Accounting Plays Role in Music Industry Trials

U.S. Bankruptcy Court Judge Ellen Carroll on Friday ordered bankruptcy trustees to take control of Death Row Records. Marion “Suge” Knight filed for bankruptcy after being ordered to pay more than $100 million to former business associate Lydia Harris who successfully sued Knight in 2002, claiming that she and her husband, Michael, provided start-up funds to Death Row.

“It seems apparent there is no one at the helm,” Carroll told a Los Angeles hearing on Friday in explaining her decision, according to the San Francisco Chronicle. The Associated Press goes on to report that Carrol said “the label’s accounting practices were in disarray.”

Knight, who was not present at Friday’s hearing, had also skipped a meeting with his creditors earlier in the week after being injured in a motorcycle accident July 1. In May, Knight admitted he hasn’t reviewed the company’s financial records in a decade. His attorney, Daniel McCarthy, told the court that his client was in control of the company and asked for more time to negotiate revised distribution deals for the label’s catalog, which includes recordings from Tupac Shakur, Snoop Dogg, Dr. Dre and other hip-hop artists. Attorneys for Death Row Records’ creditors cited Knight’s absence as an example of how far removed he was from the day-to-day operations of the company, AllHipHop.com reports.

In other music industry news, Los Angeles Superior Court Judge Mark V. Monney tossed out part of a lawsuit brought by Phil Spector’s accountant, David Neste, against Michelle Blaine, Spector’s former assistant. Neste’s suit alleging fraud, deceit and negligent misrepresentation was thrown out, however, Judge Moony left the option open for Neste and his attorney to refile the complaint within 20 days, according to E!Online.

Spector filed his own suit against Blaine in September, accusing her of embezzling hundreds of thousands of dollars. Blaine countersued Spector in March for sexual harassment. She also sued Neste, claiming the money Spector lost was his accountant’s fault. It was part of Neste’s countersuit, filed on May 11, that was thrown out.

Michael Jackson’s finances also entered the courtroom as part of the civil suit filed by F. Marc Schaffel, a former business associate of the pop star’s, seeking $1.6 million for past work and repayment of unpaid loans, according to the Associated Press. The Associated Press reports that Jackson’s attorneys contend that a forensic accounting of the pop star’s financial records would reveal that Schaffel actually owes Jackson money because he fraudulently transferred funds from Jackson’s accounts into his own and billed Jackson for expenses after their business relationship had ended. Schaffel is reported to be a meticulous record-keeper, however, Thomas C. Mundell, who represents Jackson, says Schaffel has no receipts to show money delivered or obtained from Jackson.

Schaffel testified in Superior Court on Monday that he wrote backdated checks totaling $784,000 after receiving a termination letter on November 15, 2001. The Associated Press reports that much of the day’s testimony dealt with financial records, with Mundell showing ledgers and checks to Schaffel. Asked directly whether he falsified financial records, Schaffel replied, “I just didn’t want to get caught holding the bag for expenses Mr. Jackson had agreed to,” the Associated Press reports. ABC speculates that closing arguments in the case could come this week.

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