The news broke publicly over the holiday weekend. If you blinked, you missed it.

The bookkeeper for a prestigious New York literary agency pled guilty to embezzling millions from the agency, leaving the agency “on the brink of bankruptcy.”

Donadio & Olson has existed for 49 years. Started by legendary agent Candida Donadio, the agency has represented some of the biggest names in fiction for decades.

The curated-to-impress client list on Donadio & Olson’s website includes Chuck Palahnuik, and McKay Jenkins, as well as dozens of estates from Mario Puzo’s to Peter Matthiessen’s. (As well as the estate of an old colleague of mine. Pout.)

The New York Post article, which is what I saw initially, called the perpetrator the accountant for the agency. The actual legal complaint calls him the bookkeeper. The actual criminal charges against the bookkeeper, Darin Webb, were filed on May 15 in federal court. Webb was charged with wire fraud for embezzling $3.4 million. A forensic audit is now occurring at Donadio & Olson, and there is speculation that the amount of money Webb stole will go much, much, much higher.

Here are the facts of the case as reported in the press. $200,000 that an unnamed writer represented by Donadio & Olson expected last year never arrived. The writer kept contacting Webb, who lied about what was going on with the money. Finally, fed up with the delay, the writer contacted someone else at Donadio & Olson. (That person isn’t named either.)

Apparently, that contact opened a huge can of ugly. If you read the account on Law360, what you see behind the calm words of the reporting is a short tale of an agency in panic.

The agency filed for an order of attachment against Webb, a civil complaint that let them go after his assets. This case, a civil case, was filed under seal in April (meaning we can’t look at it, because it’s not public record). At the same time, I’m guessing, the criminal complaint got started. The criminal complaint takes longer, and finally charges were filed…on a federal level because Donadio & Olson were sending money all over the United States (and the world).

The panic is clear in the calm language of Donadio & Olson’s attorney on the civil case. He said, the agency is focused on “ensuring that all of its impacted clients are made whole to the greatest extent possible.”

To the greatest extent possible.

I have no idea what that means, exactly, because this now enters an area of agents and agency that I have never investigated—although you’d think I would have. (Dang. I’ve overlooked something else.)

Most business have insurance that protects them against outside disasters. But inside ones? In which an employee does something illegal, something that the agency should have prevented in the first place? Would that be covered by insurance? I doubt it. But I’m not an insurance expert, and I don’t know insurance law.

Even if the agency is insured against this kind of disaster, it would take years for the insurance to pay out, because the court cases have to go through first. And really, there are other questions here that an insurance company would want answered.

How much of this problem inside Donadio & Olson was caused by negligence on the part of the agency? Webb apparently worked alone, with no back-up. He handled the finances for the agency, received the money and the paperwork from publishers/movie studios/game companies, and then (in theory) passed that money onto the clients, retaining Donadio & Olson’s 15% commission. Did Donadio & Olson require this bookkeeper, who was hired at the tender age of 28, to be bonded? What level of degree did he have? Was this his first job?

How come no one backed him up? Did Donadio & Olson hire a CPA to review their books every year? Did Webb fudge those books before they went to the CPA?

How much of this could have been prevented with average due diligence, the kind of stuff you expect someone who has a fiduciary responsibility to clients to have?

All of those questions and more need to be answered before any insurance settlement would be considered, let alone paid.

To the greatest extent possible.

In other words, my friends, Donadio & Olson does not have the financial resources to make up for a theft of $3.4 million, let alone any more potential losses that the forensic accountant might turn up.

The complaint alleges that Webb stole money as far back as 2011. However, according to Law360, he worked for the company since 1999. Did he start this behavior then? Or after Candida Donadio died? (Which seems likely. Agencies go off the rails when their founders leave or die.)

It’s pretty easy to steal from writers’ estates. I worked with a number of them on some projects in 2015 and 2016, and with one exception, the agencies or the organizations in charge of the estates didn’t give a crap about resale, about payment, about anything. Most of them weren’t even familiar with the story I wanted to reprint, and only one of them had an author’s preferred version that they sent to me. (I asked.)

I probably could have reprinted those stories and never paid any of the estates. I probably would not have been caught in most cases. And that’s rather minor theft.

Now, imagine what’s going on with estates like Puzo’s, which includes all of the monies still coming in from the movies, from licensing, from the books (which are still in print). These are multimillion dollar ventures, handled every year by Donadio & Olson, with no one overseeing the day to day running of the finances.

Oh, my. The money was simply there for the taking.

