GOTHAM CITY RESEARCH LLC

www.gothamcityresearch.com

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GOTHAM CITY RESEARCH LLC

MDC Partners (ticker = MDCA):
Like Valeant Pharmaceuticals,
But with Understated Debts

Leaves
MDC Partners is one of the world's largest Business Transformation
Organizations MDCA press releases
A platform to deliver disruptive business transformation solutions Quindell
Annual Report 2013

Organic Revenue Growth is ~1.4% not 7.1% as the Company Claims

MDCAs audit partner was accused of promoting fraudulent tax shelters

(specifically loss-generating schemes)

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Page 2 of 40

Table of Contents

I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.

Disclaimer
Summary
Introduction
MDCAs Unstable Business Model: Why it Can Fail Overnight
Organic Revenue Growth is ~1.4% not 7.1% as Claimed
Debt is Understated by at Least 23%
At least 42%-53% of Reported Profits Are Suspect
BDO, Fraudulent Tax Shelters, & Quasi-Captive Entities
Executive Departures: 72andSunny 2016 = CB+P 2010?
MDCAs Tone at the Top ACT (DIS)HONESTLY
Valuation shares worth less than $1.00 per share
End Notes

Page 3 of 40

GOTHAM CITY RESEARCH LLC

a GOTHAM CITY RESEARCHS OPINIONS

MDCA shares are worth less than $1.00 per share, implying
96%+ downside.
MDCA will restate several years historical results as a
result of the issues covered in this report and elsewhere.
The on-going SEC investigation will lead to new revelations
of wrong-doing.

SUMMARY OF FINDINGS

2015 organic revenue growth is ~1.5%, not 7.2% as

reported. Organic growth well below industry averages.
MDCAs true Debt is understated by ~$300 million, or 23%
of stated Debt as of 2015.
At least 42%-53% of reported profits are suspect.
7+ executive departures within recent quarters. At most 3
of Crispin Porter Bogurskys original 13 partners remain.
Doner lost a key 16 year-old client account in Q4 2015.
72andSunny was recently sued twice for copyright
infringement. Crispin Porter Bogursky was similarly sued
several years ago before CP+Bs fell from grace.
BDO and David Wiener & Co are quasi-captive entities
MDCA used to structure its dubious accounting strategies.
Tax deductible intangibles and goodwill have declined
from 100% tax deductible in 2013 to only 16% in 2015.
MDCAs former auditor KPMG expressed an adverse
opinion on the effective operation of, internal control over
financial reporting. MDCA soon after hired BDO.
The BDO audit partner assigned to MDCA, after MDCAs
switch from KPMG to BDO, was sued in Nussdorf v BDO
Seidman for promoting fraudulent & illegal tax shelters.
Deferred acquisition considerations paid out to acquired
companies partners may be taxed at ordinary income.
Dubious related party transactions continue, despite Miles
Nadals departure, e.g. Lori Senecals husband hired last
year & compensated $1 million for 5 months work.

Company: MDC Partners

CEO: Scott Kauffman
Ticker: MDCA

Exchanges: NASDAQ

Price Target: $1.00/share

Share price: 23.01/share
(as of April 28, 2016 )
52-week high: $23.85
52-week low: $16.15
Shares outstanding:
51.63M
Market cap: $1.19B
2015 Debt: $1.52

Enterprise Value: $2.74B

2015 EBITDA: $115M
EV/EBITDA: 23.6x
2015 FCF: $-29M

Fiscal Year: Dec. 31

Auditor: BDO

Page 4 of 40

INTRODUCTION

GOTHAM CITY RESEARCH first heard about MDC Partners early last year when MDCA was referred to as
the Valeant Pharmaceuticals of advertising agencies. At the time, Valeants stock price had reached new
all-time highs, leading many observers to believe that Valeant was a great company. Like Valeant, MDCA
entered the public markets via reverse merger. Many low quality companies & outright frauds have
historically entered the public markets via reverse merger. MDC Partners story and its accounting did not
make much sense at the time, but we did not examine it more carefully until recently. On the one hand,
MDCA boasts claims to generate industry-leading organic growth & solid EBITDA margins 1:

On the other hand, MDCA appears to be an exceptionally poor company, bleeding cash & issuing debt 2:
in millions of $s
2011
2012
2013
2014
2015
Revenue $934.0 $1,063.3 $1,148.9 $1,223.5 $1,326.3
Net Loss ($84.7) ($85.4) ($148.9) ($17.2) ($28.3)
Free Cash Flow ($72.4)
$7.7
($95.9) ($57.0) ($10.6)
Total Liabilities $1,108.2 $1,487.8 $1,754.9 $2,090.1 $2,156.4
Shareholders' Deficit ($12.9) ($84.8) ($276.6) ($348.6) ($487.1)

Gotham City Research has not seen such conflicting qualities in a company since Valeant and Quindell.
We have come to believe that MDC Partners is, indeed, an exceptional company for all the wrong
reasons. The following specifically lead us to believe the shares are worth less than $1 per share:

MDCAs true debt is understated by at least 23%.

2015 organic growth is ~1.5%, not the 7.1% figure the company reports.
Key executives are leaving, and growing evidence 72andSunny has peaked.
Pattern of deception and fraud among MDCAs business partners and/or quasi-captive entities.

Gotham City Research believes the days of MDC Partners misrepresentations are coming to an end. We
anticipate that further evidence of malfeasance will be brought to light in the near future.
Page 5 of 40

MDCAs Unstable Business Model: Why it Can Fail Overnight

One year ago, MDC Partners disclosed that it had received a subpoena from the Securities and
Exchange Commission (SEC). Soon after, Miles Nadal MDCAs founder & CEO (at the time)
left the company.1 MDC Partners and its enablers would have you believe that MDCAs
problems were limited to Miles Nadals improper spending of the Companys resources. In fact,
MDC Partners now claims it is committed to conducting business in accordance with the highest
standards of business ethics, and to full and accurate disclosure2. If that were true:

Why does MDCA remain under on-going SEC investigation?

Why do we find evidence MDCA continues to mask its deteriorating financial condition?
Why does MDCA continue to rely heavily on aggressive accounting (e.g. Non-GAAP
and/or pro-forma accounting), even after Miles Nadals departure (see below)?

