NEW YORK -- Color Wheel owner Haluk Ergulec, who founded the company 25 years ago, has agreed to divorce himself from any involvement with the scandal-plagued print services company's operations and new management team has stepped in to run the company.
"We have [Ergulec's] credit cards, his signing rights," Zimmerman said, emphasizing that Ergulec has relinquished all management control effective August 19. "Going forward, we plan to have new management disciplines in place by October 1." While the company has retained large clients like Polo and LVMH, Zimmerman conceded that the company had lost most of its agency clients. "We plan to begin meeting with the agencies over the next month," he said.
Ergulec will retain sole ownership for the time being, said Arnold Zimmerman, Color Wheel's new chairman, but the new management team plans to focus on restoring the company's credibility and then do an ESOP in about a year.
Zimmerman, a former Revlon executive, is joined by Frank Suozzi, the new chief executive officer, and Patty Lapino, evp of administration. The three are currently considering a name change for the company to reflect a break with the past, as the firm navigates through a loss of business largely attributed to a federal indictment. The U.S. Department of Justice has accused against Color Wheel, Ergulec and three other defendants, including the former head of Grey's print services Mitch Mosallem, of using phony invoices to inflate the cost of print jobs to Grey clients, including Brown & Williamson Tobacco Co.
Zimmerman and Suozzi have signed a contract to stay on with the Color Wheel for three years, with an option for an additional two. "Since the troubles of the past nine months, the company's revenues have been halved," Zimmerman said, noting that company had earned as much as $60 million annually before the U.S. Department of Justice investigation.
Aside from a possible name change, Zimmerman plans to establish an internal task force led by Lapino that will scrutinize invoice procedures. For several months, the company has been working to institute an "auto-tracking" system that will chart the cost of a project through every step of the production process.
Back in May, Ergulec had announced he was handing over daily operations to Mark Wenger, who rose from svp to president. Wenger, who has been with the company since its inception, will retain his position, Zimmerman said. Ergulec had stayed on as an informal consultant, Wenger said at the time.
In addition to the Color Wheel and Ergulec, former Color Wheel print-services salesman Birj Deckmejian and former Quality House of Graphics print-services salesman John Ghianni were also facing charges filed in May. All have pleaded have not guilty.
Separately, Mosallem today was indicted by a federal grand jury in Manhattan on additional fraud and tax charges in connection with his business dealings with Color Wheel and other print production companies.
Mitch Mosallem, who had been charged with conspiracy to commit mail fraud in the overbilling case, now faces additional counts of conspiracy in connection with his alleged receipt of kickbacks between 1990 and 2001. He is also charged with one additional count of conspiracy to defraud the Internal Revenue Service and five additional counts of signing false tax returns.
In a statement, Charles James, assistant attorney general of the Justice Dept.'s Antitrust Division, said, "Today's new charges demonstrate the Antitrust Division's resolve to seek out and prosecute anti-competitive practices and offenses associated with the advertising and graphics industries."
The indictment charges that among the kickbacks that Mosallem allegedly received from print production houses were cash, travel, clothing and limousine services. He faces a possible maximum penalty of three years' imprisonment and a $350,000 fine.