VideoIt's not everyday you see the Backstreet Boys, Bing Crosby and Generally Accepted Accounting Principles used in the same sentence.
Then again, it's not everyday some of the most famous musicians in the world choose to discuss accounting when they find themselves in the glare of the spotlight.
Yet, this is exactly what happened in Los Angeles on Tuesday at a state hearing looking into royalty payments to musicians. The gathering was called by State Sen. Kevin Murray and fellow Democrat Sen. Martha Escutia.
During testimony, a group calling itself the Recording Artists Coalition, led by the Eagles' Don Henley (no relation to Oracle CFO Jeff Henley), recounted how industry accounting practices robbed them of royalty payments.
The musicians told lawmakers they had sold millions of records, but received precious little royalties. In some cases, the musicians said they were told they owed their record companies money to recoup advances.
When questioned why this is, most of the musicians asserted that accounting in the music industry is based on arcane methods and deliberately vague language.
In fact, Kevin Richardson, one of the Backstreet Boys, testified that, even though his group has sold 70 million records since 1994, its record company "has said we're still unrecouped. Nothing has changed in the music industry."
Kathryn Crosby, the widow of Bing Crosby, claimed she and her family were cheated out of more than $16 million in royalties. "Bing's movies still create business all over the world." She reportedly said. "It would be very nice for Bing's heirs to receive the proper amount."
A representative of the Chambers Brothers said the group received just a few dollars even though its 1968 breakout hit, "Time Has Come Today," had been featured in over 40 films and television programs.
"Surely greater transparency in recording contracts is needed," Murray told Reuters.
The coalition is reportedly seeking legislation that would impose penalties on record companies for accounting errors.
Executives from the recording industry, however, said the percentage of royalty disputes was actually low.
"The relationship between record companies and recording artists has always been subject to the dramatic -- and sometimes melodramatic -- highs and lows that characterize all creative partnerships," reportedly said Paul Robinson, senior vice president of Warner Music Group. "This royalty dispute is regrettably distracting all of us from the very pressing need to band together on ... business fronts to combat the rampant online piracy, which is taking a huge toll on the record business."
Dynegy Settles With SEC
Dynegy Inc., the Houston-based energy trading company that at one point tried to buy Enron, agreed to pay a $3 million penalty as part of a settlement with the Securities and Exchange Commission. The settlement stems in part from the company's use of "round-trip" trades to boost revenues.
This is the SEC's first enforcement action relating to 'round-trip' trades -- a practice that seems to have been common in the energy trading business.
The Commission said Dynegy engaged in improper accounting and misleading disclosures relating to a $300 million financing transaction, known as Project Alpha, involving special-purpose entities (SPEs). The SEC also claimed Dynegy overstated its energy-trading activity resulting from those controversial round-trip, or "wash," trades.
Such deals are simultaneous, pre-arranged buy-sell trades of energy with the same counter-party, at the same price and volume, and over the same term. The trades result in neither profit nor loss to either transacting party. Instead, they are intended to boost transaction volume.
The SEC accused Dynegy of engaging in securities fraud in connection with its disclosures and accounting for Project Alpha, and negligently included materially misleading information about the round-trip energy trades in two press releases the company issued in early 2002.
"Public companies using off-balance sheet, special purpose entities must ensure not only that their accounting treatment complies with GAAP, but also that they have accurately portrayed the economic realities of the transactions," said Harold F. Degenhardt, administrator of the commission's Fort Worth Office. "In this case, Dynegy portrayed as operating cash flow what was essentially a loan. As a result, Dynegy investors were deceived."
Interestingly, Stephen M. Cutler, director of the commission's enforcement division, noted that the $3 million penalty imposed against Dynegy reflected the commission's dissatisfaction with Dynegy's lack of full cooperation in the early stages of the SEC's investigation.
"Just as the Commission is prepared to reward companies that cooperate fully and completely with agency investigations, the Commission will also penalize those who do not," he added. "If companies wish to receive the maximum benefit from their cooperation, the cooperation must be complete and meaningful from the outset. Companies would be well advised to familiarize themselves fully with the Commission's Section 21(a) report on cooperation issued on October 23, 2001."
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