Answer: MDCAs Accounting Conceals an Unstable Business Model that can Fail Overnight
Some companies provide Non-GAAP and/or pro forma figures so that their readers can better
gauge the health of their underlying businesses. We do not believe that is the case with MDCA. In
fact, we believe MDCA uses dubious accounting and business practices to confuse, rather than
inform its audience. MDCA is a highly levered roll-up of (mostly) ad agencies, with understated
debts, overstated profits, and overstated organic growth. MDCA can fail overnight, and its
management tries to conceal its fragile business model.
Gotham City Research believes MDCA is similar to other human capital-intensive businesses
e.g., law firms, investment banks, hedge funds that have failed overnight, especially when laden
with debt & aggressive accounting:
Human Capital-Intensive
Culture & 'Tone at the Top' Matter
Highly Competitive Industry
Compensation = Very Large % of Revenues
Performance-based Compensation Structures
Inherently volatile financial results
High risk of Failure if Key Execs Depart
Trade at Low Valuations

Law
Firms
YES
YES
YES
YES
YES
YES
YES
YES

Private Equity &

Brokerages &
Hedge Funds Investment Banks
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES

MDC
Partners
YES
YES
YES
YES
YES
YES
YES
NO

How is MDCA different from the Above Businesses?

Imagine a highly levered bank (or hedge fund) that overstates its returns, understates its current
operating expenses, capitalizes its bonus payments owed to employees, and then understates the
value of those debts. We believe that is MDCA, and that it can fail overnight (if not within weeks
or months), just as many banks and funds have failed overnight.
Page 6 of 40

How MDCA Overstates Earnings & Understates Debt: Quasi-captive Entities + Accounting
We believe accounting staff within MDC Partners Michael Sabatino and his crew worked
along with quasi-captive intermediary(ies), (e.g., BDO and David Wiener Associates) so that
MDCA could:

Overstate organic growth

Understate Deferred Acquisition Consideration-related debt
Overstate reported profits
Minimize taxes for all stakeholders, e.g. MDC Partners and its acquirees taxes

MDCA works with

Quasi-captive entities
to Structure Deals in
Dubious Manner

Realized Capital Gains

in MDCA Stock
Compensate MDCA
insiders

MDCA can then

manipulate its
financial results as it
wishes

MDCA Stock Price

Appreciates in Value

Gotham City Research believes that the above scheme could theoretically continue indefinitely
until or unless:

MDCAs Growth disappears, or the company cant paper over its deteriorating results.
MDCA incurs too much debt
Whistleblower(s) and/or regulator expose MDCAs schemes.

As it turns outs, Gotham City Research believes all three conditions above have been met within
the last 12 months. We start by first exposing MDCAs reported organic growth rate as a farce.
Page 7 of 40

Organic Revenue Growth is ~1.4% not 7.1% as Claimed

For highly acquisitive companies such as MDC Partners, organic growth is a very important
measure to gauge the underlying health of their core businesses. The shares of other acquisitive
companies, such as Quindell and Valeant, have run into trouble when they sought to conceal the
deterioration of their true organic growth rates. We find that MDCA meaningfully overstates its
organic growth rate relative to its peers. On one hand, MDCA claims it is a growth company1:

In reality, we believe MDCA is a low growth company. An independent calculation of organic

growth leads to a 1.4% growth rate for 2015. Key executive departures, MDCAs loss of clientele,
and accounting irregularities all are consistent with a low growth rate.
Page 8 of 40

Organic growth Closer to 1.5% NOT 7.1% - Well Below Its Peers 2.8% Average
MDC Partners claims that 2015 organic growth was 7.1%, yet we find the number was 1.4%: 2
MDCA 2015 Organic Growth Calculation
2014
2015
$ in 1,000s
$1,224
$1,326
GAAP revenue
$39
$46
adjustment*
$1,262
$1,280
Comparable revenue**
Organic Growth
1.40%

Perhaps the Companys claim that its organic growth is 4x more than peers is a Freudian slip; in
reality, MDCAs reported organic growth of 7.1% is overstated by more than 4x.
How we believe MDCA overstates organic growth:

MDCA Treats Some Acquired Revenue as Organic Revenue MDCAs claimed

7.1% organic growth rate is calculated by using an apple vs orange comparison. They
take credit for a full years 2014 acquired revenue figure compared against a half years
acquired revenue figure. This is an incorrect comparison. We include adjustment* factors
so that the numbers are comparable (leading to comparable revenue**).
Discontinued operations MDCA has historically dropped acquired companies whose
revenues are declining, and then restate its overall financials as if they never owned these
companies. Removing the discontinued operations revenue via restatement distorts the
organic growth calculations, as it artificially inflates the organic growth calculation.

Other Signs of Business Deterioration Executive Departures, Loss of Clients, & More
Recent executive departures, further support our belief that MDCAs core operations are
deteriorating. The departures would explain why MDCA overstates its organic growth: in reality,
key talent is leaving and business is deteriorating, just as the whistleblower alleges. We discuss
the executive departures in further detail later in the report, but here are some highlights 3:

72andSunny Veteran Grant Holland Joins Omelet L.A. as CCO September 17, 2015
Jeff Sweat founds Mister Sweat leaving 72andSunny sometime September 2015
McCann New York Re-hires Dan Donovan as Executive Creative Director August 31, 2015
Andrew Keller Is Out at Crispin Porter + Bogusky After 5 Years as CEO August 19, 2015
Evan Fry executive director of creative development. August 19, 2015
Epic Split Creative [Martin] Ringqvist Leaves 72andSunny August 11, 2015
President Steve Erich Leaves Crispin, Porter + Bogusky" June 15, 2015
Hey, Bob Winter Has Landed a New Gig as Well March 25, 2014

Recall that Crispin Porter Bogursky used to be MDCAs crown jewel. It has fallen sharply (and steadily)
from its peak. Of its original 13 partners, we believe no more than 3 remain4. As we discuss later, Gotham
City Research is seeing recent evidence that 72andSunny will decline as Crispin Porter did.

Page 9 of 40

Loss of Key Clientele

In December of last year, MDC Partners subsidiary, Doner, lost a long-time client 5:
Cox Automotive has appointed Zambezi as the lead brand strategy and creative agency
for its Autotrader and Kelley Blue Book brands following a competitive review. MDC's
Doner has worked on the business for the last 16 years.
As executives and/or talented personnel leave, we anticipate deterioration in the quality of work
provided to clients, and therefore, further loss of business. This happened to Crispin Porter
Bogusky, formerly MDCAs crown jewel. We see signs that this is taking place with 72andSunny
as we discuss later in this report.
Organic Growth Accounting Irregularities
The true organic growth rate may even be worse than the 1.4% we calculated. The reported figures
necessary to calculate organic growth may not be accurate nor reliable, as demonstrated by the
following accounting irregularities6:
2015

The figures identified above in red the $13.7 million and $46.3 million are both from the
2015 10K. Both are supposed to represent acquisition-related revenues for 2015, yet variance
between the two figures is unexplained.

