By Advocate.com Editors
Originally published on Advocate.com November 12 2003 1:00 AM ET
The chief financial officer of Gruner+Jahr USA, publisher of Rosie O'Donnell's magazine, admitted that he recommended manipulating the magazine's financial performance in order to keep O'Donnell on board. "We did not want to shut down," Lawrence Diamond, the CFO, said as O'Donnell lawyer Matthew Fishbein questioned him. He spoke in Manhattan's State Supreme Court, where O'Donnell and G+J are suing each other for breach of contract. O'Donnell's lawyers say G+J executives tweaked the figures as a fight for control of the magazine. If Rosie lost more than $4.2 million in a fiscal year, O'Donnell--by contract--would have been permitted to quit. Her lawyers say bogus circulation numbers were reported to the Audit Bureau of Circulations, a nonprofit association whose information is used to help decide advertising rates.
Fishbein elicited testimony from an ABC official that while Rosie charged advertisers on the basis of a circulation of 3.5 million per month, its actual subscription and newsstand sales usually fell short of that number. Circulation shortfalls would result in lost revenue and rebates to advertisers. Diamond said the recommendation to tweak Rosie's numbers came after an April 2002 e-mail memo from magazine executive Glenn Spotto warned, "Bad news coming on the newsstand; it appears that we are inching closer to that trigger point." Diamond then wrote a memo to Axel Ganz, an executive at G+J's German parent company, Bertelsmann AG, saying, "G+J USA is recommending to you that we manage the financials such that we do not fall below the required threshold point so that we can continue to publish Rosie. We are asking you for approval to this strategy."
"We thought it was in both parties' interests to continue publishing the magazine," Diamond told Fishbein. "We thought it had great potential and great future value." Diamond testified that he wrote a follow-up letter to Ganz so that he would have a written record of his approval of the numbers managing strategy. In a videotaped deposition of Ganz taken on May 23, 2003, Ganz said he did not remember receiving such a request from Diamond and declared, "We don't manage books. He might have been talking about looking at other ways to enhance revenues." However, a May 8, 2002, e-mail indicated Diamond sent an e-mail to G+J CEO Daniel Brewster saying, "He [Ganz] agrees with our recommendation."
Earlier in the day, Michael Lavery, president of ABC, said it is an offense under his association's bylaws to falsify information provided to ABC. Fishbein displayed evidence exhibits that showed G+J's internal circulation figures were less than those reported to ABC. And Lavery showed that Rosie's total circulation for 12 months of 2002 averaged 3.36 million, while the rate base for charging advertisers was 3.50 million. He said that amounted to a shortfall of 3.8%. David Williams, an accountant for Deloitte Touche LLP, testified that after examining the magazine's financial records for O'Donnell's legal team, he found unreported liabilities and expenses improperly excluded.
G+J lawyers say O'Donnell killed the magazine because of a fight over the cover of the September 2002 issue, which featured actresses from the TV show The Sopranos. The cover, showing O'Donnell between Lorraine Bracco and Edie Falco, was never used. O'Donnell quit Rosie in mid September 2002, and the magazine, which began publishing in April 2001, folded with the December 2002 issue. The publishers sued O'Donnell for $100 million, alleging breach of contract for walking away. She countersued for $125 million, saying G+J broke its contract with her by cutting her out of key editorial decisions. State Supreme Court justice Ira Gammerman, who has overseen cases involving Joan Collins and Woody Allen, is hearing the trial without a jury and will decide the case. The trial is expected to conclude Wednesday.