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Due diligence by a Minnetonka bank affiliated with TCF Financial has apparently played a pivotal role in the meltdown underway at what used to be one of America’s best known media brands–Newsweek. But you’d likely never know about it, except for an obscure story in the Wall Street Journal.
Two years ago, a loan application from the parent company of Newsweek raised the suspicions of an employee at a small Minnesota bank.
The bank staffer’s misgivings helped trigger what has become a wide-ranging fraud probe by the Manhattan district attorney’s office, people familiar with the matter say.
The investigation has touched off an unraveling at Newsweek that has left one of the most storied brands in American media in crisis. It has expanded from an inquiry into suspected bank fraud to a look at possible advertising abuses and ties between the parent company, Newsweek Media Group, and a bible college in California, the people said.
The investigation by the Manhattan District Attorney’s office and ongoing collateral damage have all the makings of a Newsweek cover story.
Recent weeks have brought an exodus of nearly two dozen journalists from the publication, including some who say they were fired while attempting to report and write about the probe, and the resignation of at least three top executives. Prosecutors raided Newsweek’s lower-Manhattan offices in January and have been interviewing former employees about the company’s operations, people familiar with the situation said.
A culture that former employees say was geared to chase online views failed to pay dividends. That has led to wide-scale layoffs, missed payrolls and a string of debt and tax liens against the company and its executives.
At its peak the magazine printed three million copies, but fell on hard times before shutting down in 2012.
In 2013, New York-based IBT Media, then a little-known publisher of click-friendly publications like International Business Times, bought Newsweek, boosting the buyer’s profile. IBT brought back a print edition and set out to turn Newsweek’s website into a traffic magnet. Last year, the company changed its name to Newsweek Media Group, partly to capitalize on the magazine’s brand name.
But as Newsweek Media Group’s finances were eroding, it took out loans in late 2015 and early 2016 from a string of small Midwestern and Western banks to finance leases on computer servers, according to public filings by the company’s creditors.
Yet something evidently tripped the warning alarm when Newsweek’s representatives approached Winthrop Resources for a loan in Minnetonka.
The loan application that raised a red flag was submitted to Winthrop Resources, a branch of TCF Financial Corp.’s TCF Bank in Minnesota, people familiar with the matter said.
A spokesman for TCF Bank declined to discuss details but acknowledged the bank “declined to pursue a financing arrangement” with Newsweek “after determining its lending requirements weren’t met.”
Investigators reviewing the loan documents found the audited financial statements Newsweek provided didn’t make sense, two of the people familiar with the matter said. Nor could investigators verify that the auditor who signed off on the statements, purportedly a small firm on New York’s Staten Island, actually existed.
If Newsweek ultimately disappears from news stands for good this time, it may not only be due to a failure to change with the digital times, but also because of questions raised by a small Twin Cities bank.