Proof: Ad Guys Are Not Numbers Guys

It's probably not eager to advertise the fact, but McCann-Erickson Worldwide agreed to pay a $12 million fine today to settle federal securities regulators' claims that the firm engaged in accounting fraud in transactions with its parent, Interpublic Group.

The Securities and Exchange Commission, in a civil complaint filed in federal court in Manhattan, said McCann improperly expensed intercompany charges, and accused IPG of negligently failing to address the accounting irregularities at its biggest subsidiary.

Neither McCann nor IPG admitted or denied wrongdoing, but agreed not to violate securities laws in the future.

Securities regulators filed a separate complaint against Salvatore LaGreca, who stepped down as McCann's chief financial officer at the beginning of 2003, and Brian Watson, former operations director for its Europe-Middle East region.

LaGreca, 55, of Port Washington, New York, agreed to pay a $25,000 fine and $46,947 in restitution. Watson, 60, who resides outside the United States, agreed to pay a $50,000 fine and $17,325 in restitution. Neither man admitted or denied wrongdoing under the arrangement.

The complaint gave an unflattering outline of financial sleight-of-hand at McCann, a huge advertising company, and the apparent acquiescence by its parent company.

The complaint said that McCann, which owns hundreds of regional and local agencies around the world, fraudulently misstated its financial results by improperly booking revenue.

In 2002, IPG restated its earnings twice to sort out its accounting, first reducing them by $181 million between 1997 and 2002. Regulators attributed most of that restatement, about $101 million, to the fact that McCann recorded intercompany charges as receivables when they should have been entered as expenses.

Prosecutors said LaGreca and Watson delayed reconciling these accounts to avoid the write-offs that would interfere with McCann's efforts to meet internal annual profit targets. As a result, McCann's financial results were inaccurate - which IPG ignored even though the inaccuracies led to its own results being misstated.

In 2005, IPG again restated its pre-tax income for the years 2000 through 2003, and for final nine months of 2004, for a total of $420 million. Almost half of the total was again for improperly recognized revenue. IPG was forced into the 2005 restatement because its internal controls had broken down, the S.E.C. said.

by Elizabeth Olson

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