Advertising agencies that engage in suspicious ad buying practices could be held responsible for wrongdoing such as wire fraud and racketeering, according to the industry trade group that uncovered the practices.
Federal prosecutors for the Southern District of New York are investigating media buying practices in the advertising industry and seeking to find out whether agencies have received media rebates, the Wall Street Journal reported in September.
The survey stems from a 2016 industry survey commissioned by the Association of National Advertisers, which represents major advertisers such as Procter & Gamble Co.
, General Motors Co. and Verizon Communications Inc.
The ANA study, which was conducted by corporate investigative firm K2 Intelligence, found that discounts and other non-transparent practices were “ubiquitous” in the United States.
Now, in an industry white paper released Thursday, the ANA said if these practices prove to be fraudulent, “criminal charges can be laid against the media buying agencies and the executives and employees involved.”
The report describes federal crimes that it believes are likely the focus of the investigation, such as mail and email fraud, conspiracy and racketeering. The “main” offenses likely to be involved are mail and electronic fraud, according to the report.
The 2016 ANA study found that advertising companies were using the purchasing power of their clients to their own advantage. He revealed that the agencies’ suspicious practices included receiving cash rebates from media vendors for reaching spending thresholds and not returning those funds to clients.
The white paper said, âIf two or more employees agreed to hide, misappropriate or conceal the discounts earned and have a false report sent to an advertiser, a conspiracy may have taken place.
A call to the American Association of Advertising Agencies was not immediately returned. The ANA study did not name specific companies, and advertising agencies largely denied the wrongdoing when it was published.
The ANA said the Federal Bureau of Investigation asked it and its members to help it with the investigation.
Doug Wood, the ANA general counsel and partner at law firm Reed Smith LLP, who helped draft the white paper, said it was intended to give marketers a “more complete picture of what is happening and what is involved “if an advertiser chooses to cooperate. with the FBI.
The FBI told Reed Smith the investigation is a long-term, industry-wide investigation. Yet the white paper said: “No one has been accused or charged with crimes and no one is accusing anyone of criminal behavior.”
The FBI is seeking to speak to marketers who have previously investigated their media buying companies and found evidence of fraud, according to the white paper.
Mr Wood is urging advertisers to review their agency contracts and conduct an investigation to determine if they have been victimized. It is only after this process is completed that a marketer considers cooperating with the FBI, he said.
While the news of the investigation is worrying for the advertising industry, the ANA white paper said there could be benefits for marketers if they cooperate, such as greater transparency in the industry and possibly financial restitution for advertisers who have been harmed.
“If advertisers sit on the sidelines and do not engage in self-help to determine if they have been defrauded, they risk losing restitution along the way, if charges are laid,” Steven said. A. Miller, partner at Reed Smith. and a former federal prosecutor in Chicago.
Write to Suzanne Vranica at [email protected]
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