In a massive operation, Spanish music rights and anti-piracy groups SGAE and SDAE have been raided by more than 50 police officers and tax officials. Operation Saga is the culmination of a two-year investigation into embezzlement, fraud, and misappropriation of funds, the latter connected to SGAE and SDAE collecting money on behalf of artists and spending it with companies they have interests in. The president of SGAE was among 9 people arrested.

On Friday, more than 50 police, tax officials and staff from Spain’s Audit Office were involved in Operation Saga, the culmination of a two-year investigation into the dealings of Spanish music rights and anti-piracy groups SGAE and SDAE.

The groups, which campaign tirelessly for tougher copyright legislation, are the main collecting societies for songwriters, composers and publishers in Spain. Today they are in absolute turmoil.

Acting on a warrant issued by the anti-corruption prosecutor, police raided SGAE’s headquarters in Madrid with orders to detain and question key executives.

Some of the biggest names possible were arrested including SGAE President Eduardo “Teddy” Bautista (right) who was handcuffed and led away under armed guard, Ricardo Azcoaga (CFO of SGAE) and Enrique Loras (Director General of SGAE).

An hour after police arrived some employees were allowed to leave, but not before their laptops and cellphones had been confiscated. Others were detained for questioning while the authorities seized all computers in the sealed-off building. In total the raids lasted more than 14 hours.

The complaint against SGAE stems back to late 2007 when financial irregularities were discovered in SGAE’s handling of the revenue they collect rights payments and revenue from Spain’s blank media levy. The Asociacion de Internautas (Association of Internet Users) and other groups then raised an official complaint with the authorities.

The complaint alleges that SGAE operatives set up companies and used revenue destined for artists to generate profit for themselves and their families, and that money bound for artists living abroad was diverted to personal Swiss bank accounts.

At the center of the storm is SDAE, the digital rights arm of SGAE. Although a notionally separate entity, SDAE is fully operated by SGAE. It appears that when SDAE was being set up, SGAE hired a for-profit company called Microgenesis as consultants.

Microgenesis describe themselves as “a team of specialists in engineering, consultancy and development, managed by individuals with established experience in the fields of intellectual property, as well as the culture and entertainment industries.”

Microgenesis operated a number of companies which provided various services for SGAE and SDAE, some of them suspiciously registered at SGAE/SDAE’s own office address. The problems only deepen when one learns who is behind Microgenesis.

Jose Luis Rodriguez Neri is Director General of SDAE and ex-director of SGAE. His wife, Maria Antonia Garcia Pombo, is the ex-president of Microgenesis. Partner-Chief Legal Officer of Microgenesis is Eva Garcia Pombo. She is Neri’s sister-in-law.

Along with Microgenesis Partner-Chief Executive Officer Rafael Ramos, majority shareholder Elena Vazquez and Partner-Chief Financial Officer Celedonio Martin, all individuals mentioned in the last two paragraphs have been arrested.

The incestuous nature of the business between SGAE, SDAE, Microgenesis and other connected companies is said to have created an illegal and “beneficial economic relationship” for those involved.

It is a huge irony that SGAE, who have longed called for a file-sharing crackdown under a tougher copyright regime, and their partners Microgenesis, a company that provided pro-copyright and DRM solutions for SGAE, now stand accused of fraudulent activities involving funds that should have been for the exclusive use of those they claim to protect – the artists.

The bank accounts of SGAE, which by law is supposed to act as a strictly non-profit organization, have been frozen.