At McKinney, these deals proved too good to be true

When Pave Advertising & Design in Winston-Salem landed a windfall of lucrative contracts from Coca-Cola and spirits giant Brown-Forman, it turned to the Triangle’s largest ad agency, McKinney, for help.

The influx of new business was even more than McKinney could handle, prompting the two agencies to recruit about 40 new employees from across the country, many of whom relocated to North Carolina.

Unfortunately for both firms, however, the contracts turned out to be fictitious – invented by a rogue executive at Pave whose ambition and greed far exceeded his rainmaking abilities.

That’s the astonishing tale that prosecutor Scott Harkey outlined last month in Forsyth County Superior Court when William John Grizack pleaded guilty to three felonies. Grizack, 42, now a resident of West Hollywood, Calif., also agreed as part of his plea bargain to pay $235,000 in restitution – $135,000 to Pave, now known as The Variable, and $100,000 to McKinney.

“This is a complete anomaly,” said Ashley Rose, assistant professor of advertising at Virginia Commonwealth University. “I am absolutely shocked that Mr. Grizack was able to get away with this.”

The value of the contracts invented by Grizack is an attention-getter: $269.9 million, according to Harkey. Based on industry contract norms, it’s likely that 10 percent of that amount or less actually represents agency revenue – still huge in the world of advertising.

Falsifying a series of contracts was just part of Grizack’s “all-out scheme to defraud,” Harkey told the court at the March 3 hearing, according to a transcript of the proceeding. Grizack also acted out “fake phone calls” and falsified signatures and communications. The latter included creating “false e-mail addresses to make it appear as if he were communicating with Brown-Forman and Coca-Cola employees.”

Rose said Grizack’s success at deceiving the agencies – at least for awhile – is striking because the advertising business is known for being a team sport. A group of employees is typically involved in attracting and negotiating a contract.

“This kind of thing never ever ever happens solo – with just one person negotiating a deal,” Rose said. “I think there’s got to be so much more to this story that we don’t know.”

She added she was especially surprised at what unfolded because “McKinney has a great reputation.”

The agency’s current roster of clients include Samsung, ESPN, Sherwin-Williams, CarMax, Crocs, Sennheiser, Mentos, Big Boss Brewing, Dognition and Urban Ministries of Durham. McKinney, which has 155 employees, is owned by Cheil Worldwide of South Korea.

“It’s a really wild case,” said JoAnn Sciarrino, the Knight Chair in Digital Advertising and Marketing at UNC-Chapel Hill and a former executive vice president for agency giant BBDO North America.

Sciarrino said she could envision how a scam such as Grizack’s might succeed, for a short period of time, if agencies “weren’t very diligent verifying and checking” new contracts.

Harkey, a financial crimes prosecutor with the N.C. Conference of District Attorneys, presented a bare-bones account in court that raised a host of questions but provided few answers. Nor would he expand upon, or clarify, his account while the case is pending; a sentencing hearing has been scheduled for June 13.

McKinney and Pave also declined to comment on anything related to the Grizack case.

“The criminal process is ongoing and it wouldn’t be appropriate,” McKinney spokeswoman Janet Northen wrote in an e-mail.

Under the terms of his plea bargain, Grizack could be sentenced to between 44 and 123 months in prison.

‘A bundle of ideas’

By his own account, Grizack prides himself on being inventive.

His LinkedIn profile touts that “Bill is a fearless innovator – for brands, ideas or lunch. He is not shy in front of a crowd, in fact he is a self-described ‘ham’ and brings his fearlessness to every pitch, presentation and team meeting. He combines his mathy-ness and his wild creative streak to every part of the business and when you are not wondering where he came up with ‘that,’ you are hoping he can bring some more.”

And then there’s this: “Bill is a bundle of frenetic ideas stuffed into a cannon and shot through a particle accelerator.”

Harkey portrayed Grizack as a man driven by the desire to become a partner at Pave and receive the boost in compensation that went with the position.

After he joined the Winston-Salem agency in August 2010, Grizack was given the opportunity to become a partner – if he either paid $150,000 or brought more than $500,000 in new business to the agency. He was also given a deadline: July 31, 2012.