Page 10 of 40

We find similar problems with the 2014 equivalent numbers 7:

2014

Revenue-related Disclosures Have Worsened with New Management

It takes two to lie one to lie, and one to listen. Homer Simpson
Under the new management (we say new because CEO Scott Kauffman, is a long-time MDCA
Board member and CFO David Doft is long-time CFO. all the Miles Nadal-related wrong-doing
happened under both Kauffman and Dofts watch) revenue disclosures have worsened:
Next, you will notice that beginning with this period, our financial statements now reflect
one operating segment, which in turn equals one reportable segment.
We will no longer be reporting results for Strategic Marketing Services and Performance
Marketing Services.
So, by no means, are we looking to reduce transparency. We actually think this will help
enhance transparency, especially with a more cleaner breakout of corporate as an isolated
item versus before.
CFO David Doft MDCAs Q4 2015 earnings call 8
We believe that most people would refer CFO David Dofts above statements, particularly the we
actually think this will help enhance transparency, as untruthful. The MDCA 2014 and 2015 10Ks
clearly falsify his claims, as shown on the next page.

Page 11 of 40

In the 2014 10K, MDCA provided a revenue breakdown by 3 segments (including Corporate): 9

In the 2015 10K provides a revenue breakdown by 2 segments (including Corporate):

Although MDCA appears to be (mostly) a roll-up of ad agencies, it does have stakes in other
businesses such as Y Media Labs, Kingsdale Shareholder Services, etc. Investors would benefit if
the company separately disclosed the financial results of these other businesses.
No Evidence of Investing in Technology Capabilities
CEO Scott Kaufman claimed:

MDC's heritage of investing in digital and technology capabilities organically, alongside

creativity at the core of its agencies, continues to be one of its greatest differentiators and will
remain a priority going forward.10

Gotham City Research investigated Scott Kauffmans above claims and found them untrue. Specifically:

MDCA has spent $0 on research and development.11

The words research and development are barely mentioned in MDCAs filings, in the context of
investing in digital and technology capabilities organically.

Page 12 of 40

If anything Scott Kauffmans misrepresentations are eerily reminiscent of Quindells misrepresentations

(Quindell is a suspect UK roll-up we exposed 2 years ago). Recall, Quindell represented itself as a
cloud/SAAS business:
Quindell made the following SaaSy claims12:

Yet our investigation into Quindell showed that its depictions were materially misleading (moreover, we
showed that Quindells accounts resembled Autonomys, an infamous accounting fraud) just as we find
MDCAs claim of investing in digital and technology capabilities organically materially misleading.

Page 13 of 40

Debt is Understated by at Least 23%

MDCA is a No-Growth, Debt-Fueled Roll-up that also Understates Debt

Highly acquisitive companies that depend on external capital tend to fail. Valeant Pharmaceuticals and
Quindell both struggled to service their external capital obligations as soon as their organic growth
deteriorated. We find that not only is MDCAs organic growth overstated, its debt levels are understated 1:
MDCA DEBT UNDERSTATED BY AT LEAST 23%
Reported Additional
TOTAL
$ in 1,000s
Debt
Debt
DEBT
Financial Debt
741,508 none
741,508
Deferred Acquisition Consideration
347,104 $179,482
526,586
148,550
RNCI + NCI Adjustment
75,779
224,329
Y Media RNCI:
$1,999 $28,065
30,064
TOTALS $1,239,161 $283,326
$1,522,487

Gotham City Research believes that MDCAs true debt is around $300 million more than disclosed. The
company, as required by accounting rules, fully consolidates the revenues of subsidiaries it does not fully
own. As a result, it is important for us to accurately estimate MDCAs correct enterprise value. We suspect
MDCA concurrently understates debt and overstates EBITDA (we discussed MDCAs pro forma EBITDA in
the next section) so that its Enterprise Value to EBITDA multiples appears more favorable versus reality.
We estimate true EV/EBITDA to be at least 23.4x:
MDCA's True EV/EBITDA ~2x Greater than Reported
$ in 1,000s
Reported
Actual
Enterprise Value $2,407,703
$2,691,029
EBITDA
$197,666
$114,830
EV/EBITDA
12.2x
23.4x

We believe MDCA has understated its debts in the following manner:

MDCA has consistently understated the Deferred acquisition consideration debt (DAC)
liability, as evidenced by detailed information only publicly available in SEC Correspondence
letters.
MDCAs redeemable noncontrolling interest in Y Medialabs stake balance is severely
understated.
Noncontrolling interests & redeemable noncontrolling interests are understated in a manner
consistent with the DAC, if not more. The changes in redeemable noncontrolling interest note
implies the understatement may be far greater.
Integrated Media, Team Health, & DuMont v. Mintz & Gold LLP et al filings support our claims.
MDCA worked with quasi-captive entities like BDO Wiener & Associates to render these
accounting maneuvers possible2.
Page 14 of 40

MDCAs Typical Acquisition Structure:

In order to examine how MDCA understates its debts, its important to first show how MDCA (typically)
structures its acquisitions3:
MDCA Initially Purchases 60% of
an Ad Agency.

Cash Paid
Upfront

MDCA Has the Option/Obligation

to Purchase Remaining 40%.

Deferred
Acquisition
Consideration

Noncontrolling
Interest

Total Value
of Acquired
Company

MDCA initially purchases 60% of an Ad Agency, but only pays a small amount of cash upfront.
The remaining value of that 60% stake is structured as DAC and paid over time.
MDCA has the option or obligation to purchase the remaining 40% stake.
Because DAC + Noncontrolling Interests = Debt, it is important to accurately calculate what
their true values are.

MDCAs primary objectives when structuring these transactions, from an accounting perspective:

Minimize DAC liability on its balance sheet (as it is debt), as not to arouse its lenders attention.
Slowly re-adjust the DAC liability over time, in future periods.
Avoid and/or delay income statement consequences, so as not to alarm shareholders.
Keep DAC adjustments as much as possible within the statement of financing activities in the
cash flow statement and balance sheet, as most investors will ignore these sections of the 10K.

