The payments would have come into the agency. He then diverted money into his own account, rather than paying it to the authors. But he did take it from the agency accounts, as I understand it.
From what we are hearing, ALL of it came from payments that should have gone to the authors. He diverted what was passing through the agency's accounts on it's way to the authors.
I'm astonished that it took anyone so long to notice what was going on. Royalty statements are sent out by publishers to agencies; agencies then take their cut, and pay the rest to the authors, and send them the royalty statements at that time. If the authors had checked them they'd surely have known that something was up. Unless the accountant produced fake royalty statements too.
Why does this surprise you? Far too many authors do not treat writing as a business, have no grounding in business, and are not interested in business. This is why agents and agencies exist-and why it's so easy for the "bad" ones to rip authors off. I cannot speak to D&O's process, but I do know that some (not all) agencies create a royalty statement for their clients, so it's entirely possible he did create false paperwork. Also have no idea if D&O pass on originals from the publisher or not; some agents keep all the paperwork and just create a single statement for their client (bad ones, again).
Royalties aren't "incredibly complex" to work out: they're just a percentage of cover price, which is an easy calculation to make. Multiply that amount by the numbers sold and you're done. Royalty statements aren't always the clearest of documents to interpret but once you've understood what they're telling you, you can usually work things out.
Indeed; I misspoke. Royalties are not complex to figure out, but some (again, not all) statements can seem like stereo instructions to someone who does not "understand" them. Many authors, especially new ones, simply do not have the experience or even the inclination to learn, simply trusting the agent and agency.
There aren't standards or qualifications for the job, because so much of the work can only be learned by doing it. We, as writers, can do our best to only work with agents of good repute. The ones who start up without any experience are relatively easy to avoid.
I find this statement remarkable. Really, contract law and fiduciary responsibility can only be learned by doing it? If all an agent or agency did was finding talented authors and placing books before editors and publishers, you'd be right. But, obviously, that's not the case. This agency acted as a clearinghouse for funds, negotiated contracts, etc., like most do. They had ONE GUY doing all their accounting/bookkeeping. Obviously no actual accountability or auditing. You would think with millions of dollars passing through there should be a system of checks and balances like any other business, but clearly there was not. And you keep talking about "good" agents and agencies, but this section of the forum exists simply because it's so easy for the BAD ones to take advantage of authors, especially young and/or inexperienced ones, and there's exactly nothing to prevent them from being in business.
I've never heard of a good agency which doesn't give its author-clients copies of their contracts. Can you cite some sources for this claim, please? I'd love to learn more.
I did not say "Good" agency. And yes, these are fly-by-night ones out there, preying on the inexperienced new authors, ripping them off. The phrase "common industry practice" gets used by them to cover up a lot.
Agencies usually treat their author-clients' money with scrupulous honesty and care. It's too risky not to. Yes, of course the writers represented by this agency will be scrutinising their royalty statements and payments now: they'd be foolish not to; but it seems somewhat odd to think that writers at other agencies will now also be checking their earnings. The guilty person here worked at this agency, and this agency only, had been there since 2001, and has not had access to money anywhere else.
I think you mean "good" agencies again. Come on, now. If it can happen to Chuck, it can happen to anybody- and he had no idea. He is just about broke. Here, read this.
http://chuckpalahniuk.net/news/the-big-secret-why-behind-everything-so-far
A lot of authors are going to read that and think hey, maybe I should pay more attention to this sort of thing- and that's great! Trust, sure, but verify. This is BUSINESS. Anybody who thinks publishing and agenting isn't a business, and a cutthroat one in this day and age, needs to do some research back though this section of the forum.
D&O will still be expected to pay all outstanding monies to its authors. Yes, it's going to struggle to do that. Yes, it might have insurance but if it hasn't, it's in trouble. Real trouble. It's awful that so many people will have their livelihoods threatened by the actions of this one man.
Yes, they will be expected to make all their authors whole. However, according to the NY Post, D&O are on the brink of bankruptcy. If they do file bankruptcy, that case will be in court for years, maybe decades. Then what's left after the lawyers are done will get divided up among the creditors, with the most damaged being made whole first. Most authors will get little or nothing. Insurance? Very few private businesses carry specific insurance against embezzlement, and given the accounting practices this agency followed, I'd bet they do not. This guy could not have gotten away with embezzling 3 million plus with any kind of third-party auditing system. He got away with this for at least seven years, probably longer. They will probably find more. And I agree, it's very sad that this guy fouled up so many talented people.
