Business Musings: An Agent Nightmare Revealed

Business Musings: An Agent Nightmare Revealed

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.

  1. 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]
  2. 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.
  3. 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.
  4. 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.
  5. Never sign a power of attorney with an agent. Or a financial manager or anyone you hire. Ever. Ever.
  6. Understand what you’ve signed.
  7. Understand the deals you make.
  8. 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.

 

****

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




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50 responses to “Business Musings: An Agent Nightmare Revealed”

  1. […] her enthusiasm and approval. I’ve watched her career evolve to being entirely indie, and I read her business blog with great interest. I don’t always agree with her, but I utterly respect […]

  2. I thought of your post when I read this article:

    https://medium.com/@nicolascole77/blockchain-technology-is-set-to-disrupt-every-industry-and-music-is-next-6479b4340b15

    Not only is music next, as the author states, so is the book biz.

  3. […] months, but I don’t think I’d cover the one that comes to mind the most better than the articles I learned the story from)  However, this week an offer came to my attention that actually gives me […]

  4. […] it. Kristine Kathryn Rusch has been writing about this kind of thing for years, and finally she has the smoking gun. And the effects. Which is being hushed up – the reaction to this is frankly, stunning… […]

  5. […] broke about Donadio & Olson embezzling from their clients. I stopped what I was working on and wrote a different post, because I finally had public proof of something I’d been saying for years: that important, […]

  6. ambidexter143 says:

    I’m an auditor, an accountant who checks up on other accountants. I make my money by being hired as an outsider to go over the books to ensure that my client is not being robbed, swindled or just merely mismanaged by their regular accountant or financial manager. I get paid the same money if I find fraud or mistakes or not. A reputable accountant or financial manager will tell their client to hire someone like me to periodically go over the books.

    I recommend that if your finances are handled by anyone besides yourself, you have those finances audited at least annually by an auditor.

  7. Catrin Lewis says:

    I’ve been involved with some other things in life and though I heard about this when it initially broke, I haven’t kept on top of it in social media. Does it have a hashtag on Twitter like, say, #Cockygate? It deserves to go viral and I’m happy to give it a push, in my own minor way.

  8. […] what went wrong and how fraud gets perpetuated at literary agencies, you may want to take a look at Kristine Rusch’s post.  And while I understand that literary agents are gatekeepers of the publishing industry, the […]

  9. There may be another form of failure involved in this mess.

    I’ve been curious the effect of the Association of Authors Representatives CODE OF CONDUCT on the ethical behavior of its member agents. Wishing it could be enormous and profound….

    So I looked at the AAR web site, where I learned a couple of things:

    First, that Neil Olson of Donadio & Olson is a member of AAR.

    And second, well let this excerpt from the organization’s Code of Conduct speak for itself.

    Members shall take responsible measures to protect the security and integrity of clients’ funds. Members must maintain separate bank accounts for money due their clients so that there is no commingling of clients’ and members’ funds.

    Members shall deposit funds received on behalf of clients promptly upon receipt, and shall make payment of earnings due clients promptly, but in no event later than ten business days after clearance and attribution; provided however that if funds for a client are received more frequently than quarterly and if those funds do not exceed a total of $100, then payments to clients may be made quarterly, so long as when funds received exceed $100 or upon the client’s specific request, payment to the client shall be made within ten days thereafter. In all cases, members shall exercise due diligence in seeking supporting and attribution information for payments received. However, on stock and similar rights, statements of royalties and payments shall be made not later than the month following the member’s receipt, each statement and payment to cover all royalties received to the 25th day of the previous calendar month. Payments for amateur rights shall be made not less frequently than every six months.

    A member’s books of account must be open to the client at all times with respect to transactions concerning the client.

    I leave it to you to draw your own conclusions, noting that I have no direct knowledge of the facts of this matter–only what I’ve read in this great report by KKR, to whom I say THANKS.

  10. Great article, Kris. I could feel a chill run down through my spine while reading this. I have no interest in finding a literary agent but just wonder as an indie author whether such a thing can happen with our royalties coming from Amazon or Kobo. And how do we protect ourselves? What do you say?

    • Amazon is publicly traded. It does business with a lot of huge corporations. It has to subject itself to routine audits, