WPP Probes Fraud, Conflict Of Interest

NEW YORK Marco Benatti, hired as WPP Group's Italy country manager in 2002, brought to the job valuable connections in the world of Italian business. That network of associations—including clients, past associates from his prior investment in media buying company CIA, and current colleagues at WPP operating units—is playing out in potentially damaging revelations as WPP investigates Benatti's alleged involvement in a Byzantine web of complex accusations of fraud and conflicts of interest. Benatti was under contract to WPP as a consultant. After WPP CEO Martin Sorrell went to Milan to fire him on Jan. 9, WPP began its scrutiny, bringing in three Italian law firms—including one specializing in criminal law—as well as corporate investigations firm Kroll Inc. and WPP auditors Deloitte & Touche to investigate the financial accounts of other WPP units and overseas accounts in places like Scotland, Madeira and the Netherlands Antilles, sources said. Since then, the dispute has taken unexpected twists: WPP's Italian headquarters in Milan were broken into on the weekends of Jan. 14 and Jan. 21, with Benatti's office the focus, sources said. Benatti's office at FullSIX declined to put him on the phone, saying he doesn't speak English. On Jan. 31, he issued a press release in response to articles in which he said, "WPP alludes to possible fraudulent behaviours on my part against WPP." He charged that Sorrell's "brutal and unjustified behavior has destroyed—in a mere 21 days—the leadership position that WPP Group had attained in Italy" and attributed his termination as a WPP consultant to a difference in management style between he and protégé Daniela Weber, the chief operating officer of WPP Italy. He offered no evidence of how WPP's Italian market position has been "destroyed"; a WPP representative said there has been no client backlash so far due to Benatti's departure. (Last week, Benatti upped his stake in FullSIX to 41 percent, triggering a mandatory offer for the online marketing firm, in which WPP owns 26 percent.) According to sources, the first signs that something was amiss came in mid-December, when questions were raised about Benatti after he and Sorrell disagreed about the amount of the earnout he believed he was due as part of WPP's acquisition of an Italian media buying company called Media Club. Part of Benatti's job as a WPP consultant was to introduce the company to acquisition candidates, which he did with Media Club, earning him a commission of $247,000, according to sources close to WPP. Benatti demanded an earnout of nearly $11 million, compared to the $361,000 WPP believed he was owed, spurring further investigation, which revealed Media Club was ultimately majority-owned by Benatti. It's understood that among other areas of WPP's inquiry are media rebates and client bribes. Sorrell declined comment. In a statement, WPP said: "The facts will speak for themselves. No replacement has been made for Mr. Benatti, although Paul Richardson, WPP's group financial director and a member of the board of WPP Italy, has been appointed acting country manager. Mr. Benatti appointed the chief operating officer of WPP Italy himself, some six years ago. The suggestion that these matters concern style and management philosophy are an attempt to divert attention from the facts."According to The Sunday Times (U.K.), Weber (whom Benatti described in the release as "my pupil and assistant for 23 years") also had personal relationships with Benatti and Sorrell. Weber didn't return calls; a WPP representative said the company doesn't comment on Sorrell's personal life. What's raising eyebrows is the long, close working relationship between Benatti and Weber, who acted as his translator. "She was Benatti's confidant. I don't think there's anything she didn't know about him." Still, sources close to WPP emphasize Weber is not part of the investigation, saying that as she learned about Benatti's activities, she distanced herself from him.While Sorrell has moved quickly to investigate his Italian operations, the revelations are undoubtedly an embarrassment for a company known for its rigorous financial controls and squeaky-clean image. "It's been a very weird situation. WPP has been run in a very disciplined way, but Italy was the exception to the rule. (WPP) Italy has been an eyesore for years, with a lot of rumors and speculation," said one source.However, Bear Stearns analyst Alexia Quadrani said she doesn't see WPP's investigation as a negative in the long run. She explained: "I don't think it's a black eye for WPP. It's a very large company. It's hard to think you can be in as many countries as they are and not occasionally have these problems. Martin Sorrell has taken a very appropriate stance in coming out strongly and taking action against it."

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WPP Probes Fraud, Conflict Of Interest

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