How MDCA Minimizes the Deferred Acquisition Consideration

MDCAs breakdown of the acquisition related payments cash outflow (under financing activities) as
only available in the SEC letter shown below offers clues as to how MDCA manipulates the DAC figures 4:

Page 15 of 40

Accretion of present value and changes in fair value = the means by which DAC manipulated 5
Components of Acquisition Related Payments
$ in 1,000s

initial estimated PV payments

changes in fair value
accretion of present value
Total payment

2011
$33,908
($2,619)
$2,998
$34,287

2012
$58,481
$2,581
$7,663
$68,725

2013
$75,405
$31,553
$12,614
$119,572

Components of Acquisition Related Payments - % breakdown

changes in fair value as % of total
accretion of present value
Total payment

2011

98.9%
(7.6%)
8.7%
100.0%

2012

85.1%
3.8%
11.2%
100.0%

2013

63.1%
26.4%
10.5%
100.0%

TOTALS
$167,794
$31,515
$23,275
$222,584
TOTALS

75.4%
14.2%
10.5%
100.0%

Market participants seem to believe that a higher than expected DAC payments is a rich mans problem 6,
i.e. MDCAs acquisitions are performing well if the DAC payments are higher than expected. The above
table clearly disproves this belief. The present value adjustment, which is meaningful, has nothing to do
with the acquired companys future performance.
DAC Present Value Accounting Magic

In order to estimate how much the DAC is understated, we first obtain the estimated DAC payments by
period as shown below7:

Page 16 of 40

We then reverse the present value adjustment implied within the scheduled DAC payment amounts 8:
Additional DAC Debt from the Reversal of the Present Value Adjustment

$ in 1,000s

2016
DAC $130,400
Reversal of PV Adjustment $142,788
Additional DAC Debt

$12,388

2017
$71,954
$86,275
$14,321

2018
$71,954
$94,471

$22,517

2019
$27,941
$40,170
$12,229

2020
$27,941
$43,986
$16,045

2021 TOTAL
$16,914
$347,104
$29,156
$436,845
$12,242

$89,741

We reverse the present value adjustment using a WACC of 9.5% 9

MDCA uses a WACC weighted average cost of capital of 9.5% according to the SEC correspondence
letter. The SEC correspondence letter is the only place where this information the discount rate for
the present value adjustment of the DAC is publicly disclosed. The recent 10K mentions a WACC,
but in the context of goodwill impairment testing (WACC were 8.92% to 11.95%) roughly in-line with
the disclosure provided in the SEC comment letter. Therefore, we assume that the 9.5% WACC is not
out of date.

The additional DAC debt resulting from the PV adjustment is $89 million. We conservatively
assume the fair value adjustment to DAC is equal in value to the PV adjustment (even though
historically the fair value adjustment exceeded the PV adjustment).
The IMS and Team Enterprises payment formulae suggest that the payments are contingent
upon undemanding earnings targets. As a result, we believe DAC is more deferred compensation
than an earn-out (though they seem structured such that if performance exceeds the
undemanding targets, they are handsomely compensated). Consequently, we believe the DAC
fair value adjustments reverse the low-balled assumptions baked in the initial DAC estimates. 10
In substance, DAC is little more than capitalized compensation for the acquired companies
executives (albeit compensation MDCA is contractually obligated to pay, viz. debt)

How MDCA Understates its Y Media Labs Debt:

MDCA purchased 60% of Y Media labs and claims its 60% stake is worth $45 million. That would imply
100% of Y Media Labs is worth $75 million, and the remaining 40% stake, $30 million. Yet MDCA recorded
only $1.99 million on their books in Y Media Labs-related redeemable noncontrolling interest, i.e. they
understated this liability by at least $28 million11:
Y Media Labs Liability Understated
Value of MDCA's 60% stake: $45,096
Implied Value of 40% stake: $30,064
40% stake as reported: $1,999
VARIANCE: $28,065

Page 17 of 40

At least 42%-53% of Reported Profits are Suspect

Adjusted EBITDA Overstates MDCAs True Earnings Power
Many publicly-traded companies rely on Pro-forma, Non-GAAP measures such as Adjusted
EBITDA to report their quarterly earnings. Gotham City Research believes there are legitimate
cases whereby pro forma reporting more accurately reflect the underlying health of the business.
For example, if a company reports EBITDA, and its calculated free cash flows are roughly in-line
with their pro forma non-GAAP EBITDA, Pro-forma accounting makes sense.
We believe MDCAs Adjusted EBITDA does not accurately reflect the true earnings power of the
business. The variances between Adjusted EBITDA and free cash flow are too high 1:
Adjusted EBITDA vs Free Cash Flow
in millions of $s
2013
2014
2015
Adjusted EBITDA
$153
$241
$198
Free Cash Flow ($95.9) ($57.0) ($10.6)
VARIANCE ($249.3) ($297.5) ($208.3)

Furthermore, MDCAs peerss numbers do not have share this problem: their Pro Forma EBITDA
reasonably track free cash flow. Thus, we conclude this is an MDCA-specific problem. 2
Compensation is MDCAs Largest and Most Important Expense
Like investment banks, hedge funds, law firms, etc., compensation is a large and very important
expense for MDCA (northwards of 50%-60% of revenue).
As a result, the vast majority of MDCAs add-backs to arrive at adjusted EBITDA are
inappropriate, as the vast majority of MDCAs add-backs are compensation-related (i.e. Deferred
acquisition consideration adjustment and stock-based compensation)
By adding back these compensation costs, we believe MDCA overstates EBITDA by at least 42% 3:
in millions of $s
Adjusted EBITDA
EBITDA
% VARIANCE

$198
$115
(41.9%)

Page 18 of 40

Adjustments:

Deferred acquisition consideration adjustment DAC, as we discussed in the prior

section, is nothing more than capitalized compensation. DAC should not be added back
to EBITDA, just as bonuses should not be added back to an investment banks earnings.
Stock-based compensation Stock-based compensation is compensation.
Distributions to noncontrolling interests MDCAs revenue is reported as if it owned
100% of all subsidiaries, which it does not. We exclude this distribution to render the
comparison apples to apples. These represent real transfers of economic interests away
from MDCAs stakeholders.
If we adjust the EBITDA for capital expenditures and some amortization of acquisitions,
we arrive at a more conservative estimate of true earnings/cash flow of $94 million. This
estimate is 52% less than MDCAs $198 million Adjusted EBITDA figure.

How Operating Cash Flow is Overstated

The DAC adjustment flows the income statement, added back in the operating activities section,
and then reduced within the financing activities. We agree with the SEC, that these DAC
adjustments should be reflected in the cash flow from operating activities 4:

How the DAC and RNCI Liability Shenanigans Help MDCA Overstate Earnings

In the prior section, we demonstrated how MDCA understates the DAC & related on its balance sheet.
Those maneuvers should impact the income statement, but do not fully as some of the amounts
circumvent the P&L, directly hitting the paid in capital account within the statement of shareholders
equity/deficit instead5:

Page 19 of 40

MDCAs Golden Handcuff Dilemma darned if you, darned if you dont

Management talks enthusiastically about paying off its debt over the next 2 years. Heres the dilemma
they face. Acquired companies partners/top producers have incentive to leave as soon as they are fully
paid their DAC. If these producers leave, hiring replacements is very expensive, and hits the income
statement directly (i.e. operating expenses jump). Retaining these top producers is problematic as well,
as they would expect to be paid handsomely, which too would raise opex, and hit profits.
We speculate that this is what is happening with 72andSunny. The earnout contract came to end in 2015.
They renegotiated and retained them with additional DAC payments.

