Company Town : Warner Probes Alleged Theft of 20,000 CDs

The record industry is abuzz over news that Warner Music Group is conducting an internal investigation into the possibility that more than 20,000 compact discs in 1994 were stolen and distributed on the sly to retailers.

Sources say that Nick Maria, a longtime sales chief at Warner unit Atlantic Records, and two other individuals were fired in December after it was discovered that $150,000 worth of CDs were missing during an internal sweep requested by Doug Morris, chief executive of Warner Music’s U.S. operations. Maria could not be reached for comment and Warner declined to comment.

Swapping “free goods” with retailers for prime store positioning of new products has been a common practice in the music industry for decades. But in this case, the CDs were allegedly stolen and secretly given to record stores and then sold below cost, with the profit allegedly divided between the retailers and the fired Atlantic employees, sources say. Initially, the probe focused on problems only at Atlantic, but sources say minor discrepancies discovered at other Warner labels are now being scrutinized.

Sources say the probe is being closely watched by executives at competing companies and could trigger an industrywide re-evaluation of the distribution of free goods for promotional purposes--a practice that high-level insiders have long considered to be legally cloudy.