The thing is, Donadio & Olson is a “reputable” agency. The New York Post used the word “prestigious” in describing the agency. Donadio & Olson was, until last week, a gold-standard agency, one that most young writers might have aspired to have as representatives.

When I Googled this, to find articles other than The Post’s, I had to type in “Donadio & Olson embezzlement” because Donadio & Olson had proper search engine optimization. The first page of Google was all about how to hire these folks to represent a writer’s work.

Still.

And their website still invites people to submit.

Oh, my.

According to The Post, Webb confessed to “company executives and their attorneys” in March. A videotaped confession, mind you. Donadio & Olson was still blogging about writing and such on its site in April, acting as if nothing was wrong.

And then…and then…

Well, here’s The Post:

Some writers represented by the agency told The Post they had not been contacted about the theft, and did not know if it affected their royalties.

“This is the first I heard of it,” said McKay Jenkins, a nonfiction author.

Bert Fields, a lawyer representing the Puzo estate, said he learned of the arrest from The Post.

In other words, Donadio & Olson has not informed its clients—to whom it has a fiduciary responsibility—that their one and only bookkeeper confessed to massive embezzlement. The agency has known about this since last fall.

Sadly, I am not surprised by any of this. As I have blogged about before, literary agencies are not regulated. Prestigious agencies embezzle. I’ve personally had one of the biggest boutique agencies in the world embezzle from me. (And I suspect they still are, although I can’t prove it. But there are licensed properties—tie-ins—that I wrote whose royalty statements I cannot get my hands on because no one at the licensor will cooperate with me. The books have been in print for 25-30 years and I have never seen a dime in royalties. Ever.) I’ve also had one of the biggest fraudsters in the industry steal from me. I speak from hard-earned life lessons here.

The boutique agency is still stealing from clients. One of their agents got so abusively angry at me when I asked to reprint one of their client’s short stories that I had to shut down my computer and tremble for a few minutes after reading the email. The client, whom I contacted first, never told me that she had an agent, and she had no idea what she had sold. Figuring she was a clueless idiot who signed a contract she didn’t understand, I told her to let me know what the contract said about the rights she had licensed and I would tell her whether or not I could reprint it. That’s when she told me she had an agent, he made the deal, and she had no idea what was in it. None. No idea. Then he wrote me a vicious letter, telling me under no circumstances should I ever question what he had done for his client.

Um…wow. And why so much anger on a simple and straightforward business matter? How much money is this guy pocketing, not just from her but from everyone else he represents?

The fact that no one knew this embezzlement was happening at Donadio & Olson doesn’t just go to Webb’s fraudulent practices. It also goes to the writers themselves.

Because they aren’t managing their businesses well.

I understand how someone could notice the missing $200,000 payment that they knew was coming. But what about the subsidiary rights sales that no one bothered to tell them about? The royalties on already sold foreign books? The licensing payments from movie-related merchandise? The reprint fees?

I keep imagining those Donadio & Olson writers who have big book deals still working a day job because “there’s no money in writing.” There’s no money in writing when your agent is stealing it from you, that’s for damn sure. In fact, if you want to read a very sad illustration of what happens when an agent embezzles from a big name writer who only has a few properties (not hundreds like, say, Nora Roberts), read this about Chuck Palahniuk from The Guardian. (And thanks to one of my Patreon supporters for sending me that link when the post went live on Patreon.) And here’s his blog post on the theft.

If writers have literary agents—and no writer should—but if a writer for some reason feels they need an agent, then that writer needs to make sure the publisher/game company/film company splits payments. The company pays the writer her 85% and the agent his 15% directly. No money ever ever ever goes through the agent’s hand, except the money he earned.

Better yet to pay 100% to the author, and have the author pay the agent the 15%, just like you’d pay the housekeeper. But agents complain about that. Seems agents think the writers won’t pay them in a timely fashion.

Y’know. Like agents do.

So. Writers.

Do not hire literary agents. Even the so-called reputable ones. Even if the agent is ethical, you don’t get to vet their employees. Many of them could have sticky-fingered bookkeepers who handle all of the money and the paperwork. [sigh] If you already have a literary agent, extricate yourself from this relationship. Cancel it, get your books out of that agency, and hire an attorney to do your negotiations. Learn your business, for god’s sake. Keep track of what rights you’ve licensed, who owes you money for what, and when payment is expected. Then watch it like a damn hawk. Never give anyone unfettered access to your money. Not an agent, not a financial manager, not a banker, no one gets access to your money except you. No one. Ever. Never sign a power of attorney with an agent. Or a financial manager or anyone you hire. Ever. Ever. Understand what you’ve signed. Understand the deals you make. Learn how to run a business. Don’t be an “artist” who “has people for that.” What you actually have are people who will eventually stick their fingers in your pockets and rob you blind—because you volunteered.

