• by Joe Mandese , May 9, 2007

A federal judge has ruled that a class action securities fraud lawsuit filed against Omnicom Group can proceed, reports the New York Law Journal. The suit, which alleges that Omnicom's creation of a second company, Seneca Investments, in May 2001, defrauded shareholders by obscuring the ad agency holding company's true financial statements and enabling it to avoid reporting losses related to its Internet investments following the dot-com crash.

The New York Law Journal reports that Southern District of New York Judge John F. Keenan certified the class action on behalf of "persons and entities who purchased or otherwise acquired the securities of Omnicom from Feb. 20, 2001 through and including June 11, 2002," and granted requests to appoint lead plaintiff, New Orleans Employees' Retirement System, as the representative of the class and to appoint Bernstein Litowitz Berger & Grossmann as lead counsel for the class.

The case is noteworthy because Omnicom now is regarded as Madison Avenue's darling on Wall Street, and because big ad agency holding companies are once again investing mightily in Internet companies, including start-ups.

According to Judge Keenan, Omnicom began investing around 1996 in Internet-services companies. In September, Omnicom announced that it had agreed to acquire minority participation in five such companies. In 1999 and 2000, three of these businesses launched initial pubic offerings. When the Internet market crashed in March 2000, however, the judge said that the value of Omnicom's investments declined.

Omnicom is the parent of the OMD and PHD media networks and ad agencies such as BBDO and DDB.