Accountant allegedly embezzles millions at literary agency, leaving Chuck Palahniuk broke

Katherine Rusch absolutely rips into the agency over this:
Business Musings: An Agent Nightmare Revealed

Simply put, how come no one at the agency had no idea of the company finances? How come no one acted when complaints about money not coming in were raised?

As she states, this was regarded as a "reputable agency" - yet the authors now out of pocket can only expect to see the agency reimburse them "to the greatest extent possible ".

EDIT: This also brings up the issue of why publishers are allowed to get away with paying royalties to agents first, instead of authors directly.
 
Brian G Turner said:
This also brings up the issue of why publishers are allowed to get away with paying royalties to agents first, instead of authors directly.
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As someone with an agent (and I've never had any problems there) I think this is a very reasonable point. I often hear the - correct - saying that money flows to the writer, not from him. This is often deployed against vanity presses and scams, but it makes sense to remove as many stops in that journey as possible - which would involve the writer paying the agent rather than the agent passing the money on to the writer.

The point made about the requirement for due diligence is a reasonable one, although smaller agents would no doubt complain that it incurred costs. Perhaps it could be required for agencies of a certain size, or those bringing in certain amounts of money (which would be an incentive to lie, admittedly).

I am not entirely convinced by Rusch's conclusion that you should not have an agent full stop, however. I can see why she is saying this, but I'm not wholly sold on it.
 
Brian G Turner said:
This also brings up the issue of why publishers are allowed to get away with paying royalties to agents first, instead of authors directly.
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From the publisher's point of view it's administratively easier to pay the agent rather than individual authors. All the publishers have to do is produce a royalty statement for the agency and make one payment per agency that covers all the authors represented by that agency who are being published by the publisher.

From the agent's point of view it's in their self-interest to get paid first. I'm pretty sure that in the fraud case the agency were getting their 15% and so long as that was the case they don't seem to have cared about their authors. They certainly don't seem to have put in place the most basic anti-fraud measures.

From the author's point of view, they're put in the position of both their agent and publisher saying that the royalties should be paid to the agent. The author is effectively being put in a position where they either agree or they don't have a publishing contract. At which point, that author either backs their own writing and self-publishes or they experience doubt and cave to the agent and publisher demand.

Toby Frost said:
The point made about the requirement for due diligence is a reasonable one, although smaller agents would no doubt complain that it incurred costs.
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All the agency contracts I've seen require the author to pay for an audit. Unless discrepancies are found that mean the author is owed more than a certain amount, in which case the agency foots the bill. Forensic accountants are generally not cheap. Equally contracts can be restrictive on how long an author's accountant can spend looking at the books and how often an author can require an audit, which limits the opportunity for an author to discover if their agency is actually embezzling from them or not. As with a lot of other provisions in an agency contract, it's all weighted in favour of the agency rather than the author.

The other point I would make is that if something dodgy is going on at an agency, then if the author invokes the audit clause the agent will simply drop that author. That is, after all, what happened to Rusch when she tried to audit her agent.
 
Brian G Turner said:
This also brings up the issue of why publishers are allowed to get away with paying royalties to agents first, instead of authors directly.
Click to expand...

I was given a piece of advice by a bestselling author (in one of the Fantasy sub-categories) when we chatted about the publishing industry:

"Make sure the contract stipulates that the publisher sends your royalties to you DIRECTLY and your agent's cut to them separately. It can done - they can oblige this. Make sure you have that in your contract when the time comes."

She'd been burned badly by having her royalties go via her previous agent and told me: "Never again."

And that's what I'm going to do my best to do.
 
The Bluestocking said:
I was given a piece of advice by a bestselling author (in one of the Fantasy sub-categories) when we chatted about the publishing industry:

"Make sure the contract stipulates that the publisher sends your royalties to you DIRECTLY and your agent's cut to them separately. It can done - they can oblige this. Make sure you have that in your contract when the time comes."

She'd been burned badly by having her royalties go via her previous agent and told me: "Never again."

And that's what I'm going to do my best to do.
Click to expand...

So, when your agent tells you that it's not possible to send your royalties to you directly and when your publisher tells you that they won't agree to do what you want and, therefore, that you don't have a publishing contract, what do you plan on doing?
 
