Hot stuffGold quota and a forbidden floor: Secrets of the Met 10 secrets of Grand Central Terminal
Anatomy of a circulation fabrication
For four weekdays this past April, dozens of newspaper
"Newsday for Sale" signs took up posts at intersections in Nassau and
Suffolk counties. The street-side sales force was extremely effective,
selling hundreds, even thousands, of Newsdays each morning to passing
motorists, many of whom bought them in bunches.
But the operation was a sham - an elaborate ruse orchestrated by some
managers to fool auditors investigating claims that Newsday had fraudulently
boosted its circulation, according to one of Newsday's independent
home-delivery agents who participated in the scheme and two others who are
familiar with it.
"They gave the auditors the actual street corners where the hawkers were
selling the papers so they could see that the actual papers were being sold,"
said an agent who witnessed the hawker operation. "But what the auditors didn't
know was that the agents' own carriers were coming by and buying papers. They
were buying five and six papers at a clip and then coming back later in a
different car and buying five or six more."
The sham hawker operation was perhaps the most dramatic revelation to
emerge in recent weeks in an ongoing investigation by Newsday reporters of the
newspaper's past fraudulent circulation practices and how the schemes were
hidden from auditors. But five agents, who spoke on the condition of anonymity,
said it was only the most recent example of the integral role they were forced
to play in long-running efforts to artificially prop up Newsday's circulation.
In fact, the agents provided detailed descriptions of a variety of methods
some circulation managers used to help fraudulently boost Newsday's reported
circulation - by as much as 100,000 daily papers and as much as 122,000 Sunday
papers based on new year-over-year figures Newsday parent Tribune Co.
The scandal, which also involves circulation padding at Tribune's
Spanish-language Hoy, has spurred federal investigations, led to a reshuffling
of Newsday's top management and forced Tribune Co. to set aside as much as $95
million to settle with aggrieved advertisers, whose rates are often set by paid
circulation. It also has helped to raise questions about the general
reliability of circulation reporting in the newspaper industry, which has seen
two other major dailies admit to inflating their figures in the last year.
The Newsday agents interviewed said they regularly carried hundreds of
phony or non-paying customers on their delivery routes, and they said they were
paid for their troubles with "incentive" credits that hid the fact that they
were being compensated for free or undelivered newspapers.
The agents said some managers coached them to lie to auditors for the Audit
Bureau of Circulations, an industry monitor, whenever they came to town for
the annual examination of Newsday's books. They said partial-week subscribers
were frequently upgraded to seven-day delivery, whether they wanted the papers
or not. Such programs may have accounted for tens of thousands of the inflated
circulation. And the agents said they were often reminded that their one-year
contracts might not be renewed if they declined to go along.
As one agent put it, "For the past six or seven years ... every agent has
been working with the threat over their head: 'If you don't want to play the
game, we'll find somebody who will,' That's the way it went."
Asked to comment on the fraudulent practices detailed by the agents,
Newsday executives declined interviews but said through spokesman Stu Vincent,
"The ABC audit and our internal investigation at Newsday and Hoy had uncovered
these situations and, as a result, we made appropriate changes to our
circulation management and implemented tougher controls."
Newsday didn't identify who was involved and it's unclear how widely the
improper practices reached through the circulation department.
The newspaper fired Bob Brennan, vice president for circulation, in July
and five circulation managers in early September. Sources within the paper
identified those managers as Robert Bergin, Robert Garcia, Dot McKillop, Dennis
Springer and Gerry Schultz. None would comment on the scandal.
"We are determined that this type of behavior will never happen again,"
Vincent said in his e-mail response to written questions reporters submitted to
Newsday executives early last week.
Covering up the scandal
The circulation scandal was sparked in February, when four advertisers
filed a federal lawsuit claiming Newsday had fraudulently inflated its
circulation. Although Newsday said the case had no merit, the lawsuit spurred
investigations by Tribune Co., and ABC, the organization that collects and
certifies publishing industry sales figures that are a key component in setting
The delivery agents said in interviews that the circulation padding has
ended now that the department is under a microscope and Tribune, based in
Chicago, has fired key executives, allowed others to retire early and brought
in new leaders.
But they said before anyone was fired, and before Tribune's announcement in
June, that Newsday had indeed inflated its circulation reports, several
circulation managers turned to the agents one last time, enlisting them in a
desperate attempt to throw investigators off the scent of the scandal.
One of the agents who took part in the sham hawker operation said he
learned of the plan to fool the auditors on the first Saturday in April. He was
summoned that day to an emergency meeting with five circulation managers and
five other agents at the indoor batting cage of the Lindenhurst American Little
League, he said.
The circulation managers had backed themselves into a corner by telling ABC
auditors that Newsday sold thousands of papers a day with a street-hawker
operation that didn't actually exist, the agent said.
