Rapper Notorious B.I.G. famously rapped “Mo’ Money, Mo’ Problems.” When success strikes and brings its own financial concerns, Michael Spindler is a specialist who can help. With a career in profit participation audits, royalty inspections, most-favored-nation inspections, reviews of business managers and more forays in forensic accounting, Spindler talked with the Biederman Blog about his field:
Q: Who are your typical clients? Do you typically represent studios? Production companies? Distributors? Individual profit participants?
A: My clients range from the major film studios to independent film, talent, producers, writers and studio heads. Our services include (profit) participation audits, royalty and most-favored-nations inspections, internal investigations, litigation support, expert witness testimony and reviews of business managers, so our clients can determine if their funds are being handled appropriately.
Q: Without naming names, what projects are on your to-do list?
A: Our current projects include performing a review of a business manager on behalf of a television show producer, looking at FCPA issues related to film production, investigating an internal embezzlement, investigating alleged thefts of trade secrets and assisting a studio executive in determining amounts due from a prior employer under an earn-out provision.
Q: What’s your philosophy on exercising audit rights? In a clubby business where relationships are everything, how does actually exercising audit rights change the dynamics of a relationship?
A: Some people have a fear that an audit will have a negative impact on the relationship. Actually, it’s a normal part of the business relationship and companies are undergoing audits all the time. The process will help the parties ensure they are on the same page regarding contract interpretation and should result in an increased level of respect, as the companies that you are dealing with them in a professional manner and are taking the steps to look after your interests. They will be less likely to take advantage in the future if they know that someone will be watching them.
Q: You seem to be a ‘fixer’ called in when problems arise. What preventive advice do you have at the outset for those who deal with talent on both sides?
A: When people talk about “Hollywood Accounting,” they’re usually not talking about the accounting that goes into a company’s financial statements. It refers more to the contractual definitions and the understanding between the parties as to how contingent compensation (participations, royalties, etc.) will be calculated. It is important for all parties to have a clear understanding of what the definitions mean and how they will be applied. An early audit can be valuable in identifying, early on, any issues in interpretation that have arisen and to address them before the dollars at issue become too large to easily resolve.
Q: Is your business like litigation? Do most cases settle? When do they end in criminal or civil complaints or no litigation at all?
A: Our business is very much related and tied-in to the litigation industry. I have testified on film costs and on the nature of the film industry. I testified as an expert in an alter-ego matter where we were able to pierce through a film single-purpose entity to be able to enforce a multimillion-dollar judgment against a producer, individually, who had failed to pay the writer of the film. Most matters will never see a courtroom –-they are normally settled before any litigation is filed. Civil litigation would typically result when negotiations have broken down and the parties don’t have any on-going business relationship, which can be used to resolve past issues. Referral to criminal authorities would normally be reserved for outright theft — of money or of trade secrets.
Q: At what contested sum might clients cosider retaining a specialist like you?
A: There are many reasons to hire a forensic accountant, beyond simply the dollars involved. For a smaller dollar exposure, we will “right-size’ the effort, so the cost is in line with the economic exposure. A review might be useful just to let the parties you are dealing with know that you are and will be looking over their shoulder. It could help to keep them honest in their subsequent dealings. For example, what we’ve found in instances of business-manager improprieties is that, when they cross over the line, the accounts they steal will be from their clients that aren’t watching their accounts closely and that aren’t performing inspections of their accounts and of their business manager’s operations.
Q: How typically do you get paid?
A: This type of work is not typically done on a contingent-fee basis, since opposing interests might make the argument that you are over-reaching under such an arrangement and it could impact your credibility before a trier-of-fact, were it to come to that. Another challenge to a contingency-fee arrangement is that large amounts due might be identified in an audit but the client may wish to negotiate them into the next deal or even negotiate them away in order to obtain the next contract. We bill on a time and materials basis, typically with a modest retainer. We provide estimates, after obtaining a meaningful understanding of project scope, the state of the records and the level of cooperation we can expect.
Q: Because entertainment is so boom-and-bust, with financial opportunities abundant then gone, where do you see the most frequently arising breaches by those involved in managing talent?
A: The boom-and-bust nature of the business affects the talent and the business managers, as well. A business manager may feel financial pressures and may be tempted by the lives and riches of some of the performers they’re dealing with. We’ve seen many instances of business managers dipping into their client’s accounts for their own personal needs. We’ve seen business managers who have misled their clients into investing in companies where they themselves had undisclosed financial interests in order to keep their own investment afloat. We’ve seen operations that weren’t well controlled that allowed access to all employees to personal financial data of the clients. There are many well-known, outstanding business managers. But sometimes the right combination of financial pressures on business managers might lead them to do something they wouldn’t normally otherwise do.
Q: How did you get in to this highly specialized field?
A: I started my career in New York in the early ’80s, and, by luck of the draw, some of my early assignments involved entertainment industry clients such as CBS, William S. Paley, CBS/Fox (an early entrant into the home video business) and the sale of the Charlie Chan film library. When I moved to Los Angeles in 1993, my past experience in the industry made me a natural to become involved with entertainment industry clients based here.
Michael Spindler is a CPA, a Certified Fraud Examiner and is Certified in Financial Forensics. He is a Managing Director in the Disputes and Investigations practice of Navigant Consulting Inc. and is based in the Los Angeles office. He brings more than 30 years of experience to complex disputes, including matters related to forensic accounting, fraud and anti-bribery investigations and compliance. He has performed numerous forensic accountings in the entertainment industry. He has provided expert testimony in bench trials, jury trials and arbitrations. He has provided Foreign Corrupt Practices Act investigations and training services in twelve countries, including China, Russia, India and Saudi Arabia. He has conducted numerous high-profile investigations of public company financial statement fraud and other matters. Spindler has presented his findings on behalf of clients to special committees and government agencies, including the Department of Justice, Federal Bureau of Investigation, Internal Revenue Service and the Office of Thrift Supervision. He is a frequent speaker , including to the California Society of Certified Public Accountants, the Washington Society of Certified Public Accountants, the American Society of Industrial Security, the Association of Certified Fraud Examiners, the FBI, Financial Executives Institute and the Institute of Internal Auditors, among others. He is the Immediate Past President of the Los Angeles Chapter of CALCPA