MDCA MDC Partners Inc

Advertising company MDC Partners Inc. has reached an agreement in principle to resolve a long-standing investigation by the Securities and Exchange Commission.

The company, which owns well-known ad agencies including Crispin Porter + Bogusky and 72andSunny, has agreed to pay a $1.5 million civil penalty to the SEC to resolve all potential claims and said it doesn't admit to liability in the investigation.

The agreement still needs to be approved by SEC Commissioners, so the terms may not be final, MDC said in a statement Wednesday.

Last year, the company disclosed that the SEC was investigating its then-chief executive Miles Nadal's expenses, MDC's accounting practices and third-party trading in the company's securities. Mr. Nadal resigned from the company in July 2015 and Scott Kauffman, the presiding director on MDC's board, took over the reins of the ad firm.

The company said there will be no restatement of any of its previously-filed financial statements. MDC also said that the SEC will continue its investigation of certain persons who previously served as executive officers of the company. Mr. Nadal didn't respond to a request for comment.

The potential resolution is welcome news for the struggling firm, which has been stung by a lackluster performance and is looking into the potential for a sale.

Share of the company climbed 9.9% to $3.90 in late-afternoon trading, after trading was earlier paused.

Last week, the company reported weak third-quarter earnings that missed analysts' expectations. MDC's net loss widened to $33.5 million, or 64 cents a share, from $8.6 million, or 17 cents a share, in the year-earlier period.

It also said at the time that it hired investment banking adviser LionTree to evaluate its "financial and capital structure strategy."

According to people familiar with the company, MDC is also exploring a potential sale amid the broader strategic review, The Wall Street Journal reported last week.

On last week's third-quarter earnings call, before WSJ's report, Mr. Kauffman was pressed by a shareholder about whether MDC was open to a sale. Mr. Kauffman said that right now the scope was to evaluate the capital structure, while the shareholder argued the mandate should be broadened.

Speaking at the Wells Fargo Securities Technology, Media & Telecom conference on Wednesday, Mr. Kauffman said that his remarks about hiring LionTree were "misinterpreted."

"I wanted an independent objective voice alongside me that could help with that internal analysis," he said. "We made it clear, but I don't think people heard that this was not an engagement about a sale of the company or in any way issuing equity at these levels. That is not the mandate, and wasn't the mandate and we are very focused on the kinds of steps we have been taking."

Those steps include "a thorough look across the portfolio" and the possible divestiture of certain assets, he said.

"Certainly some assets we'd deem not core to our mission of serving the needs of CMOs," he said. "They could be more valuable in the hands of someone else." Mr. Kauffman added that the company is taking "an objective unemotional look at all of those" assets.

(END) Dow Jones Newswires

November 09, 2016 15:35 ET (20:35 GMT)

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