"They [the auditors] said, 'Well, we'd like to see it,' " the agent said.
"That was on a Friday ... We met on a Saturday morning and it started on a
The fake hawkers and their pretend customers acted out their roles for four
straight mornings, the agent said. A fifth day was canceled because the
auditors said on Thursday that they had seen enough, he said.
John Payne, ABC's senior vice president for strategic planning and
corporate communications, said of the hawker sham, "my sense is it was observed
by the auditors."
Payne said he could not comment in detail on ABC's continuing audit of
Newsday, which he said has taken longer than anticipated due to new evidence
coming to light. However, Payne did say that, "I know there were significant
adjustments in the hawker area."
Choreographing the audit
Newsday once employed nearly 10,000 youth carriers who walked or biked
their neighborhood routes and came calling each week to collect.
By the early '90s, however, lifestyle changes such as the increasing number
of women working outside the home had led to a drop in home subscriptions, and
many newspapers searched for a new approach.
Newsday, for one, decided it could lure more subscribers if the paper were
delivered by 5:30 a.m. each day. That was deemed to be too early for youth
carriers, so the system of using adult private contractors was phased in over
Today, 55 independent agents and the adult carriers they employ are on the
front lines of the newspaper's home-delivery operations in Queens and on Long
Island, with the average agent responsible for 6,000 to 7,000 subscribers. They
begin work each day at 2 a.m. and, according to several agents, typically make
about $90,000 a year, by clearing a small percentage of each paper delivered.
Their role makes agents a key focus every time the ABC auditors come to
town to audit Newsday's paid circulation reports, but three agents said some
Newsday circulation managers carefully choreographed meetings between them and
One former Newsday agent, for example, vividly recalled meeting with an ABC
auditor for a one-on-one interview at one of the newspaper's delivery depots.
A home-delivery manager had thoroughly prepped the agent for the interview,
the agent recently said. The manager told the agent not to tell the auditor
about the hundreds of free papers agents delivered, and he helped alter a
circulation report to improve the numbers, the agent said.
The depot had been cleaned up in advance of the auditor's arrival, with two
tractor-trailers carting away thousands of extra papers that had accumulated
in the building, said the agent.
'Scared both ways'
The agent recalled being "scared both ways" - afraid to go against the
manager and afraid to lie to the auditor. The auditor asked if the agent was
given extra papers by Newsday or had any customers who didn't pay their bills,
the agent said. The agent answered no to both questions.
"I was sitting with my fingers crossed under my chair when this guy was
asking me all these questions because I was lying through my teeth," the agent
said. "Here I am threatened by Newsday [with] not having a job if I don't
answer these questions incorrectly, and I hate to lie because, you know, that's
not my nature. And I'm saying, my God, what do I do? But then I'm thinking,
I've got kids to feed, too."
The agent said the auditor must have noticed the agent was nervous because,
"the guy specifically looked right in my face and said, 'Are you lying?' "
Newsday later fired the agent over a billing dispute, the agent said.
The agent recently gave the same information to federal postal inspectors
and Assistant U.S. Attorney Elaine Banar, who are investigating whether
Newsday's circulation department broke any laws while misstating its
circulation. Investigative sources confirmed that they met with the agent, who
told them about lying to ABC at the direction of a superior. These sources said
they also plan to meet with other past and present agents.
Payne, the ABC senior vice president, said auditors aren't led around by
newspapers; but randomly select the agents and newsstands they spot-check.
"It's not limited to only those routes that the newspaper suggests," he
However, another agent said it was common to mislead the auditors.
"When the auditors come into an agent, they want to see three or four
routes, and they want to see the collection records," the agent said. "I could
show you three or four routes right now, bring them up on my computer, and show
you who did or didn't pay. If it's not paid, the order's not going to count as
"But it's amazing that the agents who were picked for the audits all had
fudged collection reports," he added. "They were pre-selected, told two weeks
before who they [ABC auditors] were going to audit, and they were walked
through it. There was a guidance counselor coming through the depot to instruct
you how to handle this audit. He would bring up your route and say, 'This
one's going to be audited,' and, there you go - a 100-percent paid circulation!"
Running the program
At the beginning of this year, home-delivery agents each were given lists
of 400 new customers who were to receive the Sunday and Monday editions of the
paper, ostensibly for 49 cents a week, a bargain compared with the normal rate
of $1.85, four agents said.
But none of the new customers had requested the papers, and few paid for
them during the 15 or 16 weeks the "program" ran, according to several agents.
One agent said he didn't even bother having his carriers deliver any of the
The agent said he told his carriers, "Do what you gotta do. Throw them out.
