Omnicom and the Interpublic Group, eager to move beyond a summer of bad news, are still finding themselves dogged by angry shareholders who are airing their grievances in New York State Supreme Court.
At Omnicom, last Friday marked the deadline for its response to a lawsuit brought by a shareholder named Gary Otterbach that alleges insider trading on the part of company chairman Bruce Crawford and the top executives at two Omnicom operating subsidiaries: Keith Reinhard, CEO of DDB, and Allen Rosenshine, CEO of BBDO. The suit charges that the three—acting on "material non-public information" related to the transfer of Omnicom's Internet assets to a new entity called Seneca—pocketed a combined $25,573,637 by selling a total of 298,100 shares between August 1, 2001 and May 20, 2002.
Sources said Omnicom responded to the suit. The response was not available by the close of business Friday. Crawford, Reinhard and Rosenshine either declined comment or were unreachable. Some observers suggested the timing of the sales followed previously established patterns by the executives. Others named in the suit are Omnicom board members, including CEO John Wren.
The suit cites a June 12 story in The Wall Street Journal as the basis for many of the questions raised about the Seneca transaction by former board member Robert Callander, who resigned in protest over the deal. (Callandar is named as a defendant in the suit.) It contends that Omnicom's board knew, but didn't publicly disclose, that the company's "true purpose in forming Seneca was to improperly avoid taking write-downs and losses associated with the Internet businesses." Furthermore, if those write-downs and losses had been included in the company's financial results, the suit states, "Omnicom's earnings and stock price would be materi ally reduced."
Omnicom still faces 11 class-action lawsuits filed in the wake of questions raised in the WSJ story. Those suits are expected to be consolidated into a single filing. Omnicom shares closed at $52.10 on Friday, up 1.56 percent.
While Otterbach's suit does not specify damages, his demands include reimbursement to the company, in the form of a constructive trust, for the amount of profits made from the stock sales. He is also seeking a judgment against the defendants related to the amount of damages resulting from their "breaches of fiduciary duties, abuse of control and gross mismanagement." His lawyer, Curtis V. Trinko, did not return calls seeking comment.
At IPG, shareholder Henry Karpus is suing the company's directors and its outside auditing firm, PriceWaterhouseCoopers, accusing them of breaching their fiduciary duty and of breach of contract and professional negligence. Named are 10 defendants, including IPG CEO John Dooner and CFO Sean Orr.
The suit, filed Sept. 4, stems from the $68.5 million accounting imbalance that IPG reported in August, which contributed to the company's stock falling below $14 a share. IPG closed Friday at $14.56, off 2.15 percent.
Karpus alleges that IPG and its directors failed to establish and maintain adequate accounting controls and, as a result, disseminated misleading and inaccurate information to the market.
The action seeks unspecified damages and reimbursement for plaintiff's costs. Karpus' lawyer, Laurence Paskowitz, did not return calls. IPG has yet to file a response, but general counsel Nick Camera vows, "We will defend it vigorously."