MCA Audit Details Ties to Pisello : Points to Funds Paid by Record Unit to Alleged Crime Figure

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.

Bad Judgment

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.

“We can’t say we haven’t been stupid; we accept the fact that we were conned,” one executive said.

“Our guys simply got swindled out of $250,000,” another said. “After the first deal went bad, they should have cut it off, but, in the hope that they could eventually salvage things, they threw good money after bad.”

This week the Justice Department filed a motion requesting that Pisello be jailed pending his appeal on the tax conviction. Calling him a “danger to the community,” the department said that Pisello “maintains no normal employment yet engages in multimillion-dollar transactions with MCA and other local business entities which remain at the mercy of his now-proven unethical business practices.”

A sentencing memorandum filed by the Justice Department’s Organized Crime Strike Force disclosed Pisello’s involvement in the 1983 Sugar Hill distribution agreement, the break-dance mats and Latin music deals, and his role as a middleman in the 1984 sale of 60 truckloads of cutout records valued at $1.4 million to New York-based Roulette Records.

The internal MCA report gives much greater detail on those transactions and discloses a subsequent $50,000 sale of cutouts directly to Pisello. The report also spells out Pisello’s role in helping to arrange MCA’s pending purchase of the Checker/Chess/Cadet record catalogues from Sugar Hill Records.

1983 Agreement

According to the MCA report, Myron Roth made a verbal agreement to forgive $130,000 in advances to Pisello for his aid in arranging the deal with Checker/Chess/Cadet.

The report says that Pisello’s dealings with MCA apparently began with the 1983 Sugar Hill distribution agreement. MCA sources claim that Pisello was introduced into the negotiations by Joe Robinson, owner of Sugar Hill Records, which is verified by Robinson’s attorney.

The MCA sources said that, based on Pisello’s role as an “agent” for Sugar Hill, MCA agreed to have Pisello act as a middleman in the April, 1984, sale of nearly 5 million cutout albums and cassettes to Roulette Records. The report does not say whether Pisello was paid anything for his role in that deal.

The MCA report says the company official most responsible for making the Roulette sale, as well as the subsequent sale directly to Pisello, was Sam Passamano Sr., former vice president of distribution for MCA Records, who was fired last December after 34 years with the company.

In an interview, Passamano said he reluctantly “executed” the Roulette deal upon instructions from Myron Roth and Dan McGill and that he had nothing to do with the second sale to Pisello.

The report says Roulette Records has paid MCA only about $600,000 of the $1.4 million it owes on the deal, supposedly because Roulette believes that it did not receive all of the cutout titles that it had been promised. According to the MCA internal audit report, there was no formal written agreement documenting the terms of the Roulette sale.

Roulette is owned by New York businessman Morris Levy, who also has a financial interest in both Sugar Hill Records and the Chess/Checker/Cadet catalogue.

The report says MCA is attempting to retrieve the records it sold to Roulette.