NEW YORK -- Haluk Ergulec, the owner of the Color Wheel, today pleaded guilty in U.S. District Court to conspiring to rig bids and reserve contracts for other companies doing business with Grey Worldwide. The charges were in connection to work on clients such as Brown & Williamson, among others, from late 1991 until 2001. The Color Wheel itself also pleaded guilty to similar charges.
Lawyers for Ergulec's alleged co-conspirators -- Mitch Mosallem, a former evp and director of graphic services at Grey, Birj Deckmejian, a former salesman for The Color Wheel, and John Ghianni, a former salesman for Quality House of Graphics, a graphics supply company based in Long Island City -- are continuing to maintain their not-guilty pleas.
When asked if he will testify against the other defendants, Ken Kaplan, the lawyer representing Ergulec and The Color Wheel, responded, "Absolutely not." As for the reasoning behind withdrawing his and the company's guilty plea, Kaplan said that "he was guilty and he wanted the company, which is now under new management, to be able to move on."
Back in May, a federal grand jury indicted the defendants with conspiring to defraud certain Grey clients in a phony billing scheme from 1991 until July 2000, which was uncovered by an investigation conducted by the Department of Justice's anti-trust division.
For example, according to prosecutors, in 1999, The Color Wheel issued a false invoice to Grey that inflated the bill upwards of $12,000 for ads for Cover Girl nail polish and mascara. Other companies were also named in The Color Wheel's schemes, such as Brouillard Communications, Impact Communications, both small New York ad agencies, and TDI Winston Network, a New York media agency that's a subsidiary of Viacom.
For the past four months, the company has been trying to get past the charges and next month will re-christen itself The New Color Wheel. Ergulec relinquished managerial control over the company back in August and has agreed to sell the company and its building for $450,000 to its new management and employees, said Arne Zimmerman, chairman of The New Color Wheel, who along with new CEO Frank Suozzi, have taken charge of the company. Zimmerman also plans to refinance the company's $15 million debt next month.
As for the specific charges, Deckmejian and Color Wheel allegedly provided substantial goods and services for the personal benefit of Mosallem and other employees and executives at Grey, including tickets to theater, sporting, and cultural events, and graphics items such as wedding invitations, cards, and brochures. To recoup the costs of these items, according to the indictment, Mosallem, Ergulec, Deckmejian, and Color Wheel agreed that Color Wheel would falsely inflate its bills for work contracted by Grey on behalf of, and ultimately charged to, its clients. In addition, on occasions where particular jobs for one unnamed Grey customer ran over budget, Mosallem is accused of allowing Color Wheel fraudulently to shift the over budget amount onto jobs for a different Grey client, thus causing one Grey client to pay for work done for another client.
The bid-rigging charge carries a maximum penalty of three years'imprisonment and a $350,000 fine for individuals and a $10 million fine for corporations. The fraud conspiracy charge carries a maximum penalty of five years' imprisonment and a $250,000 fine for individuals and a $500,000 fine for corporations.
Ergulec is scheduled to be sentenced March 4, 2003. Ergulec is scheduled to be sentenced March 4, 2003. The prosecutors will recommend that he be sentenced to 37-46 months in prison and pay $1.5 million in restitution to the victims -- with $1.1 million going to Grey.