Omnicom Faces Class-Action Suit Over Accounting
Omnicom owns ad agency networks like BBDO Worldwide, DDB Worldwide and TBWA Worldwide as well as direct shops like Rapp Collins Worldwide, Targetbase and Direct Partners.
Scott + Scott LLC, Colchester, CT, accused Omnicom chairman John D. Wren and other executives of reporting that the New York company was growing in revenue and earnings despite an overall sluggish economy.
Filed in the Southern District of New York in the U.S. District Court, the complaint alleges that Omnicom's growth was due to the number of acquisitions it made in the year.
The complaint relies heavily on a Wall Street Journal article that blew the whistle on Omnicom's acquisition accounting and the creation of Seneca, an off-balance sheet entity to which certain interactive agencies were transferred.
In that article, the Journal alleged Omnicom immediately included revenue and earnings from new acquisitions in its reported financial results. By contrast, Omnicom's competitors exclude the results for the first year after a company is acquired. Also, Omnicom owes hundreds of millions of dollars for firms it bought.
That article's publication caused a precipitous drop in Omnicom's share price.