Page 20 of 40

BDO, Fraudulent Tax Shelters, & Quasi-Captive Entities

MDC Partners, BDO, and Quasi-captive Entities the Missing Link

Despite Founder/Chief Executive Officer Miles Nadal and Chief Accounting Officer Michael Sabatinos
departure last year, we believe the dubious accounting policies and strategies linger. The SEC investigation
was not motivated solely by Miles Nadals bad behavior the investigation is as much triggered by MDCAs
suspect accounting.1
Gotham City Research believes there is a common link between all the suspect accounting practices weve
described so far:
1. Michael Sabatino and his accounting crew within MDCA
and

2. Quasi-captive entities, such as BDO and David Wiener & Associates

We believe the above parties worked together to achieve MDCAs suspect accounting objectives. The
following findings support our thesis:

(Former) Chief Accounting Officer Michael Sabatino is a former BDO audit partner.
MDCA replaced KPMG with BDO as its auditor, after KPMG issued an adverse opinion.
Joseph Klausner of BDO & partner was assigned to MDCA. Klausner was sued in Nussdorf v BDO
Seidman for promoting fraudulent tax shelters (specifically loss-generating schemes).
Michael Sabatino and Joseph Klausner worked in parallel, as evidenced by SEC letters. We suspect
they knew each other and were on cozy terms.
Michael Sabatino worked along-side David C. Wiener on the Integrated Media Solutions
acquisition, and by inference, other MDCA deals.
Michael Sabatino and David Wiener have both spent part of their careers at Eisner LLP. We
suspect they knew each other and were on cozy terms.
David Wiener was sued by an Integrated Media partner for providing dubious tax advice. He was
also accused of representing and receiving compensations from both sides of the transaction.
In both the Klausner and Wiener related lawsuits, the plaintiffs allege that they owed more in
taxes to the IRS than Klausner or Wiener had advised.

MDC Partners former auditor KPMG expressed an adverse opinion on the effective operation of,
internal control over financial reporting in 2006. Subsequently 2:

MDCAs then CFO resigned in 2007.

David Doft became the new CFO (Doft has a Wall Street background). Sabatino, not Doft,
appears to have been the brains behind the accounting operations.
MDCA replaced KPMG and hired BDO Seidman.
Recall that there was a flurry of SEC correspondence letters at the time.
Page 21 of 40

The BDO Seidman partner assigned to MDCA, Joseph Klausner, was sued in Nussdorf v BDO Seidman
for promoting fraudulent tax shelters3:

Plaintiffs faced back taxes, penalties, and interests from the IRS
They claim these were a direct consequence of BDO/Klausman getting plaintiff to utilize lossgenerating schemes determined by the IRS to be illegal/improper.

Page 22 of 40

Nussdorf v BDO Seidman and Desiree Dumont v. Mintz & Gold LLP; and David C. Wiener & Company

Gotham City Research has identified a few eerie similarities between Nussdorf v BDO Seidman and Desiree
Dumont v. Mintz & Gold LLP, two seemingly unrelated cases4:

In both cases, the plaintiff(s) received a very large and unexpected bill from the IRS.
In both cases, the plaintiff(s) alleged the defendants provided false advice.
o The IMS lawsuit and employment contract seems specifically designed to treat what
looks like ordinary income as long term capital gains. But IRS assessed Desiree Dumonts
payments as ordinary income, contrary to what Dumont was advised by Wiener.
o Nussdorf v BDO Seidman The plaintiffs utilized loss generating schemes as advised
that were assessed by the IRS as illegal/improper. Resulted in back taxes, penalty, and IRS.
Michael Sabatino is connected to both cases. In the first, he was MDCAs Chief Accounting Officer
worked intimately with BDO, and Joseph Klausner BDO partner

The Michael Sabatino connection to Joseph Klausner5:

Both were partners at BDO at some point.

They worked as client/adviser as well.

Page 23 of 40

The Michael Sabatino connection to David Wiener and Desiree Dumont 6:

Sabatino and Wiener worked on other MDCA Deals

As evidenced by Weiners website, he appears to be an adviser/accountant/ broker for many of MDCA

deals:7

Wiener lists the following MDCA related acquisitions above:

Kirshenbaum & Bond

Crispin porter
Doner
72andsunny

Page 24 of 40

We guess Wiener worked on behalf of both the acquiree and acquirer, a practice that Desiree Dumont
lawsuit, alleges: Wiener represented and was compensated by both acquiree (partner) and acquirer
interests without (?) informing the acquire8:

Sabatino and Wiener both worked at Eisner LLP9:

Sabatino biography

Wiener biography

David Wiener is the founder and member of David Wiener and Company LLC, an affiliate of
EisnerAmper LLP. With over 45 years of public accounting experience, Davids practice focuses
on advertising agencies and other marketing communications companies.

BDO never expressed an adverse opinion regarding MDCAs filings:

As MDCAs auditor, BDO never expressed an adverse opinion, despite Miles Nadals proven
malfeasance, and the SECs questions.
BDO remains unscathed and remains MDCAs auditor (for now).

Page 25 of 40

Given what happened to Wiener and BDOs clients, MDCAs tax-related red flags are concerning 10:

MDCA pays negligible amounts of taxes.

MDCA pays negligible amounts of taxes, despite positive US income before taxes.
MDCA provides limited to no disclosures on its tax strategy, despite an apparent reliance on
offshore losses.
MDCAs tax deductible goodwill and intangibles has declined rapidly, from 100% to 16% as of
2015.

MDCAs primary objectives when structuring these transactions, from a tax perspective:

Minimize taxes for the acquirees partners i.e. long-term capital gains tax, versus ordinary
income.
Minimize taxes for MDCA via aggressive goodwill treatment. Structure as an Asset purchase if
possible for favorable tax treatment.

