Feds Arrest Former 'Newsday' Employees

By: E&P Staff Federal agents arrested three former Newsday circulation managers Wednesday. Edward Smith and Robert Garcia were apprehended in New York, and Richard Czark was arrested in South Carolina.

All three were charged with criminal fraud in connection to the circulation scandals at Newsday and Hoy.

Smith was circulation manager at Newsday until 2002, when he retired. From 2002 to 2004 he served as a consultant to both Newsday and Hoy as an Audit Bureau of Circulations liaison.

Garcia and Czark were fired from Newsday in September 2004. Garcia was the circulation manager for New York City and distribution manager for Hoy. Czark was national circulation manager for Hoy.

Newsday reported that several other former employees of the two papers are in the process of completing plea bargains with federal prosecutors.

Stu Vincent, a spokesman for Newsday, told the paper, ?We have cooperated fully with the government's investigation. While we don't have details about the status of the investigation we welcome the prosecution of any individuals who have defrauded Newsday, causing injury to the relationships we have with our readers, advertisers, and employees.?

In June 2004, both Newsday and Hoy revealed circulation had been overstated by several thousand copies.

According to U.S. attorney Roslynn Mauskopf, Smith orchestrated a scheme in which Newsday employees and others posing as customers bought many copies of the paper from hawkers around Long Island in order to fool observers from the Audit Bureau of Circulation. The hawkers worked for a distributor that threw away tens of thousands of papers daily and counted them as sold, Mauskopf alleged.

Garcia and Czark are accused of working with distributors to falsify circulation numbers for Hoy, Mauskopf said.

David Folkenflik of National Public Radio reported today that an affidavit unsealed in federal court "sketched out an elaborate scheme involving phony accounting, kickbacks and the creation of sham corporations....

"In one instance contained in the federal filing, a pair of brothers, Richard and John Faiella, started a home-delivery service in 2000 to deliver Newsday, as well as hawk it on street corners and at train stations. Richard Faiella participated in a scheme hatched by Newsday staffers to make sham purchases of newspaper copies to inflate sales.

"The affidavit says Newsday reported to the Audit Bureau of Circulation that the Faiellas sold 30,000 papers daily. Newsday's internal invoices show he claimed to deliver up to 65,000 copies a day. In fact, the government says, the Faiella company never sold more than 7,000.

"Richard Faiella died in 2003 and his brother John ran the company afterward. John Faiella was not named as a defendant in the charges released on Wednesday.

"The affidavit cites at least six confidential sources -- several of whom are expected to plead guilty to criminal charges stemming from their participation in the circulation scams.

"The federal affidavit says a confidential informant reported that defendant Ed Smith, a 30-year Newsday veteran who remained a circulation consultant after his retirement in 2002, also staged a complicated deception for visiting ABC auditors.

"An ABC employee saw what was a staged version of Faiella's purported hawking program. Newsday employees recruited bogus customers to buy multiple copies of Newsday for the benefit of the observing auditor, the affidavit charges. Many of the fake customers were themselves employees of the newspapers, according to the government. And Smith repeatedly coached employees to lie to the ABC auditor, the affidavit charges.

"Richard Czark, the second defendant, is a former Newsday employee who became Hoy's national circulation manager. He allegedly joined Smith in faking sales of Hoy in New Jersey, Chicago and Los Angeles, the government charges. For example, when Hoy expanded to Los Angeles in 2003, a distributor who claimed to sell 15,000 copies daily actually sold only 5,000 copies, the affidavit says."