Okay.

Now, let me be clear about the extent to which the writers and estates might suffer under this crisis at Donadio & Olson. Before I get going, though, realize that I have not worked with Donadio & Olson. Ever. Not even as an editor trying to license rights. I have no idea whether or not they work on a handshake, a fifteen-page agency agreement, or something in between. I do not know how much money goes through that agency on a daily basis or how much its clients earn.

Got that?

For the rest of this blog, I’m working on a worst-case scenario hypothetical.

If Donadio & Olson has one of the terrible agency agreements, the kind I dissect in Closing The Deal On Your Terms (and some of which you can find by clicking this phrase), then their writers are in the worst possible trouble.

Many of these terrible agency agreements give the agents a partial ownership in each property they represent. If the agency has partial ownership of these properties, then the properties are an asset of the company.

That’s bad enough in a healthy literary agency. (It means the writer will never really be free of that agency, barring massive legal wrangling.) But in this case, well, it’s just plain ugly.

Because The Post says that Donadio & Olson are “on the brink of bankruptcy.” If that is indeed the case, and the writers have a standard (shitty) agency agreement with the agency, then each property the agency represented will become an asset of any bankruptcy.

In other words, the writer will lose control of their books. A bankruptcy court will decide the book’s future, including what happens to its future earnings.

The writer will have no say in this because the writer had already agreed to give partial ownership to their agent.

So, in addition to those decades of financial losses, which are probably unrecoverable, the writer might lose all rights to and all control of the very work that earns them a living. In the least egregious circumstance, the writer will have to hire an attorney to extricate the writer from the bankrupt agency.

No agency can survive the financial losses that Donadio & Olson is facing. They won’t be able to recover all of the money from Webb. That money is long gone. Even if Donadio & Olson is insured against this kind of thing (and I have no idea how they would be), that money won’t arrive in any kind of timely fashion. Donadio & Olson might have other assets to sell, like (perhaps) their Chelsea offices, but those won’t cover everything this guy stole.

And that doesn’t count the fines, the financial mismanagement, the other charges that Donadio & Olson might be subject to because they failed in their fiduciary responsibility to their clients.

This problem with the bookkeeper was eminently foreseeable. Any well managed firm should have had at least two people reviewing the checks, probably even two signatures on checks over a certain amount, plus period accounting reviews. Clearly Donadio & Olson did not do this.

I don’t know any literary agency that does this.

I also know that most writers will not have heard of this problem, because it only appeared on Publisher’s Lunch, Law360.com, and The New York Post. I forwarded it on Twitter, but that probably won’t do much good. Most of the clients of Donadio & Olson still haven’t been informed that their literary agency is on the verge of bankruptcy. And potential clients are still being solicited via the website.

I know over the years many (read: most) of you have doubted me when I have said that literary agents—reputable agencies—embezzle as a matter of routine. Most of you still envision some fly-by-night agent that you would never ever personally hire.

The fact is if you have a literary agent, you probably have lost money through negligence, financial incompetence, or actual embezzlement.

Time to get away from this very 1950s way of operating. Time to come into the 21st century, and handle your own business affairs. Hire lawyers, hire actual accountants, learn how to manage your copyrights yourself.

And for heaven’s sake, stop believing the myth that someone will take care of you so you can be an artiste. That myth will only result in heartbreak and financial ruin.

Ask the clients of Donadio & Olson…once they discover what really happened to all their money.

****

This weekly blog and all of its occasional warnings about the dangers of agents exists because of the support from you readers. You’ve been wonderful over the years, supporting me by sending me information or by donating. Those of you who donate do keep the blog alive for everyone. So thank you!!!

If you feel like supporting the blog on an on-going basis, then please head to my Patreon page.

If you liked this post, and want to show your one-time appreciation, the place to do that is PayPal. If you go that route, please include your email address in the notes section, so I can say thank you.

Which I am going to say right now. Thank you!

Click paypal.me/kristinekathrynrusch to go to PayPal.

“Business Musings: An Agent Nightmare Revealed,” copyright © 2018 by Kristine Kathryn Rusch. Image at the top of the blog © Can Stock Photo / Elnur.









Like this: Like Loading...