The scandal of fraudulent circulation numbers in the newspaper industry has expanded into a criminal conspiracy prosecution, Newsday reported earlier, with the arrest of three of its former employees for fraud:

Federal agents arrested three former Newsday [and Hoy] employees today for criminal fraud in connection with a scandal that inflated the circulation of both publications, the U.S. Department of Justice announced. ...

Newsday has disclosed that its reported circulation was inflated by about 100,000 copies on weekdays and Sundays in the 12 months ending September 2003. Last year, the Spanish language paper Hoy acknowledged that its reported daily circulation of 92,604 was inflated by about double for the same period.

Smith, who was a circulation manager at the paper, retired from Newsday in 2002. From May 2002 to May 2004 he worked as a consultant to both Newsday and Hoy, serving as their liaison to the Audit Bureau of Circulation.

Newsday reports that the scandal may be about to widen. First, several former employees of Newsday are close to reaching deals with prosecutors to testify to the conspiracies involved in inflating circulation numbers to artificially inflate ad rates. Also, the SEC has become involved due to the public nature of the companies and the potential for shareholder fraud. Both the SEC and DoJ have begun to look at the magazine industry's circulation claims as well.

Have CQ readers heard much about this scandal? The mainstream media has been relatively silent about this challenge to its credibility, at least on the financial front. Newsday has ironically provided much of the coverage for the developments on the story, but other outlets seem reluctant to pursue the topic with the same zeal that their investigative journalists chased after other corporate scandals -- say, Enron or WorldCom or Global Crossings.

In the month where the newspaper industry regaled us with endless pixels and reams of paper on self-congratulatory retrospectives on Watergate and their role in uncovering government corruption, they remain oddly mute about their own industry's fraud on advertisers and readers, even as the scandal expands. On the other hand, as the movie Broadcast News put it, it must not be news if they don't cover it -- or at least that's what they hope.

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Tracked on June 15, 2005 2:25 PM