The Simon Marketing McDonald’s lawsuit ended in August 2003 with McDonald’s paying Simon Worldwide $16.6 million to settle, after a federal judge dismissed McDonald’s breach-of-contract claims against the promotional firm whose security director had rigged the Monopoly game for nearly a decade.1The New York Times. McDonald’s to Pay Simon $16.6 Million Settlement The outcome reversed the posture the parties had taken two years earlier, when McDonald’s sued Simon for up to $105 million and Simon countersued for $1.9 billion.
How the Two Companies Ended Up Suing Each Other
Simon Marketing had administered McDonald’s Monopoly and other sweepstakes promotions for roughly 25 years. In August 2001, the FBI arrested Simon’s director of security, Jerome Jacobson, and seven associates on conspiracy to commit mail fraud charges filed in the U.S. District Court for the Middle District of Florida.2FBI Archives. Eight Arrested for Defrauding McDonald’s Corp. and Its Customers Jacobson had used tamper-proof seals mistakenly shipped to him by a foreign supplier to swap winning game pieces inside airport bathroom stalls, then sold them through a recruiter network for $45,000 to $50,000 each. The stolen pieces generated more than $24 million in fraudulently claimed prizes.3The New York Times. McMillions HBO Explained
McDonald’s terminated the relationship the same day as the arrests. That single client had accounted for roughly 80 percent of Simon’s revenue.4Chicago Tribune. Scandal-Plagued Simon Fires 215, May Shut Doors On October 23, 2001, both companies filed suit against each other on the same day.
What McDonald’s Alleged
McDonald’s filed in U.S. District Civil Court in Chicago, seeking up to $105 million. The complaint alleged fraud, racketeering, and breach of contract, arguing that Simon was responsible for the security failure that let Jacobson operate for years.5Chief Marketer. McDonald’s, Simon Marketing Sue Each Other
The theory ran into a problem: the government did not view Simon as a participant. An assistant U.S. attorney stated that “no other Simon employee was involved” beyond Jacobson and confirmed the company was “not a subject or a target” of the federal investigation.6Chief Marketer. Scandal Fallout Heavy at Simon Prosecutors treated Simon as one of the victims of the fraud rather than a co-conspirator.
What Simon Alleged
Simon Worldwide, Simon Marketing’s parent company, filed in California Superior Court for the County of Los Angeles, seeking $1.9 billion. Its complaint alleged fraud, breach of contract, breach of a licensing agreement, and defamation.5Chief Marketer. McDonald’s, Simon Marketing Sue Each Other
Simon contended that McDonald’s had run what it called a “fraudulent campaign” to destroy the agency for its own public relations and financial benefit while keeping Simon in the dark during the FBI investigation. The counter-suit also asserted that McDonald’s owed more than $50 million for premiums Simon had ordered on the chain’s behalf, and that McDonald’s had failed to give the 10-day termination notice their contract required.5Chief Marketer. McDonald’s, Simon Marketing Sue Each Other
How the Case Was Resolved
A federal judge dismissed McDonald’s breach-of-contract claims against Simon.1The New York Times. McDonald’s to Pay Simon $16.6 Million Settlement With the centerpiece of McDonald’s case gone, the parties settled out of court on August 20, 2003.
Under the settlement, McDonald’s paid Simon Worldwide $16.6 million. The payment consisted of $6.9 million in cash and the assignment of rights to approximately $9.7 million in insurance proceeds.1The New York Times. McDonald’s to Pay Simon $16.6 Million Settlement The company that had entered the litigation demanding $105 million ended it writing a check to the promotional firm whose employee had orchestrated the theft.
Simon’s Separate Lawsuit Against the Auditors
The Simon–McDonald’s litigation was not Simon’s only civil action tied to the scandal. In April 2002, Simon Worldwide sued Ernst & Young, PricewaterhouseCoopers, and KPMG International in Los Angeles Superior Court, alleging negligence and breach of contract. Simon argued the accounting firms had failed to properly oversee the distribution of game pieces and should have prevented a rogue employee from rigging the game, and it sought unspecified actual and punitive damages.7Los Angeles Times. Simon Worldwide Sues Ex-Auditors PricewaterhouseCoopers called the suit “totally without merit” and said it would defend vigorously.8The Guardian. Simon Sues Auditors Over McDonald’s Game Fraud The available record does not indicate the final outcome of those claims.
What the Settlement Didn’t Save
The $16.6 million recovery did not preserve Simon as a going business. McDonald’s had represented 80 percent of the firm’s net sales, and Philip Morris, its second-largest client at 8 percent, also ended the relationship. Together those two accounts had made up 85 percent of Simon’s business.4Chicago Tribune. Scandal-Plagued Simon Fires 215, May Shut Doors
By November 2001, well before the settlement, Simon Worldwide had eliminated 215 jobs and disclosed to the SEC that there was “substantial doubt about the company’s ability to continue as a going concern.” The board was weighing a sale, bankruptcy reorganization, or liquidation.4Chicago Tribune. Scandal-Plagued Simon Fires 215, May Shut Doors CEO Allan Brown was terminated in March 2002 under a separation agreement that included forgiveness of debts he owed the company, a lump-sum severance, and a six-month consulting arrangement at $46,666 per month; the company recorded a $4.6 million pre-tax charge tied to his departure.9U.S. Securities and Exchange Commission. Simon Worldwide Inc. Form 10-K
Simon Worldwide ultimately restructured into a special-purpose acquisition company to eliminate dividend obligations and multiple stock classes, effectively ending its life as a promotional marketing firm.10Greif & Co. Valuations and Fairness Opinions Case Study Before the arrests it had operated for more than 25 years under Brown, employed 450 people across 10 offices worldwide, and handled promotions for Philip Morris, Blockbuster, Chevron, and Ty’s Beanie Babies in addition to McDonald’s. In 1997, Cyrk International had agreed to buy Simon Marketing for up to $63 million.11The New York Times. Cyrk International Agrees to Buy Simon Marketing Four years later, the criminal case against one employee, and the litigation that followed it, had unwound the whole business.