For months now federal investigators have been probing Newsday over charges that top executives inflated its circulation and that of Hoy, its Spanish-language newspaper.

   Yesterday investigators made their first big move, arresting three former circulation executives and charging them with conspiracy to commit fraud for a variety of schemes, including use of a shell company, to pump up the papers' circulation at the expense of advertisers, in some instances by as many as 100,000 copies a day, or 20 percent.
   The three arrested were 65-year-old Edward Smith, 42-year-old Robert Garcia and 53-year-old Richard Czark. Smith and Garcia both pleaded not guilty of conspiring to commit mail fraud, and each was released on a $250,000 secured bond. Czark, who was arrested in South Carolina, will be arraigned within the next 10 days. The three face up to 20 years in prison, $250,000 in fines and five years' probation.

   The arrests are the first of many in a broadening investigation into circulation cooking in the newspaper industry. A handful of other Newsday employees have already struck plea-bargaining deals with investigators, and presumably other former higher-ups at the paper will also face charges. 
   When the scandal first broke a year ago, the result of a lawsuit filed by former Newsday advertisers, parent Tribune Co. fired or eased out about a dozen employees, including circulation director Robert Brennan, transportation director John Tedesco, Hoy publisher Louis Sito and Newsday publisher Raymond Jansen.
   The federal investigation, led out of the U.S. Attorney's Office in Brooklyn, has widened to examine the circulation practices of other New York newspapers, as well as those of the Chicago Sun-Times and the Dallas Morning News. Both papers have admitted to pumped circulation figures.

    The federal investigation alleges that Newsday's circulation-pumping dated back to 2000. Court papers allege that Garcia paid $50,000 in kickbacks to a distributor to help inflate Hoy’s circulation and that he hid the payments, disguising them as invoices for trucking services. Court papers alleged that in in 2002 the Newsday executives directed a distributor to dump thousands of copies of the newspaper but report them as sold.

   Court documents charge that, when Tribune Co. launched an investigation last year into allegations of of circ-cooking, Newsday executives conspired to trick the Audit Bureau of Circulation auditors through a scheme involving the creation of some 100 phantom distributors and a slew of non-existent customers.

   Last fall Smith’s contract wasn’t renewed while Czark and Garcia were flat out fired. Garcia was the paper’s circulation manger for New York City and Czark was the national circulation manager for Hoy.

   Newsday is saying that the details from the federal investigation revealed yesterday are consistent with what the paper found during its internal investigation.

   Newsday has already said that its circulation was inflated by around 100,000 copies on weekdays and Sundays during the 12 months ended September 2003, while Hoy says its circulation during that period was boosted by about double.

   After the circulation scandal broke, Tribune Co. allocated $90 million to compensate advertisers who had taken out ads based on the inflated numbers. Newsday says it has already settled with three fourths of the some 40,000 advertisers who were misled. It has also undertaken other measure to regain advertisers' confidence, including cutting its ad rates.