Give them to your daily-only customers. Bring two home. Give them to your
aunts, your uncles. I don't care."
Even though the "subscribers" weren't paying them for the papers, the
agents paid Newsday for them each week as if the people on the 49-cent list
were real customers, they said. That piece of bookkeeping would be important to
Newsday because an auditor examining the agents' invoices would count the
49-cent customers as paid Sunday and Monday circulation.
The agents referred to the 49-cent program as "carrying the load," and they
said there would be one such program every six months to artificially boost
Newsday's paid daily circulation by tens of thousands of papers.
Once the programs concluded, the agents said, they would receive a "special
incentive" credit to cover the cost of the papers.
"We paid the 49 cents [per customer] each week, and at the end of the
16-week period, you were paid whatever you put into it," one agent said.
The 49-cent program abruptly came to a stop in April, agents said, because
auditors from Tribune and ABC were putting Newsday's circulation department
under a microscope.
One agent said he received a frantic phone call from a circulation manager
who said, "Get everything off TO-DAY!" Another agent said he was called and
told, "Make sure you don't have no 49-cent Sundays on or you're going to lose
The agents said the presence of auditors and new circulation managers also
held up the credits they were supposed to receive for carrying the 49-cent
"We were supposed to get paid for the load [in May]," one agent said, but a
Newsday manager "held it up for weeks because the new regime was in town after
the problems and she couldn't show the new regime that she was paying each
agent three, four, five thousand dollars for load." The agents said they
finally received their credits in July.
The necessary tools
To pull off the 49-cent program, two tools were required: an efficient
method for starting and stopping thousands of customers at once and a malleable
credit system for compensating the agents.
The circulation department was given those tools in the mid-1990s for
legitimate marketing programs, according to a former Newsday manager who talked
to reporters on the condition that he not be named.
But by 2000, the former manager said, the system had been perverted to
artificially inflate Newsday's paid circulation.
"It started out 100-percent legitimate, and then it became a conduit for
all these crappy programs they decided to throw on," the former manager said.
Newsday has long used free home-delivery samples to lure new subscribers,
but until 1995, the process of accounting for the flow of free copies was slow
and laborious, the former manager recalled.
Under the old system, Newsday would ask each of its agents to identify 50
customers in his zone to whom he would deliver sample papers, typically for six
or eight weeks.
Each customer had to be typed into the billing database by a clerk and then
manually excised from the system once the six- or eight-week sample period
Because the agents would pay Newsday for the sample papers they delivered
each week, the clerk also had to calculate the credits each agent was due once
the sample period ended.
That process changed about 1995, when Newsday's computer experts devised a
program that could automatically start delivery to hundreds or thousands of
customers at once, using electronic lists of addresses, the former manager said.
Loosening the criteria
In the beginning, the computerized process was used for legitimate sampling
programs or to start batches of subscriptions sold by telemarketers, and it
included strict criteria for paying credits to agents, the former manager said.
By 2000, however, Newsday's circulation department had loosened the
criteria for credits and started using electronic lists to add thousands of
customers who hadn't ordered the paper, the former manager said. With a couple
of keystrokes, managers could boost their daily tallies and credit agents for
the nonexistent or free deliveries, he said.
He said he once even witnessed a former manager entering a $1,500 agent
credit into the system to pay for World Series tickets the agent had obtained
"What started out as a couple hundred bucks a week [in credits] toward the
end of my tenure was $10,000 a week," said the former manager, who left Newsday
about four years ago. "I would say 90 percent of all of the shenanigans were
paid for with agent credits while I was there."
The managers didn't have to come up with extra money to pay the credits
because they were essentially returning cash the agents had paid while each
At the same time, however, Newsday wasn't receiving subscription revenue
for tens of thousands of free or undelivered papers it was reporting as paid
circulation. How circulation managers explained the missing income remains a
Conventional wisdom in the publishing industry says the most valuable
readers to advertisers are those who pay for a publication, because the very
act of laying out money signifies true interest in the content.
For decades, ABC defined paid circulation as newspapers that were sold for
50 percent or more of the standard rate. But in 2001, the organization reduced
the minimum to 25 percent, a change some critics said was designed to help
newspapers disguise plummeting circulation counts.
Newsday, more than any other of the nation's 20 largest newspapers, made
liberal use of the rule change, especially through a program that "upgraded"
Under that program, for example, a Sunday-only subscriber who paid $1.50 a
week would be "upgraded" to seven-day delivery at no extra charge. Since the
Sunday fee covered more than 25 percent of the full-week subscription rate of
$5, Newsday could legitimately count all seven papers as paid circulation,
according to the ABC rule enacted in 2001.
Some rules not met
But ABC rules also require that the newspapers be delivered every day and
that the customers agree to be upgraded - two requirements that many of
Newsday's upgrade customers did not meet in recent years, agents said.
