EMBATTLED COLOR WHEEL CUTS STAFF

Clients Drop Graphics Supplier as Federal Investigation Proceeds

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NEW YORK (AdAge.com) -- Graphics supplier Color Wheel last week laid off 16 of nearly 300 employees and said additional
Photo: Hoag Levins
Color Wheel headquarters at 227 East 45th St., New York
staff cuts may occur. Meanwhile, one more agency, WPP Group's J. Walter Thompson Co., New York, has severed business ties with the production company, a JWT spokesman said.

The moves come as more details emerge of the federal government's probe into allegedly illegal business dealings involving Grey Global Group's Grey Worldwide, New York, and graphics suppliers including Color Wheel.

Former executive indicted
Grey two weeks ago ended its longtime relationship with Color Wheel following the March 21 surrender of Mitchell E. Mosallem, Grey's former executive vice president and director of graphic services, to authorities. Mr. Mosallem, now free on $1.5 million bail, is accused of mail fraud for orchestrating with graphics suppliers a complex scheme of bill padding.

Color Wheel Senior Vice President Mark Wenger said the

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25-year-old production company, known in the industry as "the Wheel," has been contacted by authorities and has cooperated fully. He confirmed last week's layoffs.

"Our company has lost business, so we have to respond," he said.

Cooperating with authorities
Grey and Cordiant Communications Group's Bates Worldwide, New York, also have said they are cooperating with the investigation. Grey's involvement in the probe began in March 2001, according to the company's 10-K annual report: Grey said "the government has indicated that it is examining whether there is company responsibility" in the alleged activities of Mr. Mosallem and cohorts.

The government may have been led to Grey following authorities' late December 2000 search on Color Wheel, when, according to Mr. Wenger and others witnesses, nearly 30 agents of the Internal Revenue Service and the Federal Bureau of Investigation seized documents, computers and file cabinets.

According to the search warrant, agents

Photo: Hoag Levins
A Color Wheel truck making deliveries
searched offices of seven Color Wheel employees: Haluk Ergulec, CEO-owner; Mualla Ergulec, Mr. Ergulec's ex-wife, who worked in billing; Hakan Ergulec, Mr. Ergulec's son; Frank Fiordalisi, a salesman, who oversaw accounts on Omnicom Group's Doremus and Interpublic Group of Cos.' Lowe Worldwide and Foote, Cone & Belding Worldwide, acquired last year by Interpublic; Pat Citera, controller; Birj Deckmejian, a salesman who handled Grey and Bates; and Gabriel Casas, who worked on Grey.

Neither Douglas Tween, a Justice Department attorney, nor a spokeswoman for the IRS would comment.

Grey and Lowe confirmed they have done business with Color Wheel but would not comment on specifics. Bates would not comment. Doremus said only that it "has had a relationship with Color Wheel on and off since July 2000." FCB said its relationship with Color Wheel, while small, continues.

Staff writer Rich Thomaselli contributed to this report.

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