A report by internal corporate auditors of MCA Inc. indicates that MCA Records was more deeply involved with reputed organized crime figure Salvatore Pisello than previously revealed in court.
The Los Angeles-based entertainment firm's auditors recently prepared a nine-page confidential report filled with details of the record unit's dealings with Pisello, who last month was sentenced to two years in prison for income-tax evasion. The Times obtained a copy of the MCA internal report, which sources say was given to MCA directors at the firm's annual meeting in Chicago on Tuesday.
The report details a sequence of payments to Pisello, made without written contracts. The auditors recommended that written agreements be required in the future for "significant and non-recurring" payments.
Law enforcement officials have previously identified Pisello as an "alleged high-ranking soldier" of New York's Gambino organized crime family. Before Pisello's sentencing April 22, a prosecutor had described in court records several dealings between Pisello and MCA Records.
MCA previously said that it had no knowledge of Pisello's background before his conviction and that it had cooperated fully with the Justice Department's investigation.
Paid Pisello 3%
Allen Susman, an attorney in the law firm that serves as MCA's general counsel, said Thursday that the company "intends to get to the bottom of the entire matter and take all appropriate and available legal steps with regard to any matters involving Mr. Pisello or . . . any other matters that are in any way improper. And we intend to pursue this as vigorously, emphatically and as quickly as can be done."
Among other things, the MCA internal audit report says that MCA Records paid Pisello 3% of the net proceeds from a distribution deal that MCA had made with New Jersey-based Sugar Hill Records, even though the agreement makes no mention of Pisello or his fee, which amounted to more than $76,000 in 1984.
According to the report, Pisello's fee was paid in accordance with a directive from Sugar Hill and that such directives are commonplace in the record industry.
The report also discloses that MCA Records advanced Pisello $50,000 against "future proceeds" of the Sugar Hill deal last January. But the auditors' report says that it is doubtful that the $50,000 will ever be due Pisello.
The report indicates that MCA advanced Pisello's company, Consultants for World Records, a total of $100,000 on a deal involving mats for break dancing. But the venture was unsuccessful and MCA has no mats, the report says. MCA ultimately took a loss of $95,000 on the deal, according to the report.
Backed by Payment Requests
Pisello received another $30,000 in 1984 as an advance against expenses involved in his efforts to start a Latin music label for MCA Records, but that deal also was an apparent failure, the report indicates.
According to the report, the disbursements to Pisello--totaling more than $250,000 since November, 1983--are supported only by payment requests (signed by two MCA Records senior executives) and check stubs. There are no signed agreements with Pisello or his company, the report says.
The report states that Pisello guaranteed the advances by giving MCA executives three undated checks totaling $180,000, and that MCA is still in possession of the checks because Pisello supposedly does not have sufficient funds to cover them. According to an MCA source, the company did not attempt to cash the checks but took Pisello's word that they were no good.
MCA executives are also holding a check from Pisello for another $50,000 but have not cashed it because of supposed insufficient funds, the report says. The check, which was submitted in January but postdated for April, was payment for about 140,000 so-called cutout, or out-of-date, records that were delivered to Pisello-arranged customers in December and January, according to the document.
The report says that MCA Records Group President Irving Azoff had no knowledge of Pisello's involvement in any of the deals, although Azoff is said to have sat in briefly during a 1983 negotiating session for the Sugar Hill deal at which Pisello was present.
The report names Myron Roth, MCA Records executive vice president, and Dan McGill, MCA Records vice president-finance, as the highest-ranking executives who had knowledge of Pisello's involvement with MCA. The report reiterates the company's position that no one was aware of Pisello's background before he was convicted of tax evasion.
The report says that MCA Records does not expect to lose money in the long run on the Sugar Hill deal and still regards the transaction as a basically sound business decision.
Executives of the record company, who spoke only on the condition that they not be named, said the company's position is that the internal audit report clears MCA Records executives of any wrongdoing but not of bad judgment.