Tribune to pay $15 mln for inflating circulation

NEW YORK (Reuters) - Media group Tribune Co has agreed to pay $15 million in a settlement with federal prosecutors after two of its newspapers, Newsday and Hoy, admitted to inflating circulation numbers.

Newsday Inc and Spanish-language newspaper Hoy Publications admitted that between 2001 and 2004, employees "systematically inflated" circulation numbers in books and records and lied to the Audit and Bureau of Circulations, the U.S. Attorney's Office in Brooklyn said in a news release on Tuesday.

The agreement, under which the two newspapers will avoid prosecution by the U.S. Attorney's Office, was reached after they set aside up to $90 million to compensate advertisers misled by the false numbers. So far $83 million has been paid.

Newsday admitted that senior managers told distributors to lie to auditors, including about a promotional program it claimed was responsible for some of its sales figures. In part, the numbers were boosted because Newsday employees posed as customers and bought large quantities of the paper throughout Long Island, New York, prosecutors said.

Newsday Publisher and CEO Timothy Knight said in a statement on Tuesday that Tribune, Newsday and Hoy have taken "full responsibility and swift action" since 2004 when the scandal first surfaced.

"Over the past few years, we have made comprehensive changes in controls, systems, customer relations, policies and our management team to prevent this from occurring again," he said.

In 2006, nine former employees and contractors of the two papers pleaded guilty to their role in the scheme.

Hoy is sold in New York, Los Angeles and Chicago. Tribune has sold the New York Hoy since the circulation fraud occurred.

(Reporting by Christine Kearney; Editing by Gary Hill)