BOSTON Interpublic Group today said it has reached a settlement agreement with the Securities and Exchange Commission covering all charges brought by the SEC against IPG and its McCann Erickson unit over past accounting imbalances stemming mainly from the overbooking of revenue by McCann offices in Europe.
The SEC launched the probe in 2002 after IPG reported a $181.3 million accounting imbalance.
According to a statement from IPG: "While neither admitting nor denying the allegations brought by the SEC, Interpublic and McCann have agreed to an injunction against violating the applicable provisions of the federal securities laws, and McCann has agreed to pay a civil penalty of $12 million and disgorgement of one dollar."
In the same statement, IPG CEO Michael Roth said: "As previously disclosed, IPG and McCann have cooperated with the Commission from the start of its investigation. The events that gave rise to the SEC charges of securities fraud relate to intercompany accounting practices at McCann which were addressed in our restatement of 1997 to 2002 results and which did not involve client funds."
Yesterday, as it disclosed a relatively upbeat first-quarter financial performance, IPG also said it had set aside $12 million ahead of a settlement.
Linda Thomsen, director of the SEC's division of enforcement, said in a statement issued by the commission: "A subsidiary that feeds misleading financial results to its parent defrauds the parent's public shareholders and will be held accountable."
Mark Schonfeld, director of the SEC's New York regional office, added, "McCann ignored its intercompany problems year after year, and even worse, purposely avoided addressing the problems to ensure it hit profit targets."
The SEC has also settled with two former IPG execs -- Salvatore LaGreca and Brian Watson -- who had been named in a separate complaint. LaGreca served as McCann's vice chairman of finance and operations and its CFO from 1996-2002; Watson had served as operations director for McCann's Europe, Middle East and Africa region.
LaGreca and Watson also agreed to pay penalties of $25,000 and $50,000, respectively, and pay disgorgement and pre-judgment interest of $46,947 and $17,325, respectively, the SEC said.
When IPG first reported the imbalance in August 2002, it was estimated at approximately $68 million. That estimate, however, subsequently rose and eventually topped out at $181.3 million. Current McCann WorldGroup CEO John Dooner was CEO of IPG at the time.
IPG claimed $6.55 billion in global revenue last year, a 6 percent improvement over 2006.