Army’s Ad Agency Sued For Fraud By African-American Focused Media Networks

The U.S. Army’s outside advertising agency is being sued by two African-American-focused media networks for cheating them into doing business with a financially unviable partner as part of its scheme to defraud the government for funds.

According to documents which were filed by TV One and Reach Media Inc., US Army's Ad agency, Universal McCann Worldwide, misrepresented the financial situation of an advertisement placement partner. McCann apparently cashed in the federal incentives that are given for boosting the amount of people who are in the minority during military recruitments. The lawsuit was filed in Maryland federal court Friday.

“This case involves a fraudulent scheme whereby the Defendant conspired to identify a small business media buying agency to use as their puppet in order to collect hundreds of thousands of dollars in incentive bonuses from the United States government, defrauding the Plaintiffs in the process,” the document said.

The company claimed it was misled into “doing business with and extending credit to” Penn, Good & Associates (PGA), the “sham buying agent” employed by McCann. Through such third-party firms, McCann continued to receive army incentives that amounted to hundreds of thousands of dollars worth from the U. S. government, which in actuality, they did not qualify for.

“Based on the assurances of and a longstanding business relationship with Defendant (McCann), Plaintiffs ( TV One and Reach Media) extended credit to PGA and placed Army advertisements on their respective networks,” the document said. “To date, Plaintiffs have not been paid for certain ads, the invoices for which total over a million dollars.”

According to the complaint, McCann knew of PGA’s unstable financial status and credibility problem but persisted in making “ material misrepresentations and omissions” regarding the company’s financial condition and ability to manage major advertising accounts to TV One.

According to reports, the bonuses were part of a contract with the U.S. Army in 2004 for an ad campaign designed to boost recruitment of African-Americans. As part of the federal government’s goal of awarding five percent of contract money to companies that are small, minority-run and disadvantaged businesses, an incentive for placing subcontracts with such companies was made part of the contract.

TV One claimed that McCann at first hired Carol H. Williams Advertising (CHWA) to place the campaign ads, but later on it was found that it was too large to qualify for under the criteria. Next McCann partnered with LaGrant Communications, where McCann was involved in planning strategy, while LaGrant placed the ads. The partnership continued for years until it was discovered that LaGrant did not qualify as a small business.

Thereafter, McCann moved to the next company, PGA. TV One discovered that PGA had a bad credit rating and history, and expressed concern. It was assured that CHWA would remain the lead, but the invoices were to be sent to PGA.

"TV One reasonably and foreseeably relied upon and accepted CHWA’s representations, made on behalf and at the request of McCann, that PGA was merely an implementation agency and that the relationship would remain the same as it had in the past," attorney Bonnie Hochman Rothell wrote in the complaint.

The company claimed that McCann knew that PGA just emerged from a Chapter 11 bankruptcy, and was involved in about a dozen lawsuits. It came to know of the fraud after it sued CHWA and PGA, wherein the former claimed it was indemnified by McCann.

The parties came to an agreement that all claims against CHWA would be dismissed in exchange for $550,000 that McCann will pay to TV One. However, McCann denied the oral agreement within days.

"McCann submitted invoices to the U.S. Army for the running of advertisements, but McCann never ensured that the money for advertisements was paid to the Plaintiffs," the document said. "McCann also falsely represented to the U.S. Army that the funds the U.S. Army paid to McCann for the advertisements were being paid to the Plaintiffs."

African-American-focused radio network Reach Media claimed it was similarly duped and McCann currently owes more than $375,000 to it.

TV One and Reach Media are seeking at least $1.8 million in damages from McCann for breach of oral contract, fraud and negligence.

A recent report said the U.S. Army has taken off McCann from its shortlist for a new ad agency due to "technical reasons." McCann has appealed the decision.