SETTLEMENT REACHED IN SWEEPSTAKES SCAM

Simon and McDonald's Await Decisions in Pending Cases

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CHICAGO (AdAge.com) -- Embattled promotions agency Simon Worldwide said it is backing a settlement agreement reached by McDonald's Corp. in a class action lawsuit stemming from last year's sweepstakes promotions scandal.

According to a May 13 filing by Simon with the Securities and Exchange Commission, McDonald's on or about April 19 settled a consumer class action suit related to a multimillion-dollar sweepstakes fraud scheme masterminded by a former Simon employee who in April pleaded guilty to federal fraud charges.

Paying out claims
Though the settlement is still pending the decision of one other class action suit, the monies will be funded by Simon's liability insurance, the document said. Pending dismissal of other consumer cases, Simon will be released from any claims stemming from the scam.

Meanwhile, suits filed

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between Simon and McDonald's are ongoing.

PricewaterhouseCoopers last month resigned as Simon's independent accounting firm and withdrew its audit reports. In March, Simon sued PricewaterhouseCoopers and two other accounting firms for failing to oversee the security of the burger chain's promotions. That suit is also still pending. Simon is looking for a new accountant.

Simon reported a net loss of $5.4 million, or 33 cents per share, for the three months ended March 31. The loss included $4.3 million in pre-tax charges, offset by a $2.4 million asset recovery gain. In addition, Simon posted a $4.3 million gain from lease and supplier settlements.

No new clients
According to the filing, as of March 31, Simon said it has no customer backlog, compared with $247.4 million in purchase orders in year-earlier period. The company continues to express doubt about its ability to continue as a going concern and is considering the possibility of liquidation through bankruptcy. The company said it had 33 employees as of the end of the quarter.

Last week, the company reported it was delisted from the Nasdaq exchange.

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