Gotham City Research believe that MDCA, its subsidiaries, affiliates, and/or executives are at high risk of
experiencing negative tax-related judgments for the following reasons:
MDCA pays negligible amounts of taxes:

MDCA's Pay de minimis Income Taxes

$ in millions
2013
2014

Cash income taxes paid

Cash interest paid

Taxes paid as % of interest

$0.9
$38.7
2.4%

$0.4
$49.3
0.9%

2015

$1.9
$52.7
3.6%

Paying little to no taxes is not illegal nor necessarily unethical. That being said, we find a pattern of
concern.
For example, tax deductible goodwill and intangibles have declined at an accelerating rate recently.
MDCA deducted 100% of goodwill and intangibles in 2013, and now only 16%:
Tax Deductible Goodwill+Intangibles Declining
2013
2014
2015
$ in 1,000s
$64,733
$16,721
intangibles $10,961
$43,654
goodwill $32,786 $146,806
$43,747
$211,539
$60,375
TOTAL
$9,720
tax deductible $43,747 $149,232
% tax deductible 100.0%
70.5%
16.10%

Page 26 of 40

Also, the wide variance between Income from US versus Non-US is concerning, given rising scrutiny over
offshore tax-related strategies (MDCA offers little to no disclosures regarding their tax strategy):

Page 27 of 40

Executive Departures: 72andSunny 2016 = CB+P 2010?

True Assets of Ad Agencies are its People

Like investment banks, law firms, hedge funds, and other human capital-intensive businesses, advertising
agencies largest (and only) true asset are its people. MDCA flourish so long as it is able to attract and
retain talent. When talent leaves, the business suffers. There has been a recent wave of executive
departures, leading us to wonder: is this a bug or feature of the MDCA Partners acquisition machine? And
do these departures harm future periods financial results? If MDCAs immediate past is prelude to its
future, the answer is a resounding yes:

Key executives of MDCAs portfolio companies appear to depart after their Golden handcuffs
come off (i.e. their deferred acquisition considerations and/or noncontrolling interests are fully
paid).
Crispin Porter Bogursky MDCAs former crown jewel peaked in 2009, soon after MDCA
redeemed the last remaining piece of non-controlling interests in CP+B that same year. 1

More recently:

At least 8 executives departed in recent quarters.

A long-time Crispin Porter + Bogusky partner (one of the few remaining) was unceremoniously let
go late last year. He was one of last remaining CP+B original partners.
72andSunny has been hot over the last few years, but there are signs that it is following a similar
trajectory as Crispin Porter Bogursky did several years ago.
72andSunny was recently sued twice for copyright infringement. Crispin Porter Bogursky was
similarly sued several years ago before CP+Bs fell from grace. 2
Executive departures at Valeant Pharmaceuticals, another highly acquisitive company, preceded
its recent troubles. Clearly the art of attracting and retaining good people matters.

Crispin Porter Bogurskys Fall from Grace a cautionary tale for 72andSunny

CP+B used to be a legendary advertising agency. It defined success and innovation. In 2008 CP+B was
crowned Agency of the Decade, and by 2010, CP&B was considered the most-admired agency in
America. But by then CP+B had already peaked, declining ever since. We outline the sequence of events
that define CP+Bs decline into the present day3:

In 2009, MDCA fully redeemed its remaining non controlling interest in CP+B.
CP+Bs best year financially (to date), was 2009.
By 2010 CP+B was then the largest of MDCAs subsidiaries and accounted for over 50% of the
companys profits. CP+B generated $175 million in revenue from big clients including Microsoft,
Nike, Coca-Cola and Volkswagen.
Alex Bogusky, who was named Creative Direct of the Decade, and who was behind key
campaigns/client accounts (Burger King, BMW Mini, Sodastream) left in July 2010.

Page 28 of 40

Jeff Hicks, another key partner, departed soon after Bogursky left.

CP+B lost the Burger King account.

CP+B and Microsoft (one of its largest clients) sued for intellectually property infringement.
CP+B revenue from Microsoft shrinks afterwards.
CP+B and Coca Cola sued for intellectually property infringement.
Coca-Cola replaces Crispin Porter on Coke Zero account
The staff has shrunk to fewer than 700; about 10% were laid off last month after Microsoft
called a review.

After Bogusky and Hicks left in 2010:

Present:

Of its original 13 partners, (at most) 3 remain.

CP&B CEO Andrew Keller, a longtime creative executive who took the helm in 2010 after Mr.
Bogusky left, was let go last year.

72andSunny Today Looks like the Crispin Porter Bogusky of 2010

Crispin Porter Bogursky used to be MDCAs crown jewel and now resembles a depreciating asset.
Meanwhile, 72andSunny resembles CP+B in its boom years:

How 72andSunny Became One of the Most Exciting Ad Agencies of L.A.'s Madison Avenue WEDNESDAY, JANUARY 22, 2014

Yet there are signs of trouble ahead4:

An artist recently sued Starbucks and 72andSunny for copyright infringement.

Darlene Love sues 72andSunny and Google

Crispin Porter Bogusky of 2010 compared against 72andSunny of today

Winning multiple awards prior years

Aggressive revenue growth
MDCA fully redeemed minority stake
Intellectually property infringement allegations
Executive departures

CP+B
2010
YES
YES
YES
YES
YES

72andSunny
Today
YES
YES
YES
YES
YES

Page 29 of 40

MDCAs Tone at the Top ACT (DIS)HONESTLY

White-collar criminals fabricate false integrity to gain the trust of their victims. Stature, generosity, and
good deeds gain the respect of their potential victims and make it less likely that victims will question their
behavior. Sam Antar, Former CFO of Crazy Eddies, and now Whistleblower/Forensic Accountant
MDCAs New Code of Conduct the cover-up is worse than the crime

The rhetoric found in the new Code of Conduct is praiseworthy. It has an exemplary policy against
dishonesty/fraud1:

Unfortunately, MDCAs new management we say new because CEO Scott Kauffman has been a
member of the company for many years as a Board member and its current CFO David Doft was the same
CFO under Founder Miles Nadal does not behave honestly. The following serve as the bases of our belief:
The tone at the top has not changed since Miles Nadal and Michael Sabatinos departure:

MDCA Chairman and CEO Scott Kauffmann was paid 11x more in 2015 than in 2014 despite the
wrong-doing committed by Miles Nadal and the Company.
Lori Senecals linkedin profile claims she is/was the CEO of MDC Partners. Her husband was hired
last year and was paid $1 million for less than 6 months work.
Other concerning related party transactions.
CFO David Doft remains.

Evidence of deceptive conduct:

Organic growth is zero adjusted for inflation yet Company claims it is far above its industry peers.
The Company provides less business segment disclosures in 2015 versus prior years, yet CFO David
Doft claims, We actually think this will help enhance transparency, especially with a more cleaner
breakout of corporate as an isolated item versus before.
CEO Kauffman touts MDCAs historical organic investment in digital and technology capabilities
yet the company has spent zero dollars on R&D.
Page 30 of 40

Scott Kauffman Receives a Promotion and Pay Raise for Failure (?)

