A number of advertising industry practices have come under heightened scrutiny since K2 Intelligence, a corporate investigation firm, released its Independent Study of Media Transparency in the U.S. Advertising Industry back in 2016. The Study denounced the lack of transparency within the industry, including the ways media-buyers frequently benefit from the buying power of their advertiser clients by receiving cash rebates and other incentives from media suppliers for meeting volume and spending targets. When those benefits are retained by the agency and not passed along to the client, the question become one of whether the client knowingly agreed to and accepted this arrangement.

Now, after several months of the Federal Bureau of Investigation interviewing individuals within the advertising industry, federal prosecutors in Manhattan have issued subpoenas and opened an investigation into the media-buying practices within the advertising industry. At least part of the investigation is likely to focus on whether these rebates and incentives from media suppliers are passed along to the advertiser clients or retained by the media buyer. In the case of the former, the issue is whether that fact was properly disclosed to the clients in order to make the transaction fully transparent.

The entire advertising industry should keep an eye on this investigation as the focus is not likely to be limited to this single issue in media buying, but it is expected to address the overarching issue of a claimed lack of transparency within the industry. Such investigations can be, and often are, the impetus for broader regulatory and legislative reform.

It is also important to understand that investigations like this one are not only important to national agencies, but also to regional and local ad agencies and media buyers as well. Frequently, state regulators and private plaintiffs’ attorneys look to investigations by federal regulators and prosecutors as support for claims brought by state agencies and private plaintiffs.

So what can you do to prepare and protect yourself? For advertising agencies and media-buyers, this investigation serves as a reminder to regularly audit your business practices and processes for both compliance and transparency. Such an audit should be conducted within the context of the most recent case law and regulatory authority to ensure compliance. Additionally, your investigation should specifically include reviewing and updating your contracts with your advertiser clients and with media suppliers. If you have any questions or uncertainties about compliance or the implementation of best practices, you should consult with experienced advertising legal counsel about these issues.

Michael A. Semanie is a Shareholder with the law firm of Killgore, Pearlman, Semanie, Denius & Squires, P.A. in Orlando, Florida. Mr. Semanie can be reached at 407-425-1020 or via email at msemanie@kpsds.com.

This article is provided for informational purposes only and is not intended to be taken as legal advice.