue work on the $6.4 million contract. In doing so, the Times breached their obligations to Daley and Daley Technology Systems.”
For that breach, Daley demands the $2.24 million promised to him under the contract. He says that California law “specifically prohibits retaliation against a contractor or agent for reporting illegal activities perpetrated by the company.”
He also seeks exemplary damages, and damages for emotional distress. He is represented by Robert Prata and Todd Daley of Los Angeles.
Matt Hutchison, senior vice president for corporate communications at Tribune Publishing, told Courthouse News that Daley’s claims were “utterly baseless.”
“Missing from Daley’s own complaint is the fact that Daley is a former LA Times employee, who was terminated in 2005 and whose separation agreement prohibits him from doing any business with the company,” Hutchison said. “Yet he still sought business from the Times with a lower-level employee who was unauthorized to enter into an agreement. When the Times learned of the alleged contract, it promptly canceled the arrangement, citing the provisions of the separation agreement. It’s also curious that Daley would start to hurtle accusations eight years afterward, and still want to do business with The Times. The Times vigorously denies any wrongdoing and will seek its own remedies in court against Daley.”
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