Nearly two years to the day after the Internal Revenue Service and FBI raided Manhattan firm The Color Wheel-seizing documents, computers and file cabinets belonging to its senior managers-Haluk Ergulec, Color Wheel founder, stood solemnly in the chambers of U.S. District Judge Thomas Griesa last week.
Attorney at his side, Mr. Ergulec, 59, and his company pleaded guilty to several charges of antitrust and tax and fraud violations as part of a plea agreement, according to a Department of Justice press release. The pleas cover charges brought against Mr. Ergulec and his company in May as well as additional charges announced by the Justice Department last week in U.S. District Court.
In May, Mr. Ergulec was charged with mail fraud, while The Color Wheel was charged with participating in a bid-rigging and contract-allocation scheme for the supply of retouching and separation services purchased by Grey Global Group for itself and its clients. Color Wheel also pleaded guilty to an earlier charge of mail fraud, which occurred when false invoices were sent through the U.S. mail as part of a billing scheme to defraud certain Grey clients. According to court papers, the victims of those frauds were Brown & Williamson Tobacco Corp. and Procter & Gamble Co.
The additional charges announced against Mr. Ergulec and his company last week include paying kickbacks of cash, checks and goods and services. According to court papers, Mr. Ergulec paid kickbacks, which in many months exceeded $10,000, to one Grey Global Group senior executive. Both Mr. Ergulec and his company were charged with two counts of conspiring to defraud Grey clients in separate phony billing schemes. Mr. Ergulec also pleaded guilty to conspiracy to defraud the Internal Revenue Service.
Sentencing, which will be determined by Judge Griesa, is set for March 4, 2003. But the plea agreement makes clear that Mr. Ergulec, on behalf of The Color Wheel, must pay restitution.
Companies that have been victimized by the activities in which Mr. Haluk or his employees participated will receive compensation totaling $1.5 million, which Mr. Ergulec must make available by March 4 via an escrow account controlled by his attorney. Some of that money will come from the sale of a vacation home in Lighthouse Point, Fla., and a 1985 Bertram Sports Fisherman boat.
The recommended allocation of the money is as follows: $1.1 million to Grey Global Group, the advertising agency that contracted with The Color Wheel on behalf of its clients as well as for its own corporate work; $200,000 to Impact Communications, a New York City advertising agency; $100,000 to WPP Group's Brouillard Communications, another Manhattan agency; and $100,000 to Viacom, owner of TDI Winston Network.
The $1.5 million, however, may be only a portion of what Mr. Ergulec ultimately will pay. According to the plea agreement, fines for the offenses Mr. Ergulec is charged with range from $7,000 to $75,000. Fines for the offenses committed by The Color Wheel range from $4.62 million to $9.24 million. As part of the plea agreement, Mr. Ergulec and the government agreed to the recommendation of a prison sentence of between 37 and 46 months.
No fine for color wheel
According to the plea agreement, the government analyzed Color Wheel's ability to pay and agreed to recommend to the court that Color Wheel pay no fine or restitution.
The current management of the company is trying to move past the scandal. Last week, chairman Arnold Zimmerman and CEO Frank Suozzi said they would buy The Color Wheel's assets, goodwill and customer list, and will operate as a new company called The New Color Wheel. It will lease space in its current location from Mr. Eruglec, who owns the building. Mr. Ergulec will have no ownership or management position at the company.