New Details On Aegis' $20 Million Accounting Fraud

james buckley posterscopeFormer Posterscope finance director James Buckley.

Photo: Linkedin / James Buckley / Screengrab

An FBI complaint in the Posterscope corruption case gives new details about how the former president and finance director of the company executed a $20 million accounting fraud that left them both facing up to 40 years in prison.

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Todd Hansen and James Buckley, the former president and finance director of the media-buying agency, pleaded guilty to fraud in June. Posterscope is a U.S. unit of European holding company Aegis, which is set to be acquired by the Japanese ad giant Dentsu later this year. It is responsible for placing clients’ ads on billboards and other outdoor sites. Its clients include Microsoft, Vitaminwater, and Reebok.

The indictment against them is thin on details, although it explains in retrospect the departure of the pair in 2009, the reorganization of Posterscope’s management that followed, and Aegis’ restatement of some of its financials in 2010.

The complaint was filed in federal court on paper, not electronically, and hasn’t previously been published. It was passed to Business Insider by the U.S. Attorney’s Office for the Southern District of New York. In it, FBI agent Robert Lauria describes how he investigated the case. The document contains these revelations:

Todd HansenFormer Posterscope president Todd Hansen.

Photo: Darwin Bondgraham

  • In addition to Hansen and Buckley, a “controller” at Posterscope knew about the wrongdoing in 2004.
  • That employee cooperated with the FBI in the probe in exchange for a non-prosecution agreement.
  • Another employee also knew about the scam, and repeatedly expressed his or her doubts to Hansen about what was going on.
  • Hansen claimed he had a “rebate agreement” with a media vendor that returned to the agency 5 to 10 per cent of its media spend, or $5.8 million. 

There is no proof the rebate agreement existed. But if it did, its existence is surprising: The industry norm—and often an explicit term in advertiser-agency contracts—is that agencies return to clients any rebates their ad spend buys them. It’s the clients’ money that earns them, not the agencies’ after all.

Aegis strongly denied it was aware of any rebate scheme, and pointed out that the entire case was sought and initiated by Aegis. Read Aegis’ full statement here. Aegis said:

This prosecution was sought and initiated by Aegis and the evidence was provided by Aegis to U.S. prosecutors as we do not treat such matters lightly.

The incident was a one-off in one business in one market e.g. Posterscope USA only and detected as a result of our rigorous internal and corporate governance procedures.

There was no loss suffered by any client or supplier. 

If you know who ‘Controller-1’ and ‘Employee-1’ are, or if you are a Posterscope or Aegis employee and have something to say about this case, please email [email protected]

The Posterscope scandal is the biggest to hit Madison Avenue since News America Marketing paid $500 million to settle an antitrust action—in which it was accused of rigging prices in the grocery coupon business—in 2010. Other recent corruption cases in advertising include Publicis’ Leo Burnett defrauding the U.S. Army account in 2009; the 2009 accusation that Globalhue overbilled the Bermuda Tourism account in a sweetheart deal with that island’s prime minister; and Grey Group’s loss in 2010 of an appeals court ruling that unveiled a questionable rebate scheme in its London and New York office going back decades.

And, lest we forget, the €30 million settlement Aegis in Germany paid in 2010 to its client Danone over a fraudulent media credit scheme.

Here’s a selection of highlights from the FBI’s investigation of Posterscope.

Aegis initiated the case and provided the FBI with an informant in Posterscope's accounting department: the unnamed 'Controller-1'

When Hansen and Buckley took control of Posterscope in 2004 they immediately demanded that Controller-1 start cooking the books.

Hansen and Buckley wanted Posterscope to look like it was much bigger than it actually was.

But they didn't realise that Controller-1 was secretly keeping a record of all the false accounting entries Hansen and Buckley made. Posterscope literally had two sets of books at this time: one cooked; one not.

Hansen and Buckley's overall aim was to falsely lift their revenue in months when they didn't make their targets.

Among their tactics: double-booking revenue, unbeknownst to their bosses at Aegis. 'Employee-1' even complained to Hansen about it, but was told to cover it up.

Here's how Hansen concealed the double-booking from Aegis — by lying about it.

Aegis only asked to look at the rebate agreements after Hansen left, however. The vendor denied knowledge. If they existed, they weren't committed in writing.

Controller-1 would receive emails from Hansen in which s/he was asked to book fictional revenue. An email from Buckley, highlighted, indicates that they knew it was wrong.

Hansen gave his friends and family bogus consulting jobs and flights to London and Phoenix.

Hansen also billed his stepson's apartment and a country club membership to the company.

Here's some more detail on the plane tickets and club memberships.

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