Mum's the Word? McClatchy Newspapers Skip Coverage of Their Owner's SEC Charges

Search high and low through McClatchy's nationwide network of news outlets and you'll be hard-pressed to find coverage of the recently announced Securities and Exchange Commission (SEC) case against McClatchy owner Chatham Asset Management.

It appears that none of McClatchy's 30 newspapers covered the charges, which culminated in Chatham and its founder Anthony Melchiorre agreeing to pay $19 million in disgorgement and penalties for alleged violations of federal investment-adviser law.

Made public April 3, the administrative case alleged Chatham and Melchiorre engaged in improper trades in bonds issued by American Media Inc., a Chatham-owned tabloid company that publishes Star, InTouch, and Us Weekly. The trades led to inflated asset values in investment portfolios, causing Chatham's clients to be charged bloated fees, according to federal regulators.

The SEC action was covered in several financial news outlets, including Bloomberg, but McClatchy papers did not carry the story. A Chatham-owned Canadian outlet, the National Post, ran syndicated Reuters coverage of the allegations.

As layoffs and dwindling ad revenue have ravaged newsrooms across the country, local coverage of SEC actions has generally tapered off in recent years.

Still, McClatchy outlets cover high-profile SEC cases on a regular basis.

In February, the Centre Daily Times reported on an SEC action in which retired NBA star Paul Pierce agreed to pay $1.4 million in response to claims that he made misleading statements while promoting cryptocurrency investments. And last month, the Miami Herald reported on an SEC case alleging BKCoin Management and one of its principals, Kevin Kang, engaged in a large-scale investment scheme.

The last coverage mentioning Melchiorre in most McClatchy outlets dates back to September 2020 in a piece that describes Chatham's buyout of the then-bankrupt news company. The article describes Melchiorre as a "Chicago-area native and high school football star" who worked at Morgan Stanley before founding Chatham in 2003.

Alex Mena, McClatchy's Florida regional editor, tells New Times that Chatham "had nothing to do with the decision by local Miami editors" to not report on the SEC case in the Miami Herald.

"Content decisions across McClatchy newsrooms are made by the local leadership with a commitment to high impact, essential journalism in the communities they serve," says Mena, who also serves as interim executive editor at the Miami Herald. "The settlement of an SEC matter that dates back to well before Chatham's ownership of McClatchy has no relevance to our local audience."

As part of the settlement, Chatham and Melchiorre agreed to cough up $11 million in disgorgement and more than $3 million in prejudgment interest. Additional civil penalties amount to $4.4 million and $600,000 against Chatham and Melchiorre, respectively.

According to the SEC, Chatham and Melchiorre juggled American Media bonds among Chatham funds between 2016 and 2018 in order to meet investor redemptions and comply with portfolio diversification rules, forging an understanding with brokers that Chatham would continue to repurchase the bonds. These "rebalancing trades" made up the majority of the transactions in the market for the bonds.

To compensate its brokers, Chatham would rebuy the bonds at a small spread above the price at which the bonds were sold, causing the bond prices to become inflated, according to the SEC. The trading pattern resulted in bogus hikes in the net asset values of investment portfolios, leading clients to overpay in performance and management fees to the tune of $11 million, the SEC claims.

Chatham and Melchiorre did not admit any wrongdoing when they agreed to settle the case.

In response to the allegations, Chatham said that when the trades at issue were executed, they had a compliance consultant in place to ensure everything was above board.

"The consultant reviewed Chatham's trading annually for compliance with applicable laws and did not alert the firm to any issues. Importantly, the trading occurred more than four years ago in funds that have since been closed," Chatham said in a statement.

Chatham began investing in McClatchy in 2009 and later became the company's largest lender.  After McClatchy struggled to meet its debt and pension obligations, it filed for bankruptcy in February 2020. The company and its predecessor outlets had been in the McClatchy family for 170 years, dating back to the publication of the Daily Bee in Sacramento in the 1850s.

In August 2020, Chatham purchased McClatchy and its network of dozens of newspapers out of bankruptcy in a $312 million deal. Alden Global Capital, a hedge fund that had been gutting newsrooms across the country as the owner of more than 200 local newspapers, reportedly submitted an unsuccessful bid to acquire the McClatchy empire.

The Chatham deal is part of a recent wave of investment companies and private equity firms' acquisition of local news outlets, which has left journalists and free press advocates concerned about aggressive cost-cutting in newsrooms, layoffs, and the erosion of funding for watchdog journalism.

Since 2016, Chatham has been the largest shareholder of Canadian newspaper publisher Postmedia Network, which earlier this year announced layoffs for 11 percent of its journalists. The New York Times reported that 30 Postmedia newspapers had shut down and 1,300 journalists were laid off in the years after Chatham took a majority stake in the media conglomerate.