From Publishers Weekly:
The Donadio & Olson literary agency filed for Chapter 7 bankruptcy December 3 following years of embezzlement by its former bookkeeper, Darin Webb, who was sentenced December 17 to two years in jail for his crimes.
The agency filed for Chapter 7 in the U.S. Bankruptcy Court for the Southern District of New York, listing assets of $47,241.90 and liabilities of $186,613.90. The agency’s authors are owed a total of $2.7 million in royalty payments. The firm has already begun liquidation proceedings.
The two principals in the firm, Edward Hibbert and Neil Olson, explained how the embezzlement led to the downfall of D&O in separate letters to the judge made public at the time of Webb’s sentencing. Olson provided the more complete explanation of what took place, saying that Webb had been the agency’s bookkeeper for about 20 years and, during that time, had taken over most of the agency’s back office functions. What looked like dedication to the job, Olson wrote, was really part of Webb’s scheme to steal $3.4 million.
According to Olson, Webb, over time, stole an “ever larger portion of our and our client’s money. His means of doing this were complex—hidden bank accounts, fraudulent reports, gently squeezing out a part-time assistant who asked too many questions.”
When Webb confessed to the theft, it became clear, Olson wrote, that he did not “have the means to repair what he has ruined, and we do not have the means to continue.” As a result, Olson wrote, the agency “will cease to exist within weeks.” (The letter was dated October 21, 2018.)
Link to the rest at Publishers Weekly and thanks to Kris for the tip.
PG wonders how much money the principals of the agency, including Edward Hibbert and Neil Olson, have received from the agency during the last year or so.
He asks because US bankruptcy laws include what are sometimes called “clawback” rights of creditors for any Preferential Transfers by the bankrupt entity or person.
Here’s one description of preferential transfers:
A preferential transfer occurs when a debtor, prior to filing for Chapter 7 bankruptcy, pays off a particular creditor or group of creditors and by doing so, causes other creditors to get less in the bankruptcy. For example, a debtor may wish to repay a debt to a friend or family member, to make sure that person gets paid in full (and shield the money used to repay the debt, which would instead be divided among all of the debtor’s creditors).
. . . .
Only transfers made within a certain amount of time before you file for bankruptcy count as preferences. The rules depend on your relationship to the creditor:
- During the year before you file for bankruptcy, any payment of more than $600 to an “insider” creditor — typically, a friend, family member, or business associate — counts as a preference, subject to the clawback.
- During the 90-day days before you file, any aggregate payment of more than $600 to a regular creditor (someone other than an insider).
The problem with preferential transfers (also called preferences) is that it benefits one creditor at the expense of the rest. Rather than having their debts tossed into the bankruptcy hopper and receiving pennies on the dollar from the bankruptcy trustee (if that), creditors who receive preference payments are paid in full (which leaves that much less money to be distributed to other creditors).
If the agency is a corporation (the Donadio & Olson website identifies the entity as “Donadio & Olson, Inc.”) and the corporation has filed the Chapter 7 petition, it is possible that payments to corporate officers, directors, shareholders or other insiders during the year prior to the bankruptcy filing date or during the 90 days prior to the filing date could be subject to clawback proceedings as described above.
It has been a very long time since PG has worked on any bankruptcy matters, so he’s not current on bankruptcy law, but authors who haven’t received royalty payments the agency collected and spent on salaries and bonuses (if any) for corporate insiders may wish to consult competent bankruptcy counsel to see if they might be able to collect at least some of that money.
It would not be unusual for a single attorney or law firm to represent a class of creditors who are similarly situated rather than each creditor hiring his/her own counsel.
Great example why all authors with agents should demand split payment, not that they will.
If I heard this phrase said of an accountant in court, I would laugh out loud. I would probable get held in contempt, but it would be worth it.
I find the sentence to be unconscionably light. Seven years a thief, seven years a prisoner.
Put him in with the general pop.
Yeah, for him, crime paid on the order of $1.7M a year. Plenty of folk would volunteer to do two years for $3.4M tax free. Given the scale of the plundering, two decades would’ve been more fitting.
General population?
Dunno; wouldn’t that let him teach others? That’s how it works in prison, no?
He’ll be back in the news soon enough.
I expect that it would get him buggered and killed, but you may be right.
I don’t know what Chapter 7 bankruptcy covers. Does it mean that someone could buy up the rights to thousands of books on the cheap?
Hopefully at some point they’d let their newly acquired author know.
