One of Rupert Murdoch’s most senior European executives has resigned following Guardian inquiries about a circulation scam at News Corporation’s flagship newspaper, the Wall Street Journal. The Guardian found evidence that the Journal had been channelling money through European companies in order to secretly buy thousands of copies of its own paper at a knock-down rate, misleading readers and advertisers about the Journal’s true circulation.
The bizarre scheme included a formal, written contract in which the Journal persuaded one company to co-operate by agreeing to publish articles that promoted its activities, a move which led some staff to accuse the paper’s management of violating journalistic ethics and jeopardising its treasured reputation for editorial quality.
Internal emails and documents suggest the scam was promoted by Andrew Langhoff, the European managing director of the Journal’s parent company, Dow Jones and Co, which was bought by Rupert Murdoch’s News Corporation in July 2007. Langhoff resigned on Tuesday. The highly controversial activities were organised in London and focused on the Journal’s European edition, which circulates in the EU, Russia, and Africa. Senior executives in New York, including Murdoch’s right-hand man, Les Hinton, were alerted to the problems last year by an internal whistleblower and apparently chose to take no action. The whistleblower was then made redundant.
In what appears to have been a damage limitation exercise following the Guardian’s inquiries, Langhoff resigned on Tuesday, citing only the complaints of unethical interference in editorial coverage. Neither he nor an article published last night in the Wall Street Journal made any reference to the circulation scam nor to the fact that the senior management of Dow Jones in New York failed to act when they were alerted last year.
It led to the Journal publishing a full-page feature on 14 October 2010 that reported a survey conducted by ELP about the use of social media in business, quoting ELP’s chief executive at length. The story carried no warning for readers that it was the result of a deal between the Journal and ELP, nor that ELP were sponsoring 16% of the paper’s European circulation. Similarly, there were no warnings attached to a second story, published on 14 March 2011, which consisted of an interview with one of ELP’s senior partners, Ann de Jaeger, about the role of women in company boardrooms.
The ELP deal continued to cause more serious problems. Some Journal staff complained the agreement to run stories promoting ELP was unethical. On 12 July 2010, one London executive emailed that “some elements of the deal do not fit easily within best practice, brand guidelines and company policy”. Others warned about the quality of the surveys on which the stories were to be based.
By the autumn of 2010, ELP were complaining that the Journal was failing to deliver its end of the agreement. They threatened not to make a payment of €15,000 that was due at the end of December, for the copies of the Journal which they had sponsored since April 30. Without the payment, the Journal could not officially record the sales and their circulation figures would suddenly dive by 16%, undermining the confidence of advertisers and readers.
So Langhoff set up a complex scheme to channel money to ELP to pay for the papers it had agreed to buy – effectively buying the papers with the Journal’s own cash. This involved the use of other companies although it is not suggested that they were aware they were taking part in a scam.
“effectively buying the papers with the Journal’s own cash”
Churning paper. It’s fitting, somehow.
singfoom
What? Everybody wants jobs, right? They’re just out there creating jobs, by inflating their circulation.
Everybody wins except journalism.
And our political process.
And real capitalism.
Nevermind. We all fucking lose.
Tonal Crow
The pit of Republican corruption has no bottom.
I wonder whether Murdoch’s minions were behind the “Climategate” hacking, too?
ornery
This is the exception that proves the rule that Business is efficient.
Culture of Truth
“You’re new here, aren’t you?”
PeakVT
The Murdoch empire has the internal culture of a criminal organization. I can’t wait for the bastard to die and his kids to wreck everything he built.
dmsilev
For true irony, someone should have sold credit default swaps based on WSJ circulation numbers and ad rates, or something.
hilts
OT
Epic bullshit editorial from the New Republic
http://www.tnr.com/article/politics/magazine/96062/occupy-wall-street-zizek-lewis?passthru=NWJhNDIyNzAzNmU5MWExYzI1ZmM0ZGU0MDJiZTU2MTk&utm_source=Editors+and+Bloggers&utm_campaign=4e29fdf4cc-Edit_and_Blogs&utm_medium=email
scav
ah shit. bloody brilliant.
gene108
They had (have?) a good reputation for business news reporting, but their editorial page was a haven for right-wing-nuttery.
I really like Bloomberg’s reporting on business news. There’s very little overt politics in it, unlike CNBC and I guess now the Wall Street Journal.
dollared
Kochs, Murdochs, all of them. Look, if you’re willing to lie, cheat and steal for one thing, what prevents you from lying, cheating and stealing for other things?
