U.S. Widens Probe Into Bribery in Latin Radio

Ratcheting up its investigation of corruption in the record business, the Justice Department plans to prosecute top radio programmers who allegedly took bribes to play songs on more than 80 Spanish music stations across the nation, sources said.

The two-year probe has already netted $1 million in fines from a series of payola-related convictions against executives at Fonovisa Records, the largest independent label in the Latin music business. In the months ahead, authorities intend to push their probe beyond Fonovisa and begin looking into alleged kickbacks involving the Latin and urban music divisions of some of the world’s largest record conglomerates, sources said.

As federal agents explore the murky world of music promotion, concern is rising in record industry circles and on Wall Street, sources say. Major record corporations often walk a fine line with broadcasters, providing artists for free radio concerts in exchange for airplay and paying millions of dollars annually to independent consultants who dangle money, audio equipment, luxury cars and exotic vacations before station personnel.

Although federal law prohibits radio stations from taking money or anything of value in exchange for playing songs without disclosing the payment to listeners, sources say questionable promotional practices involving cash continue unchecked at several broadcast outlets that play Latin and urban music. Questions have also been raised recently about whether radio conglomerates may be trying to skirt payola laws by cutting novel promotional deals with pop music labels and independent consultants.

The payola investigation is being 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. Richard Robinson, assistant U.S. attorney in Los Angeles, refused to discuss details of the payola probe but confirmed that the investigation is broadening.

“Our investigation has moved into its second phase and we are now following the money that was paid in bribes by Fonovisa to various program directors around the country,” Robinson said. “We, of course, will scrutinize whether those individuals received payola from other record companies in addition to Fonovisa. As in any other bribery investigation, what we are doing is following the money and we plan to follow it wherever it leads.”

Last week, Fonovisa promotion chief Jesus Gilberto Moreno paid $50,000 and received two years’ probation after pleading guilty to one misdemeanor count of payola. Moreno admitted funneling more than $1 million in payola payments to radio program directors in 1997 but was given a lenient sentence primarily because he and other Fonovisa executives are cooperating in the expanding investigation.

Fonovisa President Guillermo Santiso was also fined $200,000 and given two years’ probation for a payola-related felony tax violation. The Van Nuys-based record label itself, which is owned by Mexican media giant Grupo Televisa, was fined $700,000 for a felony tax count stemming from falsely reported promotional expenses.

The payola investigation was launched after Fonovisa, which releases music by such stars as Enrique Iglesias and Los Tigres del Norte, contacted the government to report improprieties within its own radio promotion department. The government gleaned much of its insight into current payola tactics from numerous interviews conducted with Fonovisa executives, radio station personnel and others, sources said.

“This investigation is certainly broader than what has been revealed so far,” said Peter J. Loewenberg, co-prosecutor in the probe and trial attorney for the fraud section of the Justice Department’s criminal division in Washington. “The only reason why Fonovisa was not charged directly with a payola offense is that they came forward and admitted the existence of kickbacks at their company and fully cooperated with the government investigation of that activity. This should serve as a lesson to anyone else out there right now dealing in payola. The sooner people come in and ‘fess up, the better deal they’re going to get.”

The program directors currently in the government’s sights were allegedly paid cash generated through a variety of tactics. In Fonovisa’s case, the company sold tens of thousands of promotional compact discs to record distributors for cash, which was used to pay kickbacks to programmers to add songs to radio station playlists, sources said.

Fonovisa executives also wrote checks totaling hundreds of thousands of dollars to a third-party promotion company that cashed the checks and returned the money to Fonovisa so that company employees could make payola kickbacks to radio programmers, sources said.

Over the past 18 months, federal agents have pored over subpoenaed data and payroll records seized from dozens of broadcasters across the U.S., comparing the bank accounts, assets and lifestyles of radio station personnel to the salaries they are paid. Programming employees at most stations are required to sign affidavits saying they understand that it is against the law to take money for playing records.

It is unknown what record companies beyond Fonovisa are being scrutinized by the government. Sources say, however, that investigators have received information about alleged kickbacks involving independent consultants that represent major labels in the Latin and urban music market--two of the strongest-selling genres in the $12-billion U.S. market.

Sources say no payola problems exist at major black music broadcast outlets in Los Angeles and New York, but that questionable promotional tactics are sometimes seen at smaller radio stations in the South where labels test-market new songs.

Michael Nathanson, an entertainment analyst for investment firm Sanford C. Bernstein & Co., suggests that the expanding investigation is likely to raise questions in investors’ minds about whether music companies are throwing their shareholders’ money away.

“If any of these allegations end up being proven true, a probe like this has the potential of creating a controversy that could make investors’ scratch their heads and think twice about the music business,” Nathanson said. “You also don’t want any of this boiling over into any station affiliated with the major broadcast groups. That could cause problems.”