The U.S. attorney general is suing a trade magazine publisher for millions in alleged postal fraud. Investigations and enforcement actions targeting other magazine and catalog publishers could follow.
The suit also raises questions about the process and integrity of subscriber audits performed by Business of Performing Audits International. BPAI audited 14 of the publisher's 55 titles.
The civil lawsuit alleges Medical World Communications Inc., Jamesburg, N.J., defrauded the U.S. Postal Service by "padding" mailing lists for its periodicals.
Prosecutors say the company lied to the USPS when it declared over 50% of readers were subscribers. That qualified Medical World for periodical rates 30% to 40% lower than bulk rates, based on published USPS figures.
The savings: At least $2 million in bulk-rate postage fees evaded from 1994 through 2000, prosecutors say. Medical World faces up to $6 million in damages, plus penalties of $5,000 to $10,000 for each false declaration it gave to the USPS.
The suit was sparked by allegations Medical World's former COO, Peter Sprague, brought to the attention of federal prosecutors. The charges relate to publications the company acquired during the period. Sprague was fired by Medical World in 1999.
Medical World officials deny the accusations, and blame the publication's prior owners for any misrepresentations. In a prepared statement, they also point to the USPS's "highly technical and ill-defined circulation requirements."
Guilty or not, the suit could spark a more intensive government effort to clamp down on postal fraud among publishers. And that could mean greater scrutiny of publisher's mailing lists, including those audited by BPAI.
"It's something we're very sensitive to," says Michael Chagares, assistant U.S. attorney, and chief of the civil division at the Department of Justice, in N.J. "This is a serious business. Now that we've learned about this, I imagine other cases will follow, if we're able to determine that others are following this practice."