Ethics are not just philosophy, they are a set of habits.
These guys are why God made RICO, and why the Supremes have been trying to get rid of RICO since Scalia became Pope.
Dougerhead
The buying your own paper thing is a pretty good idea. I’m sure it’s not original, though, it’s such an obvious scam.
Martin
Isn’t this the same scam of buying all of the wingnut welfare authors and using them as giveaways with magazine subscriptions? Jonah writes book, Jonah’s rag buys book at discount, Jonah’s rag gives book away with subscriptions and churns the sub revenue back through Jonah and the publisher, meanwhile gets on the NYT bestseller list.
This is SOP on the right.
Mouse Tolliver
Everyone who bought advertising in the paper should sue. They were buying ad space in papers nobody was reading. Money for nothing.
barkleyg
If MURDOCK was able to pay only 15 thousand Euros for 16%
of it’s subscription base for 3 months, the Total F’n CHEAP ASSHOLE should have spent 100 thousand Euros and Doubled his “subscriptions” base, and Fck those that are stupid enough to advertise for this piece of sewer scum, and the companies he controls.
Other than the above, I have Nothing nice to say about Rupert Murdock!
David in NY
Looks like knowingly misrepresenting circulation or readership figures is a clear case of mail or wire fraud (if the mail or phone transmissions were made in connection with it in the US) in violation of federal law. Anybody in the firm who participated in, or authorized the fraud (or a course of conduct including the fraud) is guilty. U.S. v. Habhab, 132 F.3d 410 (8th Cir. 1997).
Bill in Section 147
I think this sort of re-investing funds in improving the appearance of success will really make a big impact on the perception of how well the New and Efficient Free Market Social Security™ is viewed once it is no longer a public institution.
Just imagine how proud President Romney will feel when he puts up the graphic showing that more names now receive benefits than ever before!
jl
@Martin: Except, if this allegation is true, it is outright crime, that defrauds the paper’s advertisers.
But, I guess in certain circles, some giant mega corps are more equal than others. Certainly much more equal that the lesser people, who some still quaintly and anachronistically think of as actual human beings.
Bullsmith
In a sane world, this would be considered fraud, certainly the advertisers are being lied to. But since it’s not a sane world, this is only one more crime Murdoch’s empire has committed with impunity and they likely won’t face meaningful punishment. Luckily, there’s so much context building up about how he does business (ie via blackmail, espionage, bribery, paper churning, illegal business practices, etc. etc.)
I can’t hope for sanity to become the norm, but Murdoch’s fall is at least worth dreaming about.
Villago Delenda Est
No wonder they’re big Sarah Palin fans.
They’re all grifters.
These insects need to be stomped on. Repeatedly.
Hmmm....
Anybody in the firm who participated in, or authorized the fraud (or a course of conduct including the fraud) is guilty. U.S. v. Habhab, 132 F.3d 410 (8th Cir. 1997).
True, in the abstract, that would be a good point…
The only problem is that laws, like taxes, are for the little people.
And I’m sure Rupert Murdoch has long ago purchased his IOKOYR “get out of jail free” card…
Probably by helping get the very same GOP judge appointed who will judge his case if it ever gets within shouting distance of court.
Guys like Clarence Thomas got there for a reason…
Monkey Business
So, you have the Britain-based News of the World going down for illegal wiretapping, potentially of American citizens on American soil.
Now you have the European Edition of the Wall Street Journal committing textbook fraud.
Now, tell me how News Corporation avoids a RICO charge?
Monkey Business
So, you have the Britain-based News of the World going down for illegal wiretapping, potentially of American citizens on American soil.
Now you have the European Edition of the Wall Street Journal committing textbook fraud.
Now, tell me how News Corporation avoids a RICO charge?
smintheus
Somebody should go to jail for this. Show of hands, who thinks they will?
kindness
I’ll bet Obama is involved in this nefarious plot some how.
David in NY
@Hmmm….:
You don’t actually have to be that cynical. Reading more closely, what they were doing seems to be within what is thought to be legal, counting as “circulation” papers given away to students (e.g.). Seamy, but what seems to be way outside ordinary bounds is giving (false? unduly favorable?) news coverage of the distributors as payment to the entity doing the distribution to the “students.”
Thoughtcrime
@Villago Delenda Est:
Have you ever heard of insect politics? Neither have I. Insects… don’t have politics. They’re very… brutal. No compassion, no compromise. We can’t trust the insect. I’d like to become the first… insect politician.