Bagpuss said:
So, when your agent tells you that it's not possible to send your royalties to you directly and when your publisher tells you that they won't agree to do what you want and, therefore, that you don't have a publishing contract, what do you plan on doing?
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I did ask that author that.

She said it's still possible to pitch directly to the editor without having an agent and then go from there.

She told me that if it came to that, instead of relying on an agent, it is better negotiating directly with the publisher on your contract and bringing in a lawyer familiar with publishing contracts to go over it to make sure everything is in shipshape.

This has come from her experience of more than 10 years in the business (she writes a couple of popular series). She said YMMV but that is her two cents. She had been burned badly by agents before and decided (even before she reached her level of popularity today) to go back to dealing directly with the publisher.

She told me that at the end of the day, I've to look after myself because it can be a terrible hit-and-miss with agents - some do look after their clients and business fabulously but many won't have your back at all.

In a way, that was a harsh wake-up call for me. I do want an agent (there is one particular one I'm hoping would rep me) and to have my work traditionally published. But between the news we're discussing in this thread and what that author told me (she was very honest about it all), I'm going to rethink the whole "getting an agent" thingy. Or at least go in with eyes extra wide open.

Note: She's mostly traditionally published, not self-published. And she wouldn't have given me that advice if she hadn't been able to negotiate a "send my royalties to me and send my agent their cut separately" clause.

Note 2: Looks like Kristine Kathryn Rusch who wrote the two articles at the beginning of this thread is saying the same thing as the author who gave me advice.
 
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Fundamentally, agents are supposed to work for authors, not the other way around. You wouldn't sign a contract in your day-job where your pay cheque is sent to the guy you hired to mow your lawn, and he sends you what's left after taking his fee. If the lawn guy suggested it, you'd just laugh and move to the next one on the list.

Nor would McDonalds' be willing to hand all their money to one of their employees, have the employee take their wages out and then send the rest to the company bank account.

It's only because publishers shifted most of their gatekeeping duties over to agents over the last few decades that such an arrangement is considered remotely reasonable.
 
Different field, I know, but when I was playing regularly with my band, we had an agent. I didn't think he was pulling his weight with bookings and I agitated to get rid of him. We did dump him and actually did better without him booking-wise by doing it ourselves. We also made more money by eliminating his fee.

Point is - having an agent can be a good thing but not always. People shouldn't be afraid to be without one, or to ditch one that isn't doing a good enough job.

No agent is better than an incompetent, lazy or crooked agent.
 
I'm not necessarily supporting the agents in this but I think it's useful to maybe see their perspective.

I'm in a totally different business but ultimately it has strong similarities. We sell product (photographs) for a number of clients. Now most of these clients are not VAT registered and consequently under the instruction of the VAT man we must pay all sales to the client and then they pay our fees to us. Think of the sales as the author royalties and our fees as the agent's fees, so essentially a very similar scenario to the one many of you are demanding. However we have had a number of clients who have been paid their money and then never paid us. Normally the amounts are too low to be worth small claims or debt collectors, barring one who defaulted to the tune of £14k and then conveniently went out of business and we were never able to recover that money (limited company). This was in our early days when cash flow was pretty desperate and it very nearly took us out of business.

After that we changed the way we do business. we now raise our clients' invoices for them for all the money due to them and we raise our invoice to them for the money due to us. We then cross charge one against the other and pay the difference to the clients. Essentially we are now doing what the agents are doing with the authors. It protects us against clients that choose to not pay us, as I guess it protects the agents against authors who don't pay them.

We keep everything transparent with a full breakdown of all sales going to the client and we also ensure that we pay the clients immediately (no waiting one to three months or more) which keeps them happy.

I can see how we could abuse our position in the same way that it appears some agencies have done but I can also see how, with the proposed approach of all money going to the author and the author paying the agent, the author would be able to abuse their position by not paying the agent.

I think it's important to see things from both sides; not all agents are honest but neither, I suspect, are all authors.
 
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Update to the story:

The accountant, Darin Webb, has pled guilty to the embezzlement charge. So, he's admitted to stealing $3m. He's due to be sentenced in November. According to his plea deal, his jail sentence is expected to be about 4 years (subject to the final court decision). The fine has yet to be determined.

