Case Dismissed: Judge Sides With Omnicom
NEW YORK (AdAge.com) -- A federal judge has dismissed a class-action lawsuit brought against Omnicom Group by a group of investors claiming the holding company failed to properly account for internet investments it transferred to Seneca Investments, an e-services holding company created in 2001.
The claim centers on several news reports in summer of 2002 that suggested Omnicom was using Seneca Investments to get struggling internet stocks off the books. The most explosive of those reports appeared in The Wall Street Journal on June 12. The story claimed that Robert Callander, then a member of Omnicom's board of directors, resigned because of his reservations about the way Omnicom was handling its internet stocks.
The investors claimed that information disclosing Omnicom's alleged fraud was released to the market, causing stock prices to plummet.
U.S. District Judge William H. Pauley granted the holding company summary judgment in the case, which was filed in 2002.
Falling stock price
On the day the article was published, Omnicom's closing price fell more than $15 per share. The next day, the stock fell by another $7 per share, prompting the investors to file suit.
Though the market reacted negatively to what many analysts considered an unfair report -- one went so far as to call The Wall Street Journal article a "hatchet job" -- there was no evidence of fraud presented in the reports, analysts said at the time.
In his judgment, Judge Pauley said that no new information about the handling of Omnicom's internet stocks was released that June and that the investors could not sufficiently prove that any report in particular caused the stock to plummet.
"The plaintiffs allege that information disclosing Omnicom's alleged fraud was released to the market [in June of 2002] ... but the parties agree that no new facts were disclosed concerning Omnicom's reporting of organic growth and earn-outs," Mr. Pauley wrote. "The market knew well in advance of June 2002 that Omnicom's internet assets were ailing and that it transferred them to Seneca without recording a loss."
A spokeswoman for Omnicom had no immediate comment on the ruling.