Shareholders Sue Belo Over False Circulation

DALLAS Less than three weeks after correcting circulation figures for its flagship Dallas Morning News, Belo Corp. is facing shareholder lawsuits that accuse the company of fraud.

Shareholders are seeking class-action status for the lawsuits filed in U.S. District Court for the Northern District of Texas. The suits seek damages for shareholders who owned stock between May 12, 2003 and Aug. 6, 2004.

In one of the suits filed by the San Diego-based firm of Lerach Coughlin Stoia Geller Rudman & Robbins, Belo and its officers are accused of developing an incentive scheme in 2003 that led to lax oversight of third-party vendors.

“The individuals who should have monitored this program for abuse were the circulation managers at The Dallas Morning News,” the lawsuit states. “Instead of encouraging the circulation managers to carefully audit the third-party vendors, however, Belo created an incentive program for the circulation managers as well. Thus, when third-party vendors reported fraudulent circulation numbers in order to receive incentive payments, the circulation managers themselves had an incentive to turn a blind eye to the scheme.”

A Belo statement says the company “believes the suits are without merit” and will defend itself in court.

On Aug. 5, Belo reported its circulation numbers for The News were overstated by 1.5 percent for the daily paper and 5 percent for the Sunday paper. Belo also announced the resignation of Barry Peckham, executive vice president in charge of circulation, who is named in the lawsuit.

The next week, Belo said it would reimburse advertisers for $23 million in excessive charges for ads priced according to the inflated circulation numbers. The company also said it would spend $3 million investigating the false circulation reports.

Belo’s stock price fell from $23.21 before the announcement to a low of $18 the next day before finally settling at $21.55, on volume of over 4.6 million shares traded, the lawsuits noted.

The News is the latest major newspaper to correct false circulation figures. Earlier this summer, the Tribune Company’s Newsday and Hoy, and the Chicago Sun-Times were censured by the Audit Bureau of Circulations (ABC) for practices that led to inflated circulation.

Belo Corp. is a Fortune 1000 company that owns television, newspaper, cable and interactive media outlets. With 7,900 employees, Belo reported $1.4 billion in annual revenue last year.