Seth Brundle (The Fly 1986)
I guess he never heard of the GOP.
trollhattan
Zounds, when did Regnery buy the WSJ?
I wonder whether all the king’s horses and all the king’s men are going to keep Murdoch from self-immolating? This could get interesting.
Bill E Pilgrim
Not to diminish how sleazy this is but the WSJ has always seemed like basically built on a certain amount of circulation scam the way corporate offices buy up copies. It’s always felt like the sort of campus newspaper of Wall Street, as it were.
smintheus
I’m so old that I can remember when wise heads assured us that the sale of the WSJ to Murdoch would not prove disastrous for the paper, that Murdoch would never dare interfere in the news side of his esteemed flagship.
These same people still can’t admit that Murdoch turns everything he touches into dirt.
NonyNony
@smintheus:
If Murdoch stuck topless models on page 3 of the Journal they still wouldn’t admit to it. He’s a soooper-genius don’t you know?
Hungry Joe
It’s actually quite different from buying mass quantities of a book to make it a bestseller. That’s done in attempt to boost the book’s influence, which may or may not happen, and to funnel money to the lapdog/lickspittle author in the form of royalties. Nothing savory about any of this, but it’s not illegal. A newspaper’s advertising rates, however, are based largely on circulation; fluff those figures and you can jack up the rates. This is called fraud.
JGabriel
Ha! WSJ people, I have news for you: your reputation for journalistic ethics died when Murdoch bought you, and your reputation for editorial quality has been in the shitter for at least 20-30 years — maybe longer, because that’s only how long I know about.
.
PaulW
They intentionally inflated their circulation stats to hike up their ad rates. That’s fraud where I come from.
If the companies that paid those inflated ad fees had any decency, they’d press charges. But I doubt it. The corporate world does not turn on one of their overlords.
MonkeyBoy
This happens somewhat in the US.
A few years back I moved to a house where a previous resident subscribed to the WSJ and some company delivered it to his door every day.
They kept delivering the WSJ to me and it took about 6 months of back and forth to stop the deliveries.
I guess the independent delivery company was being paid for deliveries even if they were not wanted or being paid for and the WSJ didn’t care about this all that much because it boosted circulation.
trollhattan
@PaulW:
Does Goldman advertise in the Journal? Because that would be awesome if they did. This could open up the wingularity (somebody tell the OWS folks to back away, slowly).
MTiffany
“Eth-thicks?” Said Rupert, hesistantly. “Is that how it’s pronounced? I’ve only ever seen it written.”
JGabriel
Jeepers. I like how the Guardian isn’t even pretending that “made redundant” is an acceptable euphemism anymore.
.
Bill E Pilgrim
Never mind.
Mike G
“Nobody could have expected” that a media empire built on rapacious, mendacious and exploitive politics would engage in unethical practices.
As always, this is good news for John McCain.
Mnemosyne
Ah, those polite British euphemisms.
For those not up on their British English, “made redundant” means “fired.”
Brachiator
I seem to recall, from my past life in the newspaper biz, that faking circulation, padding numbers, etc, is huge sin. Huge. As other posters noted, you are blowing smoke up advertisers’ asses when you do this, and most newspapers still make the bulk of their money off of advertisers, not subscriptions.
This kind of thing also eats away at whatever is left of the Journal’s reputation and credibility within the industry. Murdoch knows this stuff. That he is so cynically reckless is very interesting.
Bill E Pilgrim
@Mnemosyne: It’s not really a euphemism in the UK as much as the official term. There are harsher ways to say it of course but those are considered slang.
Amir Khalid
The story notes that the Audit Bureau of Circulation UK cleared the Wall Street Journal’s numbers. So I don’t think News Corp would face prosecution or litigation over those aspects of this scheme which were reported to ABC UK.
If there’s a part that looks illegal here, it’s the under-the-table money that went through intermediaries, so as to fund those bulk “sales” of the WSJ to outfits like ELP. Can any lawyers present weigh in on the likelihood of criminal prosecution over that?
David in NY
@Brachiator: So a question. Or two. The article suggests that selling papers cheaply to distributors, who gave them to so-called student leaders, was borderline, but doesn’t exactly say it was completely out-of-bounds.
Which practice reminds me of the fact that a few times a years (quarterly?) copies of the Daily News and the Post, and maybe even the Times, are given away on the streets here in downtown Brooklyn. I’ve always suspected this was some sort of circulation boost just in time for quarterly(?) count, but have never really known. Just didn’t have any other explanation for the phenomenon. Any idea?