A literary agency doesn’t (or shouldn’t) hold any rights to any of the books it represents. It has the right to represent the author or the author’s estate in negotiations to license the rights to the author’s books, and the right to receive 15% of whatever income those licenses generate. How much is that worth in bankruptcy? You tell me…
It would depend on the way the representation contract is written, I suppose. Agents have taken accounts with them when leaving agencies; some with, some without author authorization. The agency vig is supposed to be for the life of the copyright and many claim ownership of it whether the author remains with them or leaves so it might be seen as an agency asset to be used to pay the creditors.
In this case, though, the creditors are (some of?) the authors/estates so unless he only ripped off some authors and not others it would be just an, ahem, bookkeeping exercise in paying them with a piece of their own royalties. If only a few were victimized, they might end up receiving payments out of somebody else’s royalties.
Messy, messy, messy.
Given how long he got away with it for, he probably figured out quite quickly which clients would complain if they thought any money was missing, and left them alone after that (after making up the shortfall with money taken from clients who he knew wouldn’t complain).
Almost certainly.
Those kinds of scams typically start with small tests and snowball as they get away with it.
Fox in the henhouse.
I suspect competent financial managers are all sitting around asking the same question. What are the details of the transfers from one bank to another? How did he do it? What kind of accounts received the money? How many? In how many banks? How were the accounts titled? How were the transactions journaled?
There are lots of ways to do it, but there are also lots of ways to prevent it. There are also red flags waving in the breeze whenever a single long term employee has all the financial controls. Many are scrupulously honest, but all all should be subject to controls.
Whenever I read these things, I’m reminded that Barings Bank failed after over 200 years because of a single person controlling both trading and back office in Singapore. It could easily have been caught, but the senior VP from London who went out there to audit failed to walk across the street and get an actual bank statement from the Bank of Singapore.
Like Nigerian email scammers, he may have carefully picked his victims. Notice how many were trusts; and the trusts may have been overseen by attorneys or accountants or bankers or agents in turn who weren’t paying much attention to how much money should have been coming in.
Multiple points of responsibility can sometimes make failure more likely because there’s the expectation the Other Guy will take care of it.
Just another reason publishers should be sending the authors an invoice even if the money goes through the agent – it would help show when the agent is cheating them.
And we have yet another good reason not to let an agent anywhere near your book/contracts/money.
MYMV and the people you deal with be honest …
Absolutely!
Just another tribal excuse.
He was taking care of *his* people, his *family*.
Riiighttt!
I think there was the ego component of being more than a mere bookkeeper, he was a founder and executive of his own impactful enterprise! (blech).
That really pushes some buttons for some people. One of my family members committed suicide when his business failed; to be seen as a business success was his entire identity.
There’s nothing “mere” about bookkeeping.
It is a vital part of any business, big or small.
Just his ability to steal that kind of money proves it. As for self-image, if his image mattered that much he would have jumped off a bridge when the scam was discovered.
No, he’s just a crook and a huckster trying to justify the unjustifiable; he weasled his way into a position of power over incompetents and took advantage of it for his own ends.
No excuses fly.
There’s nothing “mere” about bookkeeping.
It is a vital part of any business, big or small.
But I do find it so tedious that artists have to deal with those people. I mean, like, I just can’t imagine the toll dealing with numbers all day must take on a human soul.
It does seem to illustrate how fuzzy the money accounting is in a literary agency, potentially if not actually.
Royalty statements offered twice a year with the authors being made to feel as if asking for an accounting would cost them representation is rife with mismanagement and outright theft opportunities, as well as occasions for sheer incompetence.
It boggles the mind. And if the author is no longer with us, worse.
It’s worth reading this article that details his motivation and methods:
https://www.publishersweekly.com/pw/by-topic/industry-news/publisher-news/article/78860-darin-webb-gets-two-years-in-prison-for-embezzlement-scheme-that-destroyed-donadio-olson.html
“In a pre-sentencing memo filed last week, Webb’s attorneys detailed the theft, explaining that the vast majority of the stolen funds went to support Webb’s business, Sum Innovation, which, as part of its mission, had included a non-profit arm that provided “training and employment opportunities for underserved communities.”
But over the years, as Webb’s payroll ballooned, rather than scale back his vision, Webb began siphoning funds from his main client, literary agency Donadio & Olson, to cover his business’s payroll expenses. The vast majority of the stolen funds, Webb’s attorneys contended, were paid out to cover payroll expenses, not for Webb’s personal use.
In a letter to the court, Webb explained that he was able to pull off the scheme because, over time, he came to think of himself as “running” the agency.
“I don’t recall exactly the first time I transferred money from the agency into Sum Innovation,” Webb’s letter to the court states. “I told myself I was investing in my company and it would benefit the agency in the end. I told myself I was supporting the families that worked for me. I told myself I would pay it back. I could not let this fail. I saw the potential we were striving for, I just needed to hold on until it all worked. I suppose you could compare the feeling to gambling or drug addiction. Just one more card, one more hit.””