Despite the companys questionable accounting and business practices under Board member Scott
Kauffman who has been with MDCA since 2006 his compensation increased 11-fold in 2015 2:

Scott Kauffmans Misrepresentations of the MDC Partners Business

CEO Kauffman claimed:

MDC's heritage of investing in digital and technology capabilities organically, alongside creativity at the
core of its agencies, continues to be one of its greatest differentiators and will remain a priority going
forward.3
MDCA has no reported R&D spending4:

MDC Partners' R&D Spending

$ in millions
2013
2014
$0.00
$0.00
R&D

2015

$0.00

Page 31 of 40

David Doft Unethical and/or Unfit Comments for a CFO

CFO David Doft is either unethical and/or not fit for the role of CFO, as evidenced by his lack of
knowledge of MDCAs segment reporting, despite being its CFO since 2007:
So, by no means, are we looking to reduce transparency. We actually think this will help
enhance transparency, especially with a more cleaner breakout of corporate as an isolated
item versus before. David Doft Q4 2015 earnings call5
MDCA disclosed more revenue segment information prior to 2015 Strategic Marketing Services,
Performance Marketing Services, and Corporate 6:

As of 2015 Only discloses Advertising and Communications and Corporate segments

Mr. Doft appears unaware that MDCA provided a breakout of corporate in the past as well. Doft
may be liked by Wall Street, as he has a background in Wall Street. We believe the Streets trust
in MDCAs CFO is misplaced, however, just as Wall Streets trust in Valeants former CFO,
Howard Schiller, was misplaced (recall Schiller too used to be loved by Wall Street and was longtime Goldman Sachs banker).

Page 32 of 40

Lori Senecal Claims to have been the CEO of MDC Partners

Lori Senecals linkedin profile indicates she was the CEO of MDC Partners 7:

MDCA hired Lori Senecals husband last July, and compensated him ~$1 million for less than 6 months
work8:

Additional Questions about Lori Senecals ethics9:

McCann Erickson accused Kirshenbaum Bond Senecal + Partners, an MDC agency, of taking key
executives who should have been bound by non-compete contracts.

For all the reasons stated in this section, as well as earlier this report, Gotham City Research believes
MDCAs CEO and CFO violates the Code of Conduct.

Page 33 of 40

The SEC Investigation Why the January 2016 Letter is Concerning

MDCAs recent (and on-going) spate with the SEC began in early 2014, when a whistleblower alerted SEC
into Miles Nadal bad behavior and MDCA accounting issues 10:
When MDC Partners released its year-end earnings report in February, 2014, the news was
upbeat: record results that included growth in cash flow and profits. It was another year of
exceptionally strong performance for MDC Partners, the companys founder and CEO, Miles
Nadal, said in a press release.
But that announcement would change MDC in ways few would realize. Within days, a
whistleblower filed a complaint with the U.S. Securities and Exchange Commission, the top
regulator of the New York City based company.

SEC correspondences began shortly thereafter:

Page 34 of 40

In the September 11, 2014 correspondence letter, the SEC sounded displeased with MDCAs responses,
and included these warnings11:

Shortly thereafter, the SEC issued a subpoena on October 5, 2014:

MDCA Discloses it received a subpoena from the SEC on April 28, 2015. Miles Nadal and Michael
Sabatino leave a few months later
SEC correspondence letters resume; SEC gets company to enhance disclosures (September 18 th 2015)

After several correspondences between MDCA and the SEC in late 2015, regarding new accounting
questions, the SEC issued a letter on January 8 th, 2016, that includes identical warning language it provided
in the SEC letter that preceded the Companys April 28 th 2015 disclosure of a subpoena. If past is prelude
to future, that is not a good sign for MDCA.

Page 35 of 40

The Valeant Pharmaceuticals of Ad Agencies

When we first learned about MDCA early last year, both it and Endurance International Group (which we
published on one year ago), were referred to as the Valeant Pharmaceuticals of the Advertising and web
hosting industries respectively. Recall that some market participants regarded that comparison a
compliment at the time, as Valeants stock price had relentlessly risen upward in a short period of time.
Here are some of the (eerie) similarities we have identified between VRX and MDCA:

Valeant Pharmaceuticals 1 year ago

Organic growth overstated
Suspect pro forma profits via aggressive
accounting
High variance between pro forma profit
versus cash flow.
Debt -fueled acquisitions
Philidor
Whistleblower (R&O/Philidor)
Executive departures
Pays de minimis taxes
CFO with Wall Street Background
Low R&D spending

MDC Partners
Organic growth ~1.5%, not 7.5%
Suspect pro forma profits via aggressive
accounting
High variance between pro forma profits
versus cash flow.
Debt -fueled acquisitions
David Wiener Associates?
SEC Investigation Whistleblower
Executive departures
Pays de minimis taxes
CFO with Wall Street Background
No R&D spending

Page 36 of 40

Valuation shares worth less than $1.00 per share

Industry standard Enterprise Value of EBITDA multiples imply that MDCA shares are worth $0/share

MDCAs peers shares trade at 9x-10x EV/EBITDA multiples (Enterprise value as a multiple of EBITDA).
MDCAs shares trade as if its EV/EBITDA is between 12.2x-23.4x 1:
MDCA's True EV/EBITDA ~2x Greater than Reported
$ in 1,000s
Reported
Actual
Enterprise Value $2,407,703
$2,691,029
EBITDA
$197,666
$114,830
EV/EBITDA
12.2x
23.4x

Gotham City Research believes MDCA deserves at most a EV/EBITDA multiple on par with its peers, i.e. a
9x-10x multiple. The following table lead us to believe MDCA shares are worth at most $1.00 per share 2:
EBITDA
$47
$59
$73
$92
$115
$138
$165
$198
$238

5x
($20.64)
($18.31)
($16.88)
($15.10)
($12.88)
($10.66)
($7.99)
($4.78)
($0.94)

6x
($42.36)
($17.17)
($15.46)
($13.33)
($10.66)
($7.99)
($4.78)
($0.94)
$3.67

EV/EBITDA Multiple
7x
8x
9x
10x
11x
12x
13x
14x
15x
($17.62) ($16.71) ($15.80) ($14.89) ($13.98) ($13.07) ($12.16) ($11.25) ($10.34)
($16.03) ($14.89) ($13.75) ($12.61) ($11.47) ($10.34)
($9.20)
($8.06)
($6.92)
($14.04) ($12.61) ($11.19)
($9.77)
($8.34)
($6.92)
($5.50)
($4.07)
($2.65)
($11.55)
($9.77)
($7.99)
($6.21)
($4.43)
($2.65)
($0.87)
$0.91
$2.69
($8.43)
($6.21)
($3.98)
($1.76)
$0.46
$2.69
$4.91
$7.14
$9.36
($5.32)
($2.65)
$0.02
$2.69
$5.36
$8.03
$10.70
$13.36
$16.03
($1.58)
$1.62
$4.82
$8.03
$11.23
$14.43
$17.63
$20.84
$24.04
$2.90
$6.75
$10.59
$14.43
$18.27
$22.12
$25.96
$29.80
$33.65
$8.28
$12.89
$17.51
$22.12
$26.73
$31.34
$35.95
$40.57
$45.18

