e.Digital Corporation (fka EDIG)

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Ouch...In 1989, I was hired as the National Director of the AFTRA Health & Retirement Funds. I went to the AFTRA Funds after five years of experience running benefit funds for construction labor unions in New Jersey. It should not come as a shock to anyone here to say that the construction business in New Jersey is often under the close scrutiny of state and Federal law enforcement officials, and the organization I ran was no exception. We used to laugh about the frequency of appearances of telephone repair crews to the pole outside our building.
Whatever other legal problems they might have faced, my trustees didn't want any questions about their stewardship of the benefit funds. From my first day on the job, my Trustees were adamant that not only the letter of the law, but also the spirit of the law be adhered to. That was the way I ran the organization. The provisions of ERISA became my bible, and I was a strict fundamentalist. And it worked. In my term there, we had three audits by the Department of Labor, and we got a clean bill of health on all of them.

I learned that most employers are honest. They are capable of mistakes, but that there is no widespread inclination to cut corners, either in the buildings they put up, or in their contractual obligations to their employees.

Before I started at the AFTRA Funds, I was truly ignorant of the way business was conducted in the record industry. I was strictly a fan. In my legal practice before I became a fund administrator, the closest I came to entertainment law was representing someone who had shoplifted a radio. I had read stories about recording artists being cheated of royalties, but didn't know if they were just sour grapes or if there was any truth to them. It wasn't part of my world. I had every reason to believe that what was the standard of performance in the construction industry would be the same in the entertainment industry.

Then I went to the AFTRA Funds, and stepped through the looking glass.

Bluntly, the record industry ran roughshod over the AFTRA Funds. The obligations the record companies had, and have, to the Funds and to the artists working under AFTRA contracts, were routinely ignored, and the Funds were totally defenseless because of decades of Trustee neglect of their own obligations to the plan participants.

Less than three years later, I was fired because I uncovered the sorry history of broken promises, disclosed it to the Board, and would not let the matter rest. It was easier for them to get rid of me than to solve the problem.

The poor performance of the Funds is currently the subject of litigation in Federal Court in Atlanta, Georgia. I am a witness for the plaintiffs in that case. Those plaintiffs are fifteen recording artists who alleged that the conduct of the Funds and record industry have deprived them, and all recording artists, of the benefits they earned under the collective bargaining agreement.

The reason why that case, and my knowledge, is relevant to this committee's current work because the industry's conduct in regard to the Funds is a perfect mirror of its general standard of conduct in regard to recording artists on contractual matters.

Benefit eligibility for recording artists under the AFTRA Code is based on earnings. Those earnings are supposed to be reported to the Funds on a timely basis, and a contribution made to cover the cost of the benefits earned. Meeting the earnings requirement qualifies an artist and his or her family for a year of health insurance, and for a pension credit, if, and only if, the record company reports the earnings and makes the contribution in a timely manner.

And there, in the routine and systematic disregard of the requirements of the agreement and Federal law, is where the industry accounting practices hurt people. It goes beyond simply not paying them what they've earned, it goes to depriving them of critically important benefits that they have bargained for, but never received.

You will hear directly from artists and their families how this has happened to them, how the conduct of the record companies deprived them of pension rights and medical care. I want to offer several examples myself. I will not use the names of the artists involved in these cases to protect their confidentiality, but I have personal experience with each case I will recount.

The first is really a comparison, but it shows the importance of this issue in stark relief. One artist, who I will call A, was injured in an accident. The injury, while not life threatening, was critical. At the time of the accident, A was covered by the AFTRA Plan, only because A's manager was persistent in demanding the record company make the contribution. The manager had the leverage with the record company because A had a string of hit records at the time. After admission to a local hospital for emergency treatment, A was transferred to a facility that is nationally known for its treatment of the injuries that A suffered. Admission to that specialized facility was possible because of A's coverage under the AFTRA plan. A made a full recovery, and has continued to produce hit records.

The second artist I will call B. B also suffered an injury in an accident, and the injury was remarkably similar to A's. B also had a long string of hits, and B's recordings continued to sell very well on several different labels, but B was not covered by the AFTRA plan because none of the labels hadn't reported any earnings for the previous year, and hadn't done so for a number of years. After being stabilized in an emergency room, B received adequate medical care, but no specialized treatment or rehabilitation as A had, because B had no way to pay for it. B never recovered from the injuries, and I cannot help but think that B's death was hastened by the inability to get the best treatment.
To me, one of the most horrific thing about B's story is that, after the accident, they held benefit concerts to help pay the medical bills, and executives from B's labels were right at the front of the line with their checkbooks out, and press releases lauded them for their charity. The dirty secret behind the empty nobility of these gestures is that, if the labels had played fair with the artist in the first place, the charity wouldn't have been necessary.

C was a veteran artist, but C's recordings never went out of print, even though C had stopped recording actively several decades ago. Every quarter, C would get a royalty statement that showed a debit balance. After 50 years in the business, C still owed the label money, according to the label, anyway. Even so, those royalty statements showed that sufficient royalties were credited against that balance was earned every year to qualify C for health coverage and earn a pension. C had a stroke. Was C covered by the AFTRA health plan?

In a word, no.

You see, the label took the position that because they actually hadn't paid C anything, but simply reduced the debit on the royalty statement, they didn't have to report anything to the AFTRA Funds or make any contribution on C's behalf, even though they hadn't reported the amounts that had gone to make up that debit balance in the first place.

Several of C's friends and admirers eventually shamed a label executive into reporting sufficient earnings to get C covered. I truly believe the executive was more than willing, and able, to pay the entire cost of C's hospitalization and treatment from his own pocket. In fact, he was about to do just that when it was pointed out to him that the contribution to the AFTRA funds necessary to provide insurance coverage was less than 5% of the hospital bill. And that is what was reported, just the minimum necessary to get C's insurance.
The sad punch line to this story is that, one year later, the Funds terminated C's coverage because no further contributions were made. I was able to get the coverage reinstated by proving that C was disabled and unable to work, but I shouldn't have had to do that.

How do these things happen?

The frank answer is that these tragedies occur because the industry does its absolute best to avoid its obligations under the contracts it signs with the artists in exactly the same way, and using the exact same tactics they used with the Funds:

Wait until you are asked for the money, regardless of your obligations under the contract.
Ignore demands for payment until you get a letter from a lawyer.
Stall.
And when you have stalled as long as you can, stall some more.
Fight the auditor over access to every piece of paper he asks for.
Don't pay anything, even the undisputed amounts, until the entire dispute is settled.
And when it finally comes time to pay, offer thirty cents on the dollar, knowing that they'll take it.

The audits run by the AFTRA Funds to determine how much a label owes in overdue contributions are strictly limited to a review of royalty documents, so labels ability to arbitrarily and artificially reduce the amount of those royalties had a direct and detrimental impact beyond the bottom line. When it is just royalties at stake, we are simply talking dollars and cents. Many, many dollars to be sure, but strictly an amount with a dollar sign attached. When you consider the dismal effects of the dirtiest secret in the industry's overstuffed closet, the willful refusal to fund benefits, you add in a component that is impossible to estimate in monetary terms. Health, life and security

You won't be able to guarantee these to every artist, but you can give them a fair chance. They don't have that now.


http://www.starpolish.com/news/interviews/davemarsh/wilhelmtranscript.doc