Blow for Murdoch as key resignation is linked to dark deeds at WSJ

The crisis surrounding The Wall Street Journal Europe intensified yesterday after details emerged that the newspaper artificially inflated its circulation figures in return for favourable articles to a commercial partner.

In the wake of the departure of the WSJ's most senior executive in Europe, more details emerged yesterday of how the controversial deal with Netherlands company Executive Learning Partnership (ELP) had been structured.

A senior source close to the company said questions had been raised earlier this year over what seemed to be a "dodgy deal to boost circulation of The Wall Street Journal Europe". Dow Jones yesterday said its practices had been "legitimate" before adding it was indeed "uncomfortable with the appearance" and had investigated the issue.

Andrew Langhoff, European managing director of Dow Jones and head of the London-based newspaper, resigned on Tuesday after admitting there was a perception the Journal in Europe had "crossed the boundary" between editorial content and advertising.

Mr Langhoff sent a memo to colleagues at Dow Jones, owned by Rupert Murdoch's News Corporation, announcing his departure, saying it was "the most honourable course".

It is understood one employee in the commercial department struck a deal with ELP offering favourable coverage in return for the Dutch group agreeing to boost its circulation. The WSJ has now put disclaimers on two articles featuring ELP that ran in October 2010 and March this year saying their "impetus" was a deal with the Dutch group. The company said: "We were not fully aware of the details of the editorial component of the relationship until last week, when we took immediate action."

Mr Langhoff's resignation memo was guarded, saying the "perception" that the boundary had been crossed "has been of great concern to me", yet the sources said he knew about the controversial deal. "It was very clear there was commercial pressure on some articles," the senior source said. "Langhoff pushed it through." ELP is understood to have bought up to 45,000 copies of the Journal at a huge discount – thought to be as low as one euro cent each – and distributed them students. The insider said the number of copies was close to half the total circulation of the time, according to figures from the Audit Bureau of Circulation (ABC).

Dow Jones said in its statement yesterday that the circulation programmes and the copies associated with ELP were "legitimate and appropriate, and the agreement was shared with the ABC before the deal was signed". It added: "All circulation periods during the ELP arrangement have been certified."

The company said that in the wake of its investigation it concluded that ELP was compensated for valid services. "However, we were uncomfortable with the appearance of these programmes and the manner in which they were arranged." It added that the employee has since left the company.

Dow Jones stressed it no longer has a relationship with the employee who structured the deal or ELP "and we continue to believe these deals were valid".

One newspaper industry source said the company could face repercussions: "If the advertisers of the time knew half of the copies were handed to students they'd have been furious." The source said some advertisers could ask to be reimbursed. In 1997, Reed Elsevier offered to pay back £200m to advertisers after its hotel and travel division overstated its circulation figures.