Suffern ACE
@Mouse Tolliver: Agreed on the advertisers. Also, this also isn’t much different than what Krispy Kreme got in trouble for-I would think that this company may need to restate if it’s boosting its sales revenue this way.
rikryah
and this surprises anyone because?
Amir Khalid
@Mnemosyne:
As I understand, there’s a difference:
made redundant = laid off
sacked = fired
Granted, being laid off/made redundant is sometimes a euphemism for a firing/sacking. Which is indeed what it sounds like in this case.
scav
And, just for added relish, don’t forget that News Corp’s annual meeting is Oct 21 and there are already calls (from shareholder adviser types) for both of the fils Murdoch to be voted down, along with other board members. Plus News Corp grumbling about the disproportionate focus on the hacking scandal. OK, we’ll focus on this for a bit. Happy?
David in NY
@Amir Khalid: I think the Audit Board was never told that the distributors (or at least ELP) were not, in the end, actually buying the papers. Indeed, the New Corp was circuitously selling them, then buying them back. The story indicated that had this been clear, the circulation figures would have been 16% lower. This probably made the deal criminally fraudulent (under US law, anyway).
Doesn’t mean there might not be a technical defense, but if anything’s criminal, I think that’s it.
Rafer Janders
@JGabriel:
“Editorial quality” does not refer to content of the op-ed pages. It means the quality of the paper’s news content as a whole, i.e. is it well-written, well-sourced, not misspelled, up to date, accurate, easy to comprehend, well laid-out, etc. — basically, all the things the news editors are responsible for overseeing.
Bill E Pilgrim
@Amir Khalid: Those translations are exactly right.
Made redundant is the equivalent of “laid off” in the US, and while you could say that “to lay off” is a euphemism in the sense that all language is to some degree, it’s not really a substitution for anything else. It’s a term that specifies that they want to reduce the workforce, as opposed to getting fired for being incompetent or something.
There are redundancy forms and departments of redundancy and so on, so euphemism, nah, not really.
If someone is being fired, and not laid off, and they call it that, then they’re just lying.
handsmile
This is now the lead story at the Guardian website (permit me to write for the umpteenth time, is there a more indispensable news organization?).
It is a very long, richly-detailed article. One paragraph that Kay did not excerpt above is the following:
daveNYC
@smintheus: Honestly I’m rather surprised at what a mess he’s made of the WSJ. The paper’s reputation is based on solid business reporting, the FT and Bloomberg are there to eat its lunch if the Journal gets sloppy, and the opinion page is about as right-wing nutty as you can get. With that setup, messing with the news side isn’t just stupid, it’s pants-on-head retarded. There is literally no upside to doing so, and yet he did.
Bill E Pilgrim
@handsmile:
Nope.
Roger Moore
@daveNYC:
You’re assuming that Murdoch bought the WSJ because he wanted it as a money making concern. I’m pretty confident that he was more interested in its value as a propaganda machine; that it could self fund was just a bonus. A sharp operator like Murdoch could almost certainly get a good return on his investment that way, especially because it has taken a while to destroy the paper’s reputation.
David in NY
@handsmile:
Amalgamated Bank !!!
Maybe just a coincidence, but a nice touch anyway.
Brachiator
Why is it that they can locate and arrest the Scarlet Johansson hacker fairly quickly, but the Murdoch investigations still drag on and on?
If stars can’t safely take nude photos of themselves, then the terrorists have won.
Brachiator
@David in NY:
Selling papers to distributors is not the same thing as selling to actual readers. It may be borderline, but it could still represent a significant mis-statement of actual circulation, and if advertising rates are significantly impacted, you have big problems even if you are not guilty of outright fraud.
Part of the background to this, of course, is the steady, continuing decline of physical newspaper distribution. There was also a big circulation scandal in 2004, which led to a supposed tightening of scrutiny by official newspaper audit groups, and a promise by offenders not to do it again.
But this has been an ongoing issue since the early 20th century, when newspapers became big mass market operations.
Nutella
@MonkeyBoy:
WSJ isn’t the only one. Crain’s Chicago Business continued to arrive for many months after I stopped renewing the subscription.
I hope the whistleblower who was made redundant has a book coming out soon.
Amir Khalid
@Bill E Pilgrim:
There are occasions, though, when management fires an employee by putting them through the redundancy process. The Guardian story hints that this might have happened here.
AA+ Bonds
Can you blame him? I mean, he’s trying to make MONEY from selling NEWSPAPERS, he’s got to be kicking himself for that decision