Artists Accuse Labels Of Accounting Fraud

By | July 25, 2002 at 12:00 AM

Long before Michael Jackson began his eyebrow-raising attack on Sony, a coalition of influential artists initiated a more civilized crusade against the record industry, and on Tuesday that battle raged on.

Representing the Recording Artists Coalition – which includes No Doubt, Beck and others – and similar action groups, several music attorneys and a few artists faced off against major-label representatives in a hearing with the California Senate Committee in Sacramento.

Montell Jordan, Sam Moore of legendary soul duo Sam & Dave, and attorney Don Engel were among those who accused record companies of fraudulent accounting practices, mainly underpaying artists royalties, according to wire reports.

Jordan testified that despite selling 2 million copies of his 1995 single “This Is How We Do It,” his label claims he stills owes them money.

Moore told the committee, organized by artist rights advocate Kevin Murray, that late in his career he learned his retirement fund would be only $67 a month because his record company never reported income to his pension fund.

Engel was harsher, likening the practices of the major labels to those of Enron and WorldCom and estimating they underpay 10 to 40 percent on every royalty.

Murray, who authored the bill to repeal an amendment to the California labor code that allows musicians to have longer contracts than any other workers in the state, told the committee many contracts only require the record company pay an artist what they are owed if they are found at fault in an audit.

Together, the artists and their representatives suggested the music industry develop a standard set of accounting rules.

The labels, however, denied any unlawful activity and argued that contract details are part of the negotiation process and therefore can not be the same for all artists.

Steven Marks, senior vice president of business legal affairs for the Recording Industry Association of America, which represents the labels, explained the uniqueness of the music business by releasing an economic analysis that showed fewer than 5 percent of signed artists produce a hit. He claimed the industry loses an average of $6.3 million on every album that fails.

“A glaring misimpression exists that record labels are high-profit, low-risk companies uninterested in paying artists their fair share,” Marks said, according to Reuters. “That’s simply not reality. It is no accident that many of the higher-profile accounting and other financial disputes that have arisen over the years have been resolved with new contracts, not a parting of the ways.”

The RIAA also unveiled on Tuesday a study recently completed by Michigan State University professor Steven Wildman that shows record contracts reflect terms agreed to by all parties. Of the 500 contracts between 1994 and 2000 studied, lawyers represented artists in their negotiations in all but one of the cases.

The study also showed that deals renegotiated after hit albums tended to be more financially rewarding to artists.

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