"Newsday just starts them automatically," one agent said. "They tell you,
'Here, just deliver the newspapers.' "
The agent said the carriers he and other agents employ knew which customers
were upgrades and often treated them as optional deliveries. The agent said he
wouldn't be surprised if more than half of the upgrade papers were not
delivered in recent years.
Speaking of his carriers, the agent said, "You're at their mercy. If they
deliver them, they deliver them. If they don't, they don't. And the carrier
knows that, with free papers, half the people don't want them."
Another agent said the problems were probably inevitable once ABC reduced
the minimum for paid circulation.
"That's the amazing part, that the 25-percent [rule] allows you to do these
kind of things," he said. "That's what helps you fudge your numbers. That's
what makes you say, 'OK, forget it. We're just going to automatically give them
the free papers, whether they want them or they don't.' That sounds like a
rule ABC should change."
At a recent meeting with the agents, Newsday's interim vice president for
circulation, Howard Greenberg, said Newsday had 57,000 upgrade customers on the
books, according to agents who were present.
He also said ABC auditors who recently surveyed a portion of those
subscribers found some who said they were not receiving the paper every day,
the agents said.
As a result of that survey, ABC was threatening to subtract 30,000 papers
from Newsday's certified daily circulation, the agents said Greenberg told
them. To head off that possibility, Greenberg told the agents they would be
dispatched to contact the customers ABC had talked to and determine whether
they were receiving the paper every day, the agents said.
Greenberg also sternly warned the agents that they must deliver all of the
upgrade papers, the agents said.
Now 'fully compliant'
Greenberg and other Newsday executives declined interview requests, but
agreed to answer written questions submitted by reporters. Responding to
questions about the upgrade program, their e-mail response said, "All of our
upgrade programs will now be fully compliant with ABC rules."
In mid-June, when Tribune first conceded that Newsday had inflated its
circulation, the company blamed a portion of the over-reporting on "inadequate
record-keeping" by a distributor of the newspaper.
That distributor, several agents and sources within Newsday said, was Dan
Mar Delivery Service, which was run by Richard Faiella of Holbrook until his
death, in May 2003, and is now operated by his brother John. Dan Mar has an
agency that services Newsday home subscribers in a portion of Suffolk County
and, according to other agents, also handled most of Newsday's street-hawker
programs in recent years.
The sources said the missing records stem from the hawker side of the
business, in which Dan Mar employees would sell copies of Newsday in shopping
centers, on street corners and at special events such as concerts and Major
League Baseball games.
While home delivery and newsstand sales leave a trail of invoices auditors
can examine, hawkers conduct anonymous, one-on-one cash transactions that are
virtually impossible to verify, experts say.
Former ABC auditor Jay Schiller said he always considered hawker sales to
be highly suspect because newspapers generally pay hawking contractors flat
fees that far exceed the revenue from the papers the hawkers sell.
He said he knew of one newspaper outside the New York area that had paid a
hawking contractor $750 a day to put 50 hawkers on the street, each with 100
papers. The newspaper charged the contractor 5 cents a piece for the 5,000
papers, or a total of $250, Schiller said.
"The hawker manager could throw all of the newspapers away, claim they were
sold by 50 hawkers and clear $500 without actually selling a single paper,"
Schiller said. "The whole concept is, how do you make it financially beneficial
for someone to throw away papers for you?"
Seeing is believing
Schiller said ABC auditors trying to verify hawker sales might request a
list of locations where the street sales were taking place, so they could
witness the operations themselves.
That, agents said, is exactly what the auditors did in April, prompting
circulation managers to orchestrate the sham operation.
No one has accused John Faiella of being involved in similar operations;
all that is certain is that there are no records.
In a brief phone interview, John Faiella said he could not talk to a
reporter before checking with his attorney. "I'd love to cooperate, but at this
point I have to be really careful," he said.
Asked about the missing circulation records, Faiella said, "The bottom line
is there are none; they went with my brother, and my brother's in heaven. So,
I mean, I don't know what the hell they're talking about. That's basically
Delivering the product
From its printing in Melville to its newsstand delivery, getting Newsday to
readers is a multi-tiered process.
1. Newspaper is printed in Melville plant.
2. Truck drivers deliver single-copy sales to 4,000 Nassau, Suffolk and Queens
newsstands, delis, grocery stores and smoke shops.
3. Large trailers take papers to 10 depots in Nassau, Suffolk and Queens.
4. A total of 55 agents employ carriers to deliver newspaper to residential
customers for home delivery. Generally, work is organized at the depots.
5. Outside of Long Island and Queens, Newsday uses outside distributors to
circulate paper, including to 1,800 New York City newstands.