Newsday Must Face Claims It Fudged Circulation Numbers to Boost Ad Rates

(CN) - A federal judge dismissed racketeering charges against Newsday, a New York-based newspaper, but allowed claims of unjust enrichment and common law fraud against the paper to proceed to trial. The tabloid is accused of fraudulently inflating its circulation numbers by as much as 50 percent to solicit higher rates from advertisers.

Newsday allegedly submitted false circulation reports to the Audit Bureau of Circulation ("ABC"), an independent, non-profit entity which audits publications' reported circulation.

Unsold papers were "dumped" rather than reported, so as to maintain deceptively high numbers. Additionally, Newsday would receive advance notice of audit dates and the specific routes that would be inspected, allowing the paper to prepare falsified data, the complaint said.

Three individual defendants named in the suit were terminated from the Tribune Company in 2004 and pled guilty for conspiracy to commit mail fraud in connection with the circulation scheme, the complaint stated.

But the plaintiffs, for now eleven New York businesses, could not demonstrate a relationship between Newsday and ABC sufficient to support a RICO claim.

Judge Dennis Hurley wrote, "ABC stood at arm's length to defendants in its relationship as an auditor, and defendants' submission of false information alone would not have changed the tenor of that relationship, or altered the internal processes by which ABC authenticates the information it receives."

The court also dismissed claims under New York's General Business Law, which protects consumers rather than businesses.

If the unjust enrichment and fraud counts succeed, Newsday could be forced to make payouts to all businesses that purchased advertisements in the publication beginning in 1995.

Newsday is a Tribune Company subsidiary. Tribune's Hispanic Publication Hoy was also a named defendant.

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