MDC Investigation Elicits Only Mixed Reactions

Company Paid $1.6 Million to Use Aircraft Controlled by the CEO

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Miles Nadal
Miles Nadal

It's not often that a CEO pays back his employer $8.6 million.

But that's what happened at agency holding company MDC Partners, which announced the unusual refund last week as it disclosed an SEC investigation since October into its accounting practices, trading information and chairman-CEO Miles Nadal's expenses.

The probe spans payments to Mr. Nadal between 2009 and 2014, including travel expenses, charitable donations, medical expenses and certain expenses for which the information was incomplete. MDC said it has formed a committee to look into its payments on behalf of Mr. Nadal and Nadal Management Ltd., through which MDC contracts and pays the CEO.

"MDC Partners has been actively cooperating with the SEC and continues to do so," said a spokeswoman for the company, whose agency portfolio includes CP&B and 72andSunny. "We are committed to the highest standards of corporate governance and transparency, and in response to this situation have taken a number of steps to strengthen our procedures and internal controls, the details of which are outlined in our most recent earnings release and proxy statement filed with the SEC."

The surprising news sent the stock from $28 to a low of $18, but the price recovered somewhat to close at $20.32 Thursday. And the response from employees and analysts was curiously muted. Staffers defended the well-liked Mr. Nadal and said it was business as usual at MDC, a network known to be fairly hands-off with its shops.

Analysts tried to balance the uncertainty associated with the investigation against the company's revenue growth and Mr. Nadal's loyal following. Piper Jaffray downgraded MDC shares to neutral and BMO Capital Markets lowered its target to $26 from $30, while Standard & Poor's said the news did not affect its ratings and outlook. "We have long supported CEO Nadal's vision and particularly his aggressive (and very successful) M&A strategy over the past 5-6 years," BMO analyst Dan Salmon said in a note to investors. "We also have defended his personal style, which we believe engenders loyalty from his top employees, even if it can rub some investors the wrong way." However, he added, "The investigation may resurrect doubts."

Mr. Nadal is not only a big spender when it comes to agency acquisitions. His past personal purchases include an 80-foot yacht called Dare to Dream, and according to, a 2015 McLaren P1 valued at over $1 million. He's also a well-known investor and entrepreneur, having launched numerous private equity and real estate ventures.

Then there is his aircraft, an example of Mr. Nadal's personal investments sometimes overlapping with MDC dealings. In 2014, MDC paid a total of $1.6 million for the business use of aircraft owned by entities controlled by Mr. Nadal, according to its 10-K. Mr. Nadal also sold his own 54% stake in Trapeze Media to MDC last year.

Mr. Nadal's compensation from MDC totaled $16.8 million in 2014, including salary, bonus and stock, according to the company. But eight-figure compensation is nothing new for a holding company CEO -- WPP's Martin Sorrell earned $70.8 million in 2014 and Omnicom's John Wren $24 million. Nor is it unusual for an exec of Mr. Nadal's rank to have use of a private plane or a helicopter. Mr. Wren was allotted $82,751 for personal use of aircraft hours, for example, according to Omnicom's 2014 proxy. Mr. Nadal's package includes travel among his homes in the Bahamas and West Palm Beach, Fla., and the corporate office in New York.

In February, however, MDC adopted a new aircraft policy that it said requires Mr. Nadal "to reimburse the company for the allocated cost of the corporate aircraft for travel by any of his family members."

If adland largely failed to react to last week's news, hungry law firms certainly did: At least six announced their own investigations on behalf of shareholders. Some investors seemed to take advantage of the stock's dive, moreover, snapping it up at the $18 low.

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