The allegations arose in court documents filed in a wrongful-discharge suit filed by an official at the automaker in Windsor, Ontario, that contend that the client was billed with phony invoices. Testimony in the non-jury trial wrapped up in mid-February and was adjourned until April 6.
The alleged fraud included tens of thousands of dollars for adult entertainment at a Toronto strip club, sometimes as much as $6,000 for a single night. Court papers filed by DaimlerChrysler acknowledge that more than $90,000 was paid by PentaMark, now called BBDO, for adult entertainment between 1999 and 2000 and wrongly billed to the automaker. Several DaimlerChrysler employees also got free tickets to sporting events, suites at concerts, hotel rooms, Palm Pilots, free Costco memberships and computers at their employer's expense, the documents say. Accepting any gift over $30 is a violation of the company's ethics policy.
According to the court papers, the automaker started an audit in September 2001. Auditors found numerous violations of its ethics code, a lack of adequate financial controls, payments made to PentaMark months before work was done, the agency charging higher-than-agreed-upon rates, and an unresolved duplicate payment to PentaMark for $330,000 in 2001, documents show.
According to DaimlerChrysler's preliminary audit results on Nov. 1, 2001 filed with the court, PentaMark overcharged the automaker by $32,000 for hourly staff rates that were higher than agreed. For example, a junior art director got $75 per hour, when the agreed hourly rate was only $50.
The same audit filing revealed "excessive local meals charged to projects" as well as personal trips and hotels paid for by the agency for DaimlerChrysler staffers.
William Paterson, 55, sued DaimlerChrysler of Canada in May 2003 for wrongful termination Oct. 30, 2002 after 31 years at the company. Court papers reveal three of his underlings were also let go that day for the same reasons. The ex-general manager of retail strategies in Canada is seeking roughly $2 million, part in lost wages and part for his pension. He did not return calls by press time.
"There's no allegation that my client took anything," said David McNevin, Mr. Paterson's attorney, adding the automaker maintains "he knew others were on the take." Mr. McNevin stated that DaimlerChrysler "had to do three separate audits to figure out what was going on," so how could his client know?
no criminal charges
Mr. Paterson "was not initially implicated" after an audit of PentaMark in February 2002, according to DaimlerChrysler's response to the complaint. But in the court filing, the automaker said in October of that year it "learned of information that indicated substantial violations of Mr. Paterson's contract of employment."
DaimlerChrysler claims in its reply to the suit that "Mr. Paterson knew, or ought to have known, that two of his employees who reported to him had grossly abused their authority by having or permitting PentaMark employees to entertain them at various adult entertainment venues and sporting events."
Also according to the suit, John Levasseur, a senior manager who reported to Mr. Paterson, was fired on Oct. 30, 2002. Records show he received a personal $50,000 loan from Mississauga Chrysler dealer Barry Gray, which is a violation for both parties under the automaker's ethics policy.
When asked for comment, a spokesman for DaimlerChrysler Canada said there were three audits done to investigate the matter, although he was unsure what sparked the probes. The audits concluded "there had been violations of the company's integrity code and following that the company took the necessary actions," he said. Other than the firings, the spokesman didn't know what other actions were taken to resolve the matter, adding that there were no criminal charges connected to the suit and that he knew of no other lawsuit between the automaker and the agency.
Mr. McNevin estimated the fraudulent tab billed to the automaker could total in the millions.
DaimlerChrysler was PentaMark's only client. The agency was the successor of InterOne and Ross Roy Communications; the latter was acquired by BBDO in the 1990s. The bulk of the work it did for the automaker in Canada during the alleged scheme was dealer training. The client's attorney did not return calls.
`in the past'
A spokesman for BBDO said "we take these matters very seriously" and that the issue "was resolved to the mutual satisfaction" of both the client and agency a few years ago. "It's in the past."
But on Feb. 1, the agency replaced the two top executives of its BBDO, Windsor, office, the spokesman said, adding the move was separate from the court matter.
Gary King, exec VP-managing director of that office, and Jack Daley, senior VP-general manager, were put on special assignment. Tom Krehbiel, an exec VP at BBDO Detroit, Troy, Mich. on Chrysler Group's account, was promoted to managing director of the Windsor office on the account.
Chrysler Group posted a $1.8 billion operating loss in the second half of 2000 and another $3.9 billion operating loss in the first three months of 2001.
Below are some of the charges in the wrongful-termination suit
* PentaMark allegedly charged millions of dollars in phony invoices to DaimlerChrysler of Canada and split the money with the client's employees over a decade. Among the charges: a total of $93,000 in business expenses at a strip club in one year
* DaimlerChrysler employees got tickets, hotel rooms, Palm Pilots and free Costco memberships at the automaker's expense
* BBDO, Toronto, billed the automaker for TV time it never purchased
* Client was overbilled $32,000 for agency staff, who were paid at a higher rate than the agreed-upon amount