NEW YORK — Rosie O'Donnell's lawyers turned the spotlight on her magazine publisher Monday, charging the company with seeking to "manage the financials" to prevent a possible shutdown.

"We did not think it was in our interests to stop publishing Rosie Magazine," testified Larry Diamond, chief financial officer of German magazine giant Gruner + Jahr.

Stitched together through e-mails, videotaped depositions and testimony from key Gruner + Jahr executives, the portrait of Gruner + Jahr drawn by O'Donnell's attorneys was of a company that was, at best, irresponsible — and, at worst, deliberately misleading, even fraudulent.

O'Donnell's $125 million countersuit against Gruner + Jahr claims the company massaged its circulation figures and financial data to avoid invoking a clause in their contract that would have allowed the entertainer to walk away if losses exceeded $4.2 million.

O'Donnell also claims the company disparaged her in the press and usurped her editorial control.

The magazine was published for two years until September 2002.

Gruner + Jahr sued O'Donnell for $100 million, saying she walked away without cause. The publisher branded her a "foul-mouthed tyrant" who "torpedoed" her namesake magazine after she was unable to exercise complete editorial control.

O'Donnell's formal resignation on Sept. 18, 2002, however, came long after the June 30 "milestone" that she claims the company had in mind when it allegedly considered cooking the books.

Faced with a memo he had prepared for the German overseer of Gruner + Jahr USA in early May 2002, CFO Diamond admitted that he had asked for permission to "manage the financials" to avoid falling below the $4.2 million threshold.

"The management team of 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 for your approval to this strategy," read one passage set off in bold-faced print.

German executive Axel Ganz said in a videotaped deposition that he didn't recall seeing the memo, at least not in that form. 

Faced with this evidence, Gruner + Jahr lawyers sought to show that, even though the company discussed "managing the financials," it never actually massaged its accounting practices.

"At any time did you select an accounting procedure ... with the objective of reaching any particular goal?" asked Gruner + Jahr lawyer Jeff Golenbock.

"To my knowledge, nobody ever did that," said Diamond.

According to Diamond, the company's actual loss for the period ending June 30, 2002, was only $3.8 million, comfortably below the $4.2 million threshold.

O'Donnell's lawyers also say company executives sought to inflate their newsstand sales throughout 2002 to paint a picture of a healthy, successful magazine to advertisers.  If Gruner + Jahr was willing to inflate circulation numbers, say those in O'Donnell's camp, then why not the financials as well?

The testimony Monday was steeped in the arcane vocabulary of magazine sales and circulation figures, which are ruled by two figures: Circulation and newsstand sales.

Michael Lavery, the president of the Illinois-based Audit Bureau of Circulation (ABC), an independent circulation tracker, confirmed on the stand that Gruner + Jahr's "pink sheets," or estimates, of newsstand sales were exaggerated by as much as 79 percent in one month.

In the fiscal year ending June 2002, Gruner + Jahr sold 3.8 percent less than the 3.5 million copies its "rate base" promised advertisers would be sold through subscriptions and on the newsstand, said Lavery. 

Lavery told reporters after wrapping up his testimony that his group was not planning to pursue disciplinary action against Gruner + Jahr, and that obtaining exact figures is difficult.

"Most publications may have adjustments because they must use estimates for their newsstand sales," he said, adding that actual figures were not often available for six months after the figures are turned in.

But the words of Gruner + Jahr's own executives could still have reverberations throughout the magazine community.

"We were concerned that Rosie, if Rosie's newsstand sales were so low compared to what we had seen previously, that if we reported them accurately, the advertising community would react so negatively that the magazine would be in great difficulty," said circulation director Diane Potter in a deposition read aloud by O'Donnell's lawyers.

Another important element of O'Donnell's claim is that Gruner + Jahr sought to sully her image in the press after things turned sour.

Gruner + Jahr public relations chief Sue Geramian was called as a hostile witness by O'Donnell's lawyers to testify about press reports as the magazine began to crumble.

Geramian admitted releasing confidential internal communications to reporters despite a Gruner + Jahr company policy barring such disclosures.

She also said she helped reporters contact company executives for articles critical of O'Donnell in Mediaweek, Ad Age, USA Today, the Wall Street Journal, The New York Times, and Vanity Fair.

The contract between O'Donnell and the company bars disparaging or critical statements by either party, and lays out certain confidentiality conditions that O'Donnell alleges Gruner + Jahr violated.

Geramian said she struck a deal with O'Donnell's publicist, Cindi Berger, to notify each other about press inquiries. "We agreed that we would say that there were creative differences but that both parties were trying to work it out," she testified.

O'Donnell's final witness, a financial consultant who performed a "forensic accounting" on Gruner + Jahr's books, will wrap up his testimony Wednesday. David Williams of Deloitte & Touche claims Gruner + Jahr overlooked almost $500,000 in losses and would have exceeded the $4.2 million threshold.

Gruner + Jahr lawyers may call rebuttal witnesses.

Supreme Court Justice Ira Gammerman, who is presiding over this non-jury trial, will rule on the dueling cases without hearing closing arguments.