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The Honolulu Advertiser
Posted on: Wednesday, July 24, 2002

Singers testify they were cheated out of millions

By Jim Wasserman
Associated Press

SACRAMENTO — California's $41 billion recording industry came under withering attack yesterday for accounting practices that artists say routinely under report royalties and cheat them of millions of dollars.

Singers and entertainment attorneys alike attacked the industry's accounting methods and raised the specter of 1960s pop stars who resorted to public assistance because record companies failed to report royalties for their pension and health funds.

The attacks, made in a state Senate hearing lasting more than six hours, echoed recent criticisms of accounting practices in other industries that have led to bankruptcy and scandal.

Several speakers testifying before the Senate Judiciary Committee alleged "systematic" financial irregularities by all five global corporations that dominate the music business.

"I've heard of this hearing described as a fishing expedition," said entertainment attorney Fred Wilhelms. "There are big fish out there."

Los Angeles music attorney Don Engel estimated that record companies routinely "underpay 10 to 40 percent on every royalty" and dare artists to challenge it without committing "artistic suicide."

Record industry spokesmen and attorneys vigorously denied the characterizations and cast the allegations in a context of power negotiations between artists and their lawyers and the record labels.

"That's what's going on here. No more, no less," said Steven Marks, senior vice president of the Recording Industry Association of America.

The industry also released an economic analysis of its record contracts, noting that fewer than 5 percent of signed artists produce a hit record. Likewise, for every hit the industry has, it loses $6.3 million on albums that bomb, the study showed.

Among those testifying, singer Sam Moore, formerly of Sam and Dave, recalled learning in his 1950s that his retirement fund would be $67 a month because his record label never reported income to his pension fund. He said Motown legend Mary Wells learned she had no health insurance when she was diagnosed with cancer before dying 10 years ago this Friday. Likewise, her record companies didn't pay into the fund, Moore said.

Singer Montel Jordan, who had the 1995 hit, "This is How We Do It," said despite 2 million singles from that release and several albums since, he still owes money to his record label.

"I have sold many gold and platinum records. I've never had a moneymaking loss and yet I'm certain, if you were to do an audit, as I have done on several occasions, I still haven't recouped," Jordan told members of the Senate Judiciary Committee. He described the business as handing deals to naive, music-loving youngsters, who become unable to pay upfront costs of promotions, videos and marketing with their royalty earnings.

Singers, increasingly, are pressing for audits and suing their labels for millions of dollars in royalties they believe their labels are under reporting. Critics told senators they noticed huge differences in the accounting styles of the record business after working in their previous fields of television, publishing and even construction. Several speakers, calling for reforms, suggested the industry develop a standard set of accounting rules.

The hearing was merely the newest trial for record executives at the Capitol. For nearly a year they've been fighting a bill by Democratic state Sen. Kevin Murray, to rein in a record industry practice that binds singers to long-term contracts lasting through much of their careers.