Lawsuit charges radio network with ad fraud

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One radio network. Two former employees. And a laundry list of accusations-but most alarming are charges of falsifying the legal documents given to advertisers that verify when their spots ran.

The accusations are part of pending litigation between Metro Networks and a pair of former employees, Robert Scott and Craig Firestone. Metro Networks, the nation's largest supplier of traffic information to radio and TV stations, is part of publicly traded Westwood One, the fourth-largest radio company in the U.S.

According to court documents filed with New York's U.S. Southern District court, Metro Networks hired Mr. Scott and Mr. Firestone in the spring and fall of 2001, respectively; both were fired in 2003. In November 2003, Metro Networks filed for arbitration, a condition of the company's employment agreement, alleging the two former employees were co-conspirators who attempted to defraud the company.

The respondents, Mr. Scott and Mr. Firestone, then filed counter claims that Metro Networks had engaged in a pattern of falsifying legal documents-known as affidavits-to justify revenue that would never be finalized and invoiced clients for spots that never ran. They also accuse Metro of purposefully under-delivering on several of their accounts, causing the two salesmen to forfeit thousands of dollars of commission.

Mr. Scott's testimony states that in the spring of 2003 he had conversations with an internal auditor at Westwood One about accounting irregularities, which, Mr. Scott believed, purposefully and intentionally misstated revenue and earnings. Mr. Scott states that he possessed records and documents that demonstrated Westwood One was engaged in a pattern of producing false affidavits justifying revenue that would never be realized. The company, the lawsuit says, had fraudulently invoiced clients for services that were never rendered and maintained revenue on the books even after contracts were canceled.

Westwood One denies all charges of wrongdoing. In an e-mail statement, Westwood One lawyer David Hillman said, "Metro Networks has policies and procedures in place that prohibit, deter and prevent employees from engaging in any illegal or unethical conduct. Metro investigates all allegations of wrongdoing promptly, and will continue to take all action necessary to ensure that the conduct of the company and its employees is beyond reproach."

NO AD COPY

The charges by Mr. Scott and Mr. Firestone involve one of their clients, Bridgestone, which had agreed to purchase ad spots and received affidavits for those spots. But, according to an internal Metro Networks' e-mail filed with the court, advertising copy for the spots was never provided. Metro Network ads are read by newscasters at the end of traffic reports, and if no copy is provided, there is no ad to read on air. Also included in court papers is a letter from Bridgestone's agency, MediaCom, ordering the ad schedule be canceled two months before the date that appears on the affidavits created by Metro Networks.

Bridgestone and MediaCom did not return calls for comment.

Another one of Mr. Scott and Mr. Firestone's clients, Goen Technologies, had entered into a $6 million contract, using radio sponsorships to promote its ephedra weight-loss product, TrimSpa. In a letter dated May 20, 2003, Goen's general counsel wrote to Mr. Firestone that "We have been advised on numerous occasions that WINS-AM in New York City does not and will not run our spots. If this is true, why has your company sworn to affidavits asserting this information? Why is our organization paying for spots that do not run?" Goen thereafter canceled its contract with Metro Networks, which then brought a suit against the former client. The two settled out of court for an undisclosed sum. Terms of the settlement were confidential.

Metro Networks charges the salesmen were the ones engaged in fraudulent behavior. In his e-mail statement, Mr. Hillman said, "In 2003, Metro Networks discovered that two of its salespeople had engaged in unethical and possibly illegal conduct. After a thorough investigation, Metro Networks terminated the employees and initiated legal proceedings against each of them. The countersuit filed against Metro Networks by these disgruntled former employees is wholly without merit and is being vigorously contested by Metro Networks."

The lawsuit accuses Mr. Firestone and Mr. Scott with submitting forged and altered documents as evidence for fictitious sales of ad spots.

David Drucker, who was director-sales, Metro Networks when the two were employed there, testified that the forged documents included five fictitious contracts for one client, Hankook Tire America Corp., and that Metro ran ads worth between $400,000 to $1.1 million that Metro was never paid for because the contracts were faked and Hankook's CEO signature was forged. Mr. Firestone is also accused of manufacturing $250,000 worth of fake contracts for Montefiore Medical Center. (Montefiore declined to comment, and a call to Hankook was not returned.)

Mr. Scott and Mr. Firestone deny all the charges. Their lawyer declined to comment.

He said, He said, He said

The charges and countercharges in the litigation between Metro Networks and two former employees allege numerous cases of fraudulent activity.

Metro Networks

* Division of Westwood One

* Charges the salesmen with submitting forged and false sales contracts for ad sales that never occurred.

* Marketers victimized in salesmen’s alleged fraud: Hankook Tire America Corp., Montefiore Medical Center

Two former employees:

* Robert Scott, Craig Firestone

* Charge the network engaged in a "pattern of falsifying affidavits to justify revenue that would never be finalized and invoiced clients for spots that never ran."

* Marketers victimized in Metro’s alleged fraud: Bridgestone Tire, Goen Technologies’ Trim Spa

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