As part of a civil suit filed late last year in New York State Supreme Court, Interpublic disclosed it wants to recover nearly $9 million in losses related to a fraud scheme involving an employee in the Paris office of McCann-Erickson WorldGroup. Interpublic brought the suit in November 2002 against its two insurance companies, National Union Fire Insurance Co. of Pittsburgh and Great American Insurance Co., after the two companies refused to pay its claims.
Interpublic disclosed that in 2000, management discovered a pattern of fraud by a long-time employee of McCann-Erickson, Paris. According to court papers, the staffer, identified as Serge Giesecke, had allowed a courier service to overcharge and bill the agency for phantom deliveries in exchange for kickbacks totaling $1.7 million.
Mr. Giesecke, a midlevel manager, was discharged, but the money-taken in small increments over 20 years-was not recovered. An Interpublic spokesman would not comment beyond confirming Mr. Giesecke is no longer employed at McCann.
The suit claims Interpublic tried for a year to recover losses totaling about $9 million incurred as a result of the scheme, but the insurers refused to pay because Mr. Giesecke had engaged in prior misconduct. The suit claims the insurers uncovered an instance in 1971 when Mr. Giesecke had charged to the company the delivery of a piece of furniture to his Paris apartment.
Interpublic countered the finding was "a trivial impropriety" that was not a legitimate basis for refusal, but when the company requested that both sides take the matter to arbitration, the insurers refused. Interpublic sued, asking the court to force the insurers to honor the claim, and requested unspecified punitive damages and attorney fees.
Last month, New York State Justice Herman Cahn sided with Interpublic and ordered the insurers to enter arbitration proceedings, but dismissed the rest of the suit pending the outcome of the arbitration. In the meantime, Interpublic has settled with National Union for an undisclosed sum, but it will go forward into the arbitration process with Great American. Spokespeople for both insurers refused to comment, citing the litigation.
McCann's European operations have been in an unflattering spotlight since last summer, when Interpublic disclosed it would restate its earnings for the last five years to correct improper accounting of certain expenses at McCann Europe. The restatement eventually grew to include $181.3 million in charges across several Interpublic units. News of the restatement hit Interpublic's stock hard and sparked several shareholder suits (see story, top right ) and an investigation by the U.S. Securities and Exchange Commission.