As part of his plea deal, Webb has agreed to an asset forfeiture order of approximately $3.3m - so in theory the moneys the authors were owed could be returned to them. The problem is that the attorneys who are currently looking at a potential class-action suit on behalf of the authors are trying to work out what the authors are owed because, according to this article in PW, the authors don't know how much money they've lost as a result of the embezzlement!
 
Bagpuss said:
Update to the story:

The problem is that the attorneys who are currently looking at a potential class-action suit on behalf of the authors are trying to work out what the authors are owed because, according to this article in PW, the authors don't know how much money they've lost as a result of the embezzlement!
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Okay. That's not good. They will probably need to go back to the publishers to ask to see the accounts from x date to y date and then work it out from there since the publishers sent the royalties to the agency. This way, they'd see the actual numbers instead of the ones doctors by Webb.
 
Glad to hear they should get their money back eventually. They're lucky he hadn't spent it all on things they couldn't sell to recoup the cash.
 
As of 3 December, Donadio & Olson have filed for chapter 7 bankruptcy.
 
So, Webb has been given a sentence of 2 years in prison. There is no fine because the judge concluded that Webb doesn't have the money to pay the fine - so why levy it. Very practical of him.

The $3m Webb stole has been spent by him on some failed business ventures - so that's not coming back either.

Therefore, despite the asset forfeiture order, it seems that the authors will not recover their stolen money from Webb. They also won't recover their stolen money from Donadio & Olson, because the "venerable literary agency" has applied for bankruptcy and therefore won't be paying back the $3m dollars they failed to stop their contractor from stealing from their clients.

I don't know - I honestly don't. But it seems to me that Webb gets away with theft. Donadio (who is dead) gets to turn in her grave. Neil Olson (who is not dead) and Edward Hibbert (the other co-owner of the company) apparently get away with the failure to act in a fiduciary manner towards their clients and a failure to properly exercise financial control over funds they should be fiduciarily responsible for. In my honest view, I don't see how the current principals of Donadio & Olson have not been prosecuted for their financial ineptitude.

Equally, to everyone who says: How do I get an agent? and are clamouring for that agent. I would recommend that you look at this case very, very carefully. Because, apparently, despite anything that anyone might say to you, this case demonstrates in a very real-world kind of way, that an agent is not required to exercise any fiscal responsibility over their own bank accounts or their accounting processes. And you have no recourse when they don't.
 
Bagpuss said:
Equally, to everyone who says: How do I get an agent? and are clamouring for that agent. I would recommend that you look at this case very, very carefully. Because, apparently, despite anything that anyone might say to you, this case demonstrates in a very real-world kind of way, that an agent is not required to exercise any fiscal responsibility over their own bank accounts or their accounting processes. And you have no recourse when they don't.
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Was - coincidentally - just chatting with a couple of friends who are lawyers dealing with trademarks, copyright law etc to ask for referrals to good attorneys specialising in publishing contracts and rights for authors just in case my novella gets picked up by Tor and I'm off to the races.

I think that's now very likely the direction I'll be taking given the outcome of this case - negotiate myself with an experienced specialist attorney to back me up. There also are articles and blog posts by authors on how to read royalty statements to help with understanding everything on it.

As one of my lawyer friends pointed out when I told him about all the rights that publishers want to lock up in their standard contracts: "Everything's negotiable. Everything can be severed/kept separate if you wish." Also: "Advances and royalties should go straight to the author."
 
Bagpuss said:
Update to the story:

The accountant, Darin Webb, has pled guilty to the embezzlement charge. So, he's admitted to stealing $3m. He's due to be sentenced in November. According to his plea deal, his jail sentence is expected to be about 4 years (subject to the final court decision). The fine has yet to be determined.

As part of his plea deal, Webb has agreed to an asset forfeiture order of approximately $3.3m - so in theory the moneys the authors were owed could be returned to them. The problem is that the attorneys who are currently looking at a potential class-action suit on behalf of the authors are trying to work out what the authors are owed because, according to this article in PW, the authors don't know how much money they've lost as a result of the embezzlement!
Click to expand...

That's incredible. If I were in that position, I'd like to think I'd keep a spreadsheet of my royalty statements.
 
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