Rosie's Smoking Gun?

(New York City) It could be the smoking gun that proves Rosie O'Donnell was justified in bailing out of the magazine that bore her name.

The chief financial officer of her former partner, Gruner + Jahr USA, admitted in court Monday that his company reported false circulation figures to hide the magazine's losses.

Under her contract with G+J O'Donnell could walk away from Rosie if the magazine lost more than $4.2 million in a fiscal year.

Under questioning from O'Donnell's lawyers, CFO Lawrence Diamond said executives at G+J decided to ``manage the financials'' of the magazine so they could keep publishing.

O'Donnell and G+J are suing each other for breach of contract with each seeking about $100 million in damages.

``We did not want to shut down,'' Diamond testified under questioning by Matthew Fishbein, an O'Donnell lawyer.

Fishbein admitted that while Rosie Magazine' charged advertisers on the basis of a circulation of 3.5 million per month, its actual subscription and newsstand sales usually fell far short of that number.

Diamond said the decision to tweak ``Rosie's'' numbers came after an e-mail memo on April 26, 2002, from magazine executive Glenn Spotto. ``Bad news coming on the newsstand, it appears that we are inching closer to that trigger point,'' Spotto wrote.

Diamond then wrote a memo to Axel Ganz, an executive at G+J's German parent company, Bertelsmann AG, saying, ``G+J USA is recommending to you that we manage the financials such that we do not fall below the required threshold point so that we can continue to publish 'Rosie.' We are asking you for approval to this strategy.''

Additionally, David Williams, an accountant for Deloitte Touche LLP, testified that he examined the magazine's financial records for O'Donnell's legal team and found unreported liabilities and expenses improperly excluded.

O'Donnell walked out on the publication in September alleging breach on contract. She maintained that G+J had taken editorial control from her and that the company was "cooking the books", both violations of her contract.

G+J folded Rosie a short while later, and sued O'Donnell for $100 million dollars. The former talk show queen countersued for $125 million.

Testimony ended today and lawyers for both sides are expected to deliver their summations on Wednesday.

State Supreme Court Justice Ira Gammerman will decide the case. There is no jury. O'Donnell says if he rules against her she will not appeal.

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