As the deadline approached, Harkey recounted, Grizack – who according to his LinkedIn profile was Pave’s chief strategy officer – presented to the agency two contracts with Brown-Forman, one for $500,000 and one for $200,000. Both appeared to be signed by a Brown-Forman executive.

“They were a fraud,” Harkey said.

But Grizack was just getting started. The sham contracts kept on coming, Harkey said. First there was a $200,000 contract with Coca-Cola; then, in September, a $9 million contract.

October ushered in a $120 million contract with Brown-Forman. In January 2013, Grizack presented the agency with the largest contract of all: $140 million from Coca-Cola.

That brought the total of fraudulent contracts to $269.9 million, Harkey said.

A big raise

Harkey provided no details about those false contracts. But industry experts say that given the amounts involved the prosecutor was referring to what are known as capitalized billings, which involve much more than just the amount of revenue the agency will receive.

Capitalized billings encompass fees paid to the agency, production costs and the amount spent to purchase advertising space or time.

Grizack’s scheme paid off in the short term. He was made a partner and received a $165,000 bump in salary, a $65,000 Audi Q7 and an extra $22,500 in 401(k) contributions.

Although the damages this scheme inflicted on Pave were substantial, Harkey said McKinney – which he described as “the other victim in this case” – was hurt even more. Altogether, “this defendant defrauded these local businesses out of hundreds of thousands of dollars,” he added.

Since Pave lacked the manpower necessary to handle the fake contracts, it asked McKinney to work on them as well.

That led to McKinney agreeing to hire Grizack with a $250,000 annual salary, making him an employee of both agencies. McKinney also gave Pave $1.5 million as part of the deal and the two agencies hired about 40 employees from across the country.

“Many of these relocated to North Carolina in order to assist Pave and McKinney in meeting the high demands caused by these contracts,” Harkey said.

Harkey didn’t address what happened to those employees when the fraud was uncovered.

McKinney did lay off about 30 employees in May 2013, but the agency said last week that those layoffs had nothing to do with “the Grizack matter” and were a result of the loss of one of its larger clients, telecommunications agency Qwest, after it was acquired by CenturyLink.

When Grizack’s scheme was exposed in February 2013 – Harkey didn’t say how that happened – he admitted that the contracts were fictitious.

“The defendant’s employment with Pave Advertising and McKinney Ventures ended soon thereafter,” Harkey said.

After Grizack’s scheme was uncovered and he left North Carolina, he continued to gain employment at high-powered ad agencies elsewhere, according to AdWeek.

Grizack pleaded guilty to two counts of obtaining property by false pretenses and one count of attempting to obtain property by false pretenses. Through his lawyer, he declined to comment for this story.

“Anything we have to say is going to be told to the court at sentencing,” said Winston-Salem lawyer Bernard Desrosiers. “We think that is the appropriate time.”

A repeat performance

Ironically, Coca-Cola ended up becoming a McKinney client well after Grizack departed. Since 2014, McKinney has been the agency of record for World of Coca-Cola, an Atlanta museum owned by the beverage giant.

McKinney also worked with Brown-Forman before Grizack appeared on the scene. From 2006 to 2011, it worked on the Southern Comfort, Chambord and Tuaca brands, and on Brown-Forman’s portfolio of wines.

The upcoming sentencing hearing is likely to touch on Grizack’s actions after he departed North Carolina.

Harkey, the prosecutor, told the court last month that Grizack went to work for Egg Strategy, an ad agency with offices in Colorado, Chicago and Canada, in May 2013.

“Shortly afterward,” Harkey said, “the defendant falsified a $14 million contract with McDonald’s. Like our case, the defendant was to receive a six-figure pay increase if this contract was secured and maintained. However, this contract was a fraud. The fraud was uncovered. And the defendant left the company in September 2014 without paying the credit card bill that he owed.”

Rose, the VCU professor, said the Grizack saga “reminds me of Bernie Madoff and Jayson Blair,” referring to the perpetrator of a giant Ponzi scheme and the New York Times reporter who resigned after the paper discovered he had committed journalistic fraud.

“I definitely want to see the movie when it comes out,” she said.

This story was originally published April 1, 2016 at 8:00 AM with the headline "At McKinney, these deals proved too good to be true."