““Over the course of approximately eight years, Webb transferred at least $3,414,650 from D&O’s bank accounts into bank accounts controlled by Webb,” the sentencing documents reveal. “The scheme spanned more than seven years, beginning in 2011 and ended only when the fraud was uncovered, in March 2018. It caused D&O to cease operations and declare bankruptcy, and the owners of the agency to lose their business and livelihoods. It also harmed many of D&O’s clients and their successors.”
In asking for a sentence of 4-5 years in prison, U.S. attorneys rejected Webb’s contention that his crime was merely a “stark departure” from a “previously straight and laudable path.” Rather, prosecutors portrayed Webb as a “self-serving criminal” who “engaged in hundreds of unlawful transfers; hundreds of individual acts of theft and deceit; and countless lies to cover it all up.”
Among the details in the filing was the astonishing number of unauthorized transfers Webb made over the span of his theft, which ranged from $1,000 to $75,000. According to the filing:
In 2011, Webb made 40 unauthorized transfers, totaling $288,500.
In 2012, Webb made 45 unauthorized transfers, totaling $380,000.
In 2013, Webb made 43 unauthorized transfers, totaling $425,000.
In 2014, Webb made 33 unauthorized transfers, totaling $392,500.
In 2015, Webb made 45 unauthorized transfers, totaling $565,500.
In 2016, Webb made 48 unauthorized transfers, totaling $413,000.
In 2017, Webb made 97 unauthorized transfers, totaling $963,900.
An appended document also shows that of the $3.4 million Webb stole, more than $2.7 million came from royalty payments due the agency’s authors, estates, or their assignees, with two clients suffering the greatest: Chuck Palahniuk, the bestselling author of Fight Club, who was bilked of $1.44 million; and the five children and the Estate of Mario Puzo, author of The Godfather, which was cheated out of a combined $757,000.
Among the other major victims: the Edward Gorey Charitable Trust ($59,829.84); The Peter Mathiessen Trust ($64,208.96); Joseph Heller’s assignee ($35,665.97); Studs Terkel’s assignee ($60,458.22), and Michal Herr’s assignee ($71,988.70).”
Webb has a Youtube channel with training videos for bookkeepers.
https://www.youtube.com/watch?v=Sz-dazaf1w4
Although they point out that it was mostly royalty payments that were stolen, the article goes on about how it’s the agency that is the victim. The victim quotes are from Olson and Hibbert.
Thing is, these guys are absolutely (one would think criminally, if that’s possible) incompetent. They paid so little attention to money, which is a huge part of what being an agent is all about, right? — that they didn’t notice almost 1/2 a million a year disappearing?
It’s not the bookkeepers JOB to make sure that the bookkeeper isn’t embezzling. It’s the owners job – the agents – and, frankly, the authors could have been a bit more proactive as well.
It should not have taken 7 years and 3.4 million dollars for this to come to light. Incompetence all around.
I’m also wondering about the responsibility of the banks involved, as it looks like a lot of the transactions were under $10k (possibly a structuring violation) and the bankers also should have been wondering how an online bookkeeping school for low-income individuals could be doing such revenue.
I mean, he could have been *shudder* dealing drugs.
That point struck me too. The whole bit about how he thought of himself as “running the agency” and how he told himself that the agency would benefit in the long run overlooks the fact that it mostly wasn’t “the agency’s” money he was stealing: it was the agency’s clients’. He doesn’t even try to justify how his manipulations might benefit Chuck Palahniuk.
Now, I suppose I shouldn’t read too much into what’s obviously the self-serving justifications of a criminal, but I wonder how widespread that mindset is in literary agencies: all money paid by the publisher belongs to the agency until they condescend to pay some portion of it to the author.
> Chuck Palahniuk, the bestselling author of Fight Club, who was bilked of $1.44 million;
—
The Web says his net worth is about $10M. $1.44M is still a pretty big bite.
If he doesn’t have a business manager, he needs one. If he has one, he needs a better one.
Never mind the gvmt. 3.4 MILLION and nobody noticed?
Probably because they too were getting while the getting was good. Odds are there’s move than a $3.4M delta between what the publishers paid and the authors got.
That’s how “the Universe takes care of you”.
Go ahead, trust them.
What I keep coming back to is: they were in business *how* long without being audited by either the state or the Fed?
Since when does the government routinely audit businesses?
In my experience, it’s normal for either the state or the Fed to audit every three to five years.
What industry is that?
Large companies are indeed subject to almost constant audit for one thing or another, but auditing 20-33% of all small businesses each year is far beyond the resources of the IRS or state.