Printing-company executive John Battaglia, charged with conspiracy to defraud the Internal Revenue Service and tax evasion, pleaded guilty on April 29 and agreed to cooperate with government investigators.
His plea is the latest in a widening scandal that has involved a number of ad agencies and production houses and that has rippled through the advertising industry and prompted long-standing practices to be re-evaluated. The investigation by the federal government into the billing practices of printing companies and their ad agency clients has already resulted in the arrest for mail fraud of Mitchell E. Mosallem, former exec VP-director of graphics services at Grey Global Group's Grey Worldwide, New York. It also led to a guilty plea on charges including tax evasion by independent commercial printing broker Ivan Glick, who primarily represented graphics supplier The Color Wheel. And a former financial executive for the Color Wheel, Donald LaPorte, committed suicide in January (AA, April 29).
According to court papers, Mr. Battaglia, a co-owner of two commercial-printing businesses at 200 Hudson St. in Manhattan, conspired from approximately 1995 through 1999 with Martin Schwartz, proprietor of three printing-supply companies. Both participated in a scheme in which Mr. Battaglia and an unnamed co-conspirator (described in court papers as CC-1) wrote checks payable to one of Mr. Schwartz's companies, either "K&S Graphic Supply"; "AAMM Printing Broker"; or "Storia Offset Services."
Mr. Schwartz would provide cash in the amount of the check "minus a small commission," according to court papers, as well as "false invoices," to Mr. Battaglia and his co-conspirator for goods supposedly purchased from any of Mr. Schwartz' companies. "These transactions were structured to make it appear" that Mr. Schwartz's companies were selling goods to Mr. Battaglia's companies, when in fact, say court documents, Mr. "Schwartz was merely cashing checks." Mr. Battaglia used the fake invoices as proof for business deductions taken on tax returns for his companies, Unique Offset Plate of New York and Total Offset Graphics. He also received cash that was not reported on his personal income tax returns, according to the documents.
In December 1999, Mr. Schwartz pleaded guilty to charges including conspiracy and filing false tax returns. In one court appearance, Assistant U.S. Attorney David Greenwald called Mr. Schwartz "an invoice seller"-someone who prepared fake invoices to help other individuals and businesses avoid paying taxes.
Mr. Schwartz also provided false invoices to others who later entered guilty pleas in related investigations. Peter Page, owner of Front Page Packaging, a packaging manufacturer in Brooklyn, N.Y., pleaded guilty to conspiracy and income tax evasion in February 2002; Samuel and Frieda Kloda, operators of National Offset Plate Service and One Stop Graphics, both located at New York City's 185 Varick Street, pleaded guilty to the same charges in August 2000.