Valuation Assumptions

Long-term nominal organic revenue growth is between 1%-3%, and real organic growth is
close to 0%
Normalized EBITDA of $115 million Given real organic growth does not grow, we use our
earlier EBITDA estimate as normalized EBITDA. We provide a sensitivities analysis above to show
the shares still look quite unattractive at higher EBITDA assumptions albeit lower multiples.
Debt Assumptions The above table uses the reported debt figures, rather than the adjusted
debt figures we calculated. Our estimate of true debt would only depress the equity valuations
even further.

As you can see from the above table, it takes very little for MDCA shares to be rendered worthless (or
theoretically) far less than worthless.
Incidentally, MDCAs Altman Z score implies a high risk of bankruptcy.

Page 37 of 40

End Notes
Introductions

1. MDCA company presentations

2. MDCA 10K filings

MDCAs Unstable Business Model: Why it Can Fail Overnight

1. http://www.mediapost.com/publications/article/254640/mdc-partners-sec-probe-sparked-bywhistle-blower.html
a. http://www.theglobeandmail.com/report-on-business/mdc-and-sec-an-accountingconflict-nadals-successors-must-address/article25672514/
b. http://www.theglobeandmail.com/report-on-business/miles-nadals-shock-resignationlatest-fallout-from-sec-whistle-blower-case/article25611817/
2. MDCA Code of Conduct

Organic Revenue Growth is ~1.4% not 7.1% as Claimed

1. MDCA company presentations

2. MDCA Company filings
3. Departures
a. http://www.adweek.com/news/advertising-branding/andrew-keller-leaving-crispinporter-bogusky-after-5-years-ceo-166465
b. http://www.adweek.com/agencyspy/ceo-andrew-keller-and-ecd-evan-fry-out-atcpb/91521
c. http://www.adweek.com/agencyspy/breaking-president-steve-erich-leaves-crispinporter-bogusky/88108
d. https://www.linkedin.com/in/bob-winter-7244865 ,
e. http://www.adweek.com/news/advertising-branding/crispin-porter-bogusky-seeksnew-ecd-156562
f. http://www.adweek.com/news/advertising-branding/mccann-new-york-re-hires-dandonovan-executive-creative-director-166649
g. http://www.adweek.com/agencyspy/epic-split-creative-ringqvist-leaves72andsunny/91017
h. http://www.adweek.com/agencyspy/epic-split-creative-ringqvist-leaves72andsunny/91017
i. http://www.adweek.com/agencyspy/72andsunny-veteran-grant-holland-joins-omelet-la-as-cco/93562
j. https://www.linkedin.com/in/jeffsweat
4. Gotham due diligence
5. http://adage.com/article/agency-news/autotrader-hires-zambezi-16-years-doner/301882/
6. MDCA 2015 10K
7. MDCA 2014 10K
8. MDCAs Q4 2015 earnings call transcript
Page 38 of 40

9.
10.
11.
12.

MDCA 10Ks
MDCAs Q3 2015 earnings call transcript
MDCA 10Ks
Quindell: a Country Club Built on Quicksand

Debt is Understated by at Least 23%

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

MDCA 10Ks, SEC correspondence letters, DuMont v. Mintz & Gold LLP et al
DuMont v. Mintz & Gold LLP et al
MDCA 10Ks
SEC Correspondence letter
SEC Correspondence letter, MDCA 10K 2015
MDCA earnings Q&A analyst comment/question.
10K 2015

SEC Correspondence letter and 10Ks

IMS and Team Enterprise Contracts exhibits in 10K 2010
10K 2015

1.
2.
3.
4.
5.

MDCA 10K filings

Peer annual reports
10K 2015 and Q4 2015 earnings release
SEC correspondence letter
MDCA 10K 2015

At least 42%-53% of Reported Profits are Suspect

BDO, Fraudulent Tax Shelters, & Quasi-Captive Entities

1. http://www.mediapost.com/publications/article/254640/mdc-partners-sec-probe-sparked-bywhistle-blower.html
2. MDCA proxy filings
3. http://www.courts.state.ny.us/reporter//pdfs/2012/2012_33392.pdf
4. Nussdorf v BDO Seidman and Desiree Dumont v. Mintz & Gold LLP
5. SEC Correspondence letters
6. MDCA 10K filings
7. Eisner amper website
8. Desiree Dumont v. Mintz & Gold LLP
9. MDCA 10Ks and Eisner amper website
10. MDCA 10K filings

Page 39 of 40

Executive Departures: 72andSunny 2016 = CB+P 2010?

1. http://adage.com/article/agency-news/tale-2-crispins-agency-decade/291465/
2. http://www.law360.com/articles/296990/microsoft-settles-with-gag-gift-maker-over-copiedads
a. http://www.laweekly.com/arts/how-72andsunny-became-one-of-the-most-exciting-adagencies-of-las-madison-avenue-4378953
b. http://www.adweek.com/agencyspy/artist-sues-starbucks-72andsunny-for-copyrightinfrigement/88848
3. http://adage.com/article/agency-news/tale-2-crispins-agency-decade/291465/
4. http://www.hollywoodreporter.com/thr-esq/darlene-love-sues-google-using-857220
a. http://www.adweek.com/agencyspy/artist-asks-judge-to-reconsider-case-againststarbucks72andsunny/102943

MDCAs Tone at the Top ACT (DIS)HONESTLY

1. MDCA Code of Conduct, 2015 10K

2. MDCA Proxy filing 2015
3. http://seekingalpha.com/article/3616896-mdc-partners-mdca-scott-kauffman-q3-2015-resultsearnings-call-transcript?part=single
4. MDCA 10K filings
5. MDCA Q4 2015 earnings call transcript
6. MDCA 10K 2015 and 10K 2015
7. Lori Senecal linked profile
8. MDCA Proxy filing 2015
9. http://www.cbsnews.com/news/how-not-to-settle-a-talent-poaching-suit-email-says-mccannbungled-200k-deal/
10. Globe and Mail article
11. SEC Correspondence letter

Valuation shares worth less than $1.00 per share

1. MDCA 10K filings
2.

Page 40 of 40