Newsweek Unraveling; Dozens Of Journalists Bail As Fraud Probe Heats Up

Newsweek appears to be in much deeper trouble than previously thought in a wide-ranging fraud probe by the Manhattan District Attorney's office, according to the Wall Street Journal

A suspicious loan application from Newsweek's parent company two years ago helped trigger the probe into suspected bank fraud, advertising fraud, and ties between parent company Newsweek Media Group and a California bible college. 

The publication's New York offices were raided on January 18 in connection with the probe, while dozens of employees and three top executives have left the publication amid its rapid unraveling. Editors, meanwhile, went nuclear on a Newsweek executive in a leaked call earlier this month. 

During the 90 minute recorded meeting between CCO Jonathan Davis and editors, Davis was repeatedly asked about alleged criminal behavior by parent company Newsweek Media Group.

“So you should be honest with everybody in this room: Are we running a money laundering operation? Are we evading taxes? You need to tell us that because we can’t work here if you’re a liar." -Daily Beast

As the conference call went on, editors became increasingly angry at Davis' repeated attempts to deflect serious questions. One editor said that the staff had "barely learned anything," aside from Davis being "not credible." 

Earlier this month we reported that the magazine had fired editor-in-chief Bob Roe, executive editor Ken Li, and journalist Celeste Katz - who had written several articles covering the active investigation into parent company Newsweek Media Group. Davis blames Katz's reporting for doing "real damage" to Newsweek's business relationships, and that it "ruined a business deal abroad." 

A search of Olivet’s publicly available tax records shows that in 2014, IBT Media Inc., later renamed Newsweek Media Group, paid the school $1.63 million for a R&D agreement. The company is listed as a “former trustee.” In 2013, Olivet’s tax filing listed another similar payment from the media organization to the school: $1.26 million for a licensing agreement.

Agents seized 18 computer servers as part of a criminal probe into the company’s finances, which sources said had been underway for at least 17 months at the time authorities executed a search warrant. -Celeste Katz, Newsweek

Yes, we're sure the January raid by the Manhattan D.A. itself wasn't a factor in that "business deal abroad." 

Ad fraud

A scheme by the publisher of Newsweek and the International Business Times to buy fraudulent traffic in order to help secure a major ad contract from a US government agency came to light following a report released by independent ad fraud researchers. 

Of note, IBT Media Inc. was later renamed Newsweek Media Group.

According to the report, won a major video and display advertising contract from the Consumer Financial Protection Bureau (CFPB) - a federal oversight agency created six years ago as the brainchild of Senator Elizabeth Warren. Social Puncher, a consulting firm that investigates online ad fraud, notes in its report that "ads purchased by the CFPB were displayed to an audience that includes a significant amount of "cheap junk traffic with a share of bots" - effectively defrauding the agency.

The CFPB, now headed by Trump appointee Mick Mulvaney, told BuzzFeed News that the bureau is looking into the allegations. 

In response to questions from BuzzFeed News, Newsweek Media Group, the parent company of IBT, acknowledged it purchases audiences from ad networks that sell pop-up and pop-under traffic. It said this traffic represents a “small percentage of traffic on our sites” and denied any fraudulent activity. -Buzzfeed

We take allegations of fraud very seriously. Acting Director Mulvaney is actively looking into the work done by GMMB, and these allegations [of ad fraud by] will be investigated as part of that process,” the spokesperson said.

Former Newsweek employees say as the parent group’s financial picture darkened, the pressure to employ the traffic-boosting techniques used at sister outlet increased. These include publishing quick recaps of other outlets’ news, and entertainment and lifestyle “listicles.”

In early 2017, as IBTimes began seeing its traffic sink, it began shifting its editors to Newsweek to train writers there in its online tactics, the former Newsweek employees said. Newsweek has now overtaken IBTimes in traffic, according to comScore Inc. -WSJ

I was told to get a million hits a month, with the implication that the company could fold if we don’t,” one Newsweek staffer said. “’If you don’t hit the targets you’ll lose your jobs’ was the implication. People became just like a churn farm.”

The company has challenged the report’s findings. “Newsweek Media Group does not engage in any kind of traffic gaming techniques,” the company said in its statement.

Olivet University

The Manhattan D.A. is also investigating ties between Newsweek and Olivet University, a Christian university based in Anza, CA. 

In the raid of the Newsweek group offices, investigators seized computer servers that were unplugged and not in use, the people said.

Two weeks later, the chairman and co-founder of Newsweek Media Group, Etienne Uzac, and the company’s finance director, Marion Kim, who are married, resigned.

Mr. Uzac and Newsweek Media Group’s other founder, Johnathan Davis, have long-standing ties to Olivet University. The company has provided internships to students and alumni, Mr. Davis has taught journalism at the school, and his wife, Tracy Davis, is the president.

Investigators discovered that many of the computer servers appeared to have been leased from a single company, Oikos Networks, Inc., based in New York. The people familiar with the matter said investigators are looking at possible ties between Oikos executives and the Olivet church.

Any such ties could constitute a “related-party transaction” that the loan applications should have disclosed, the people familiar with the situation said. -WSJ

According to tax filings, Newsweek paid Olivet University $1.26 million in 2013 and $1.63 million in 2014

Both Newsweek and Olivet University have denied any wrongdoing. In a statement to The Journal, Newsweek Media Group said neither Olivet nor any other religious group had ever invested in the company.

That said, Newsweek reporters published an article in the past week detailing the media group's alleged ties with Olivet - claiming that in addition to the licensing fees Newsweek paid, it also gave free ad space in the magazine to entities Olivet had business dealings with. 

During a three-month period, the magazine ran several ads promoting tourism and the Hudson Valley Regional Airport in New York’s Dutchess County, where Olivet was seeking tax breaks and construction permits for building an East Coast branch of the university, according to the report Newsweek itself published. County officials told Newsweek reporters they found the offer “odd” but accepted it. -WSJ

Time to stick a fork in it?