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Malpractice alleged - Another headache: IPG faces lawsuit

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Interpublic Group of Cos., already reeling from a $181.3 million financial restatement primarily relating to improper bookkeeping in Europe, has another issue-a class-action lawsuit alleging financial malpractice in the U.S. and South America.

The suit, filed in U.S. District Court, Southern District of New York, on Jan. 10, alleges the company and a number of current and former executives artificially boosted earnings by directing underlings to overstate reported revenues and understate reported expenses.

Those named as individual defendants include: former Interpublic Chairman-CEO Philip Geier Jr.; current Chairman-CEO John J. Dooner, Jr.; former Chief Financial Officer Eugene Beard; current Chief Financial Officer Sean Orr; former VP-Controller Joseph Studley; Frederick Molz, VP-financial planning and analysis; David Weatherseed, former VP-controller; and current VP-Controller Richard Sneeder.

The plaintiffs in the suit, which represents all investors who purchased Interpublic common stock between Oct. 28, 1997, and Oct. 16, 2002, include lead plaintiffs Private Asset Management, a San Diego asset-management firm, and two individual investors, Doyle McClain and Wayne Gardner.

The suit relies heavily on allegations from two former Interpublic employees: a former VP-finance from McCann-Erickson Worldwide, Colombia, who was fired; and a former financial controller who worked for McCann-Erickson, New York, from May 2001 to February 2002.

increasing pressure

Among other allegations the unnamed former financial executive for McCann in Colombia claims that the accounting improprieties disclosed at the end of the class period, $101 million of which were attributed to McCann-Erickson WorldGroup, primarily in Europe,, "were representative of larger accounting manipulations that occurred during the class period throughout McCann's worldwide operations." The executive claims that from 1997 McCann's Latin American regional and area CEOs and CFOs came under increasing pressure from Interpublic and McCann leadership to "meet budgeted operating profit numbers at all costs, even if that required overstating reported revenues and understating expenses."

The former financial controller for McCann in New York claims in the suit "very lax and insufficient" internal financial controls at McCann North America "for a company of McCann's size" as well as "improper reconciliation of inter-office accounts."

An Interpublic spokesperson said: "We believe these claims are without merit. We intend to strongly defend this action and are considering all of our legal options."

Interpublic's November disclosure of a $181.3 million charge to restate results back to 1997 covered the whole period and geography referred to in the suit. With that disclosure, Interpublic termed its accounting restatement finished after a three-month process drawing on two top law firms, two major accounting firms and 10,000 man-hours of internal resources. Interpublic noted then it was terminating some employees, implementing other personnel changes and strengthening control processes.

next step

Interpublic's response to the suit may be a motion to dismiss, which would argue that the allegations in the complaint are defective. If the judge does not dismiss the case the next step is discovery, when each side rallies evidence to support its case. Securities cases that involve companies that have restated their financials within the time period being investigated-as Interpublic has-"often survive motions to dismiss," said Ron Marmer, partner, co-chair of the securities-litigation-practice group, Jenner & Block, Chicago.

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