The promotion chief of Fonovisa, the largest independent Latin music label, agreed Wednesday to plead guilty to payola charges, sources said, the first senior executive in the record industry ever to be successfully prosecuted for making improper payments for radio airplay.
Agreeing to plead to a single misdemeanor count, Jesus Gilberto Moreno has admitted to paying cash last year to Spanish radio station deejays, sources said. Fonovisa President Guillermo Santiso was also charged Wednesday with a payola-related felony tax violation, and the Van Nuys-based record label itself, which is owned by Mexican media giant Grupo Televisa, with a felony tax count stemming from falsely reported promotional expenses.
The charges filed Wednesday in U.S. District Court in Los Angeles are the first fruits of a federal probe of corruption in the Latin music business--where sales have recently exploded. The payola investigation was conducted by Justice Department prosecutors in Los Angeles and Washington and agents from the criminal investigation division of the Internal Revenue Service in Los Angeles.
The investigation was first disclosed publicly by The Times last year, and an analysis by the newspaper suggested that Fonovisa's improper payments appeared to have had an impact on radio airplay of Latin music in 1997. Radio airplay is the most powerful promotional tool for record companies.
It is unclear whether the government intends to prosecute any of the radio station deejays who allegedly accepted cash payments from Fonovisa, but sources said authorities plan to expand their probe of promotion practices to examine other Latin music labels and the major record corporations, which are beefing up their Latin divisions in hopes of cashing in on the Latin craze.
Richard Robinson, assistant U.S. attorney in Los Angeles, refused to discuss any details of the Fonovisa case.
"Our office, together with the Department of Justice, has an ongoing investigation of corruption and payola kickbacks in the radio industry for the promotion of recording artists," Robinson said. "Bringing today's charges is a major accomplishment in uncovering these matters and we intend vigorously to pursue this investigation wherever it leads us."
Lawyers for Moreno and Santiso, who are expected to enter guilty pleas to the charges next week, could not be reached for comment. Mark J. Stein and John J. Tigue, attorneys representing Fonovisa, declined comment.
Last year, Televisa acknowledged in a statement released to The Times that Fonovisa had "made certain promotional payments in apparent violation of applicable laws."
The payola investigation was launched nearly two years ago, after Fonovisa asked Stein and Tigue to contact the Justice Department to report improprieties within Fonovisa's own radio promotion department. The reason the corporation was not charged directly with payola this week, sources said, was primarily because it had reported the illegal activities to the government and cooperated fully with the investigation.
In June 1998, authorities served subpoenas on nearly two dozen radio stations and wholesale record distributors, including some in Southern California, requiring them to turn over payroll records and other data that could help document improper payments to program directors and others, sources said.
Sources close to the probe said Fonovisa's promotion department allegedly paid the kickbacks in 1997 by using couriers on its payroll to hand packages containing cash to radio program directors, who agreed to play specific Fonovisa songs. In May 1997, Moreno himself allegedly paid $2,000 to a program director for the purpose of having Fonovisa records added to the station's playlist, court records say.
Fonovisa was involved with underwriting kickbacks at least as far back as 1996, sources said. Fonovisa President Santiso himself allegedly wrote $425,000 in checks to a promotion company that cashed the checks and returned the money to Fonovisa so that company employees could make payola kickbacks to radio programmers, records show.
Federal law prohibits radio stations from taking money for playing specific songs without disclosing the payment to listeners.
Fonovisa ruled the Spanish radio airwaves for 30 consecutive weeks in 1997, with a string of No. 1 hits by singers Enrique Iglesias and Marco Antonio Solis on the Hot Latin Tracks chart in Billboard magazine, the music industry's leading trade publication.
Fonovisa also monopolized the top three positions on Billboard's weekly Latin music airplay chart for the first five months of 1997, regularly cornering about 14 of the top 40 slots,which are based on an electronic sample of airplay from 97 U.S. radio stations by Billboard's sister company, Broadcast Data Systems.
After the kickbacks ended in October, Fonovisa's presence on the chart fell, with the company accounting for just seven or so of the top 40 positions by late November 1997.
The government also charged Fonovisa and Santiso with filing a false federal income tax return in 1992, which included a phony $1.5-million deduction for promotional expenses that the company did not incur, court records show.
Fonovisa is a subsidiary of Grupo Televisa, the largest media company in the Spanish-speaking world. Televisa, which generates about $2 billion annually in global revenue, also has interests in television programming, radio broadcasting, direct-to-home satellite services, publishing and film production.
Fonovisa is credited by many in the industry for developing the U.S. market for banda, mariachi, norteno, ranchera and other types of music that fall into the regional Mexican category.