Regs Times wanted may bite them

Thomas Lifson and John Berlau:

Having dug itself into a hole with inept handling of the ad and its aftermath, the New York Times Company may soon find itself unable to put down its shovel. Few ironies approach the richness of the mess the firm may face with the regulatory requirements of the Sarbanes-Oxley Act (Sarbox).

The Times has been among the strongest public advocates of Sarbox and has criticized attempts to reform its costly demands. Sarbox was rushed through Congress in 2002 following the Enron and WorldCom scandals. Since then even Nancy Pelosi and Charles Schumer have voiced concerns about its heavy burden on business.

Now the New York Times Company, its management, and its directors all may face some awkward questions and possible legal and financial liabilities, if the information contained in Public Editor Clark Hoyt's column of September 23, 2007 is credited as true.

Regarding the discount given to MoveOn's now-infamous ad, Hoyt wrote

The group should have paid $142,083. The Times had maintained for a week that the standby rate was appropriate, but a company spokeswoman told me late Thursday afternoon that an advertising sales representative made a mistake.

This appears on the face of it to indicate that the management control system of the company does not provide timely information to management regarding pricing and discounts of newspaper advertising in its dominant property, one of the principal revenue sources of the New York Times Company. At minimum, this is a major and disturbing problem. Unless the company was lying to Hoyt and the public, it didn't know for three-plus days what kind of discounts its sales force were handing out, and could not verify compliance with basic policy.

This admission of internal chaos is startling.

But Sarbox could make it much worse. The control system problem arguably could qualify as a "material weakness" in the arcane jargon of the Sarbox-generated regulatory apparatus. If judged so, The New York Times Company was required to disclose it and could face severe consequences for not doing so. The harsh responsibilities imposed by Sarbox could end up biting the hand of friendship offered all these years by the Times.

There is much more. Sarbox was an over reaction to the failure of companies to comply with existing law. The same may be true in the case of the NY Times. The combination of discounting and potential violations of FEC requirements all create disclosure requirements under 10B5 and probably should be disclosed in the companies 10Q and 10K. Those are requirements that have been around since the 1930s. My guess is that the NY Times lawyers and accountants are looking at the issue already and trying to come up with an answer. The irony of liberals having to comply with regulations they backed for others is pretty rich, but don't expect being mugged by reality to change attitudes at the Times.


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