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Two Tied To Ogilvy Contract With U.S. Are Indicted
Pubdate: Wed, 07 Jan 2004
Source: Wall Street Journal (US)
Copyright: 2004 Dow Jones & Company, Inc.
Contact: http://www.wsj.com/
Details: http://www.mapinc.org/media/487
Author: Suzanne Vranica and Brial Steinberg
TWO TIED TO OGILVY CONTRACT WITH U.S. ARE INDICTED
NEW YORK -- A grand jury indicted one current and one former senior
executive of WPP Group PLC's Ogilvy & Mather advertising agency, alleging
the pair worked with unidentified co-conspirators to defraud the U.S.
government.
The indictment also alleges the duo made false claims while working on a
lucrative account for the Office of National Drug Control Policy.
The action surprised Madison Avenue, which largely believed the matter had
been resolved after Ogilvy paid $1.8 million to settle civil charges in
February 2002. At the time, Ogilvy, one of the ad industry's best-known
shops, said it voluntarily withdrew $850,000 in billings to the U.S. because
it lacked confidence in the documentation supporting the figure.
Ogilvy's blue-chip clients include American Express Co. and International
Business Machines Corp.
Although Ogilvy is known for maintaining longstanding relationships with its
clients, one marketing consultant suggested the indictment might lead to
problems. "There will be clients that will not want to be with a company
that has a bad mark on them," said Bob Schmidt, a former agency executive
who now works at New York consultancy Bresner Schmidt.
In a statement, Ogilvy said it has cooperated "with every government review
and investigation of the billing missteps it voluntarily brought forward,
including extensively cooperating with the U.S. attorney's office in
Manhattan for more than two years. We are aware that several individuals
have been charged in connection with actions that are alleged to have been
taken while they worked on the initial ONDCP contract at Ogilvy. If true,
their behavior was inconsistent with the high standards the company promotes
and maintains."
The indictments are likely to carry major ramifications for the broader
advertising industry, which is under pressure to make its financial
processes more transparent for clients. "This will prompt marketers to do
agency audits," said Arthur Anderson, a managing principal at Morgan
Anderson, a New York firm that provides consulting services to marketers
such as Unilever, General Motors Corp. and McDonald's Corp. "Marketers are
very trusting with the data they get from their agencies, but these
indictments will cause clients to be much more observant."
The court document, filed Tuesday in U.S. District Court for the Southern
District of New York, alleges that Thomas Early, 48 years old, Shona
Seifert, 43, and unnamed co-conspirators "participated in an extensive
scheme to defraud the United States government by falsely and fraudulently
inflating the labor costs" that Ogilvy incurred while working under
contract.
The drug-policy office, which is responsible for establishing the U.S.'s
drug-control program, is a component of the executive office of the
president. As part of its duties, the office conducts a national media
campaign to educate young people about the dangers of illegal drugs. Ogilvy
was awarded a lucrative five-year contract in December 1998. The government
put the cost of the contract at $684 million, according to the court filing.
For the initial year of the contract, Ogilvy was entitled to receive a fixed
fee of about $1.6 million.
Tom Riley, director of public affairs for the drug-policy office, said it
"would be inappropriate to comment on the specifics of an ongoing case." He
added that "all the alleged abuses here took place during the previous
administration, after which new accounting safeguards were put into place
that prevent" such activities from occurring again.
Ogilvy's main role was to determine when and where to broadcast antidrug
ads, which were donated by ad agencies around the country through the
Partnership for a Drug-Free America, a nonprofit group. Ogilvy also was
occasionally asked to craft ads. The agency created a stir with two jarring
TV commercials that debuted during the Super Bowl in 2002. The spots told
teenagers that by buying drugs they were handing money to the terrorists
behind the Sept. 11, 2001, attacks and their ilk.
The defendants, Mr. Early, a senior executive at Ogilvy, and Ms. Seifert,
who was named president of the New York office of Omnicom Group Inc.'s
TBWA\Chiat\Day agency in February 2002, will be presented before U.S.
District Judge Richard Berman Wednesday. Mr. Early and Ms. Seifert each have
been charged with one count of conspiracy and 10 counts of false claims.
Each count carries a statutory maximum of five years in prison and millions
of dollars in fines, although prison terms would be lower under federal
sentencing guidelines.
A person who answered the phone in Mr. Early's office at Ogilvy declined to
speak to a reporter. Mr. Early's attorney offered a defense of his client.
"Sometimes, the government gets it wrong," said Laurence Urgenson, an
attorney in the Washington office of Kirkland & Ellis. "We expect Tom Early
to be fully vindicated." An Ogilvy spokesman said the status of Mr. Early,
chief financial officer of the shop's New York office, is under review.
In a statement, Ms. Seifert said she didn't commit any crime. "While
saddened and dismayed by these fallacious charges, I do welcome the
opportunity to present evidence of my total innocence. I am innocent of any
wrongdoing. I will contest these charges. I know I will be exonerated," she
said.
- --Kara Scannell contributed to this article.
- ---
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