Payola Rock

After weeks of rumor mongering, the $3 billion-a-year record industry last week was spinning toward what could become its biggest crisis since the payola scandals of the late 1950s. Though industry involvement so far has been limited to relatively minor charges against four former employees of CBS'S Columbia Records, the entire record business was rocked with sensational rumors of extortion, drug deals and million-dollar embezzlements (TIME, June 11). "Everybody in the business is shaking," said one rock-'n'-roll publicist. "And let's face it. The record industry is very vulnerable."

Federal authorities would seem to agree. They have been told by CBS that Clive Davis, 41, the onetime wonder-boy president of Columbia Records, was involved in siphoning off money from the corporation by presenting phony bills. Though CBS has officially charged Davis with taking only about $87,000 for his own use, the Government is probing an elaborate scheme in which Columbia--and perhaps other record companies--may have been bilked of many millions of dollars. Columbia Records alone reportedly lost $2,000,000. Investigators were trying to find out whether the Mafia had got a firm foothold in the record industry, or whether the Columbia Records scandal was an isolated incident.

The potentially explosive investigation began in February with a grand-jury indictment of a New Jersey talent agent named Pasquale Falcone, who has represented such Columbia moneymakers as Sly Stone, Lynn Anderson and Tommy Cash. Indicted with him was Columbia Receptionist Francine Berger. Both were charged with involvement in a multimillion-dollar heroin-smuggling operation. As federal agents delved into Falcone's activities, they discovered that he had a sideline: a fictitious trucking firm that allegedly billed Columbia Records for services that were never performed. Among Falcone's papers, investigators found the name of David Wynshaw, director of artist relations at Columbia. A memo in Wynshaw's desk detailed--among other things--cover-ups for personal expenses of President Clive Davis. Both Davis and Wynshaw were fired for "misuse of funds," along with Anthony Rubino, director of marketing administration, who had initialed expense vouchers.

CBS emphatically denied any corporate "wrongdoings." Last week it requested the prominent New York law firm Cravath, Swaine & Moore to conduct a "thorough investigation" into "current rumors of other irregularities." Nonetheless its stock dropped to the year's low of 30% last week, down 5% points since Davis' dismissal.

In the rest of the industry, the mere mention of a record executive's name in connection with a drug indictment touched off shock waves. Indicative of industry jitters was the reaction of a

West Coast record executive to a friend who phoned to tease him last week.

"Hi," said the friend jokingly. "Do you happen to have a spare ounce of coke [cocaine]?" "I'll call you back," said the executive tersely. Minutes later he called--from a pay phone in the hall.

"Are you out of your mind?" he snapped at his friend. "Has your sense of humor gone berserk?"

Actually, such a request for dope is not all that uncommon in the music world. "A major star brings in millions to a record company," explains one radio program director. "If he says he wants some drugs, it's hardly surprising that they try to keep him happy.

After all, there's only so much money they can give him, and he could get the same amount of that from another company." Record companies have always had to procure for their stars, says a music publicist. "It used to be broads for the top singers in the forties and fifties. Now it's coke, smack, grass or whatever."

Some industry insiders cautioned that the rumors, particularly about drugs, have been overblown. Others argued that Davis had been made a scapegoat. Still others contended that Davis was no favorite of New CBS President Arthur Taylor and was simply a foredoomed victim of a corporate squeeze.

Davis, they added, was too intelligent a man to get himself involved in payola of any kind.

Indeed, Davis seemed an unlikely scoundrel. Until last month he was generally considered the most powerful record-company executive in the business.

Last Christmas, Rolling Stone sent him a gag gift--a mock-up of a cover photograph of Davis with the billing, "Should the recording industry name an Emperor?" An attorney with little experience in the music field ("I thought Simon & Garfunkel was a law firm," he once noted of his pre-Columbia days), Davis was head of Columbia's U.S. records division by 1967. Described by a former associate as "Mr. Super Straight" and "Mr. Dignity," he was nonetheless one of the few record executives to recognize the rock revolution in its early days. For his efforts, Davis last year earned $350,000.

Though Davis has been subpoenaed by a Newark federal grand jury investigating the record industry, he has not been accused of any criminal act. CBS insisted that he had had no involvement in drugs or other wrongdoing. The corporation's only action against him has been the civil suit to recover $87,000.

Phony Bills. In addition to Davis, the grand jury has subpoenaed the "officers" of several fictitious companies. At least four companies are suspected of serving as conduits for funds embezzled from Columbia Records. According to federal investigators, the companies exist on paper only, in order to provide phony bills for such "services" as travel and technical help. The bills then presumably were paid by Columbia as legitimate expenses.

Meanwhile, in Los Angeles separate investigations of the record industry were being conducted by the FBI, the Internal Revenue Service, the Bureau of Customs and narcotics agents. Federal investigators on both coasts were extending their probe beyond Columbia Records to take a broad look at the record industry.

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