Case Against Rap Label Is Disputed by Audit

Forensic auditors hired by a lawyer for Vivendi Universal record label Murder Inc. have completed a report that accounts for its business dealings with a convicted drug dealer, people familiar with the situation said.

The report could raise questions about government claims that the label was used to launder illicit funds.

The auditors were retained by Kaye Scholer, a law firm that represents Murder Inc. founder Irv “Gotti” Lorenzo. The law firm declined to comment. The people familiar with the audit wouldn’t disclose who conducted it.

Federal agents raided Murder Inc.’s Manhattan offices five months ago, accusing Lorenzo of laundering drug money for convicted crack kingpin Kenneth “Supreme” McGriff.

In affidavits used to obtain search warrants, the agents alleged that Murder Inc. wrote checks to McGriff under a fake name and helped him hide illicit cash while making the label’s first film project, “Crime Partners.” The affidavits also said McGriff financed and secretly controls Murder Inc., an arm of Vivendi’s Universal Music Group, the world’s largest music company.

The audit paints a far less sinister portrait of the label’s finances, according to sources familiar with the review. Among its findings:

* The launch of Murder Inc. was financed solely with funds from Vivendi’s Island Def Jam division, not money from McGriff, as the government contends.

* Murder Inc., which has generated more than $50 million from the sale of 14 million CDs since its 1998 launch, spent less than $250,000 to help finance the making of “Crime Partners.” And more than half of that amount can be accounted for in two checks paid for film rights to the book on which it was based, potentially undercutting government arguments that the “Crime Partners” money was illicit.

* Murder Inc. wrote no checks to McGriff under any of the aliases listed in the federal affidavits. Nor was McGriff listed as an employee on the label’s payroll.

Federal authorities declined to discuss the investigation, which was launched by the U.S. attorney’s office in Brooklyn. Since the affidavits were written in January, federal agents have interviewed executives from Murder Inc. and Island Def Jam. Whether the government’s view of the case has changed since the original affidavits were filed isn’t clear.

McGriff is in jail in Baltimore and couldn’t be reached for comment. He was sentenced Monday to 37 months in prison on a parole violation for firing a gun at a firing range.

Murder Inc. chief Lorenzo also couldn’t be reached. He and McGriff previously have denied any wrongdoing. People close to the rap mogul privately questioned why an executive earning millions of dollars a year producing hit records would risk his career to launder less than $250,000 in drug money.

Island Def Jam has provided more than $8 million in funding to Murder Inc. Representatives of the label and Universal Music Group declined to discuss the case.

The money laundering investigation has focused primarily on payments connected to “Crime Partners,” a low-budget urban drama that was co-produced by McGriff and stars Murder Inc. artists such as Ja Rule and Charlie Baltimore. Federal officials believe that McGriff created the film solely to launder proceeds from drug trafficking in Maryland and other states, documents show.

The movie, released on DVD in late March, is based on a novel by the late Detroit author Donald Goines, whose work McGriff discovered during his last 10-year stint in prison on a federal narcotics conspiracy conviction.

According to government documents, McGriff resumed selling drugs after his release in 1997 and headed a lucrative drug and money-laundering operation until his arrest on gun charges in September. McGriff’s Supreme Team drug gang allegedly dominated the crack cocaine trade in a Queens, N.Y., housing project during the 1980s.

People close to the former drug lord, and others associated with the film project, say the government got it wrong. In interviews, they described McGriff as a financially strapped ex-con scrambling to reinvent himself as a legitimate figure in the hip-hop community.

McGriff was so broke after his release from prison, friends say, that he teamed up with Jamaica, Queens, entrepreneur Chaz Williams, owner of a small music label called Black Hand Entertainment, hoping to produce a film version of Goines’ “Black Gangster” novel.

In 1998, McGriff and Williams flew to Hollywood to purchase the film rights to “Black Gangster” from Holloway House, a publishing company that controls all 16 of Goines’ books. Within a year, Black Hand had released a soundtrack CD for “Black Gangsta,” but the movie production languished.

McGriff and Williams parted ways in 1999, after failing to raise enough money to renew the film rights to “Black Gangster,” sources said. But McGriff, intent on producing a film, visited Holloway several times over the next five years, attempting to negotiate a deal to acquire film rights to several of Goines’ books.

Once again, friends say, he ran out of money. This time, he turned to Lorenzo, a hot music producer who had just signed a $3-million label deal with Island Def Jam. Like many successful rap figures, Lorenzo grew up in Queens and had long idolized the legendary drug kingpin, even asking McGriff to be best man at his wedding.

In October 2000, Lorenzo lent McGriff $65,000 to help finance “Crime Partners,” records indicate. Lorenzo wrote two checks from his personal account to Picture Perfect, a company owned by McGriff’s sister and associate Jon Ragan, said sources familiar with the audit.

By early 2002, Lorenzo also had sprung for the movie rights to “Crime Partners,” writing two checks to Holloway House that totaled $141,000. He also wrote a $10,400 check to McGriff’s partner Ragan to reimburse him for the cost of plane tickets, audit records show.

After McGriff was arrested on the gun charges in September, Lorenzo offered to treat him to a series of trips to visit relatives. Audit records indicate that McGriff chalked up at most $13,000 in plane tickets, limo rides, hotel bills and other expenses, sources said.

“There is no money laundering here. No narcotics trafficking,” said Robert Simel, an attorney who represents McGriff. “Kenny is broke. He has no money. When all the facts surface in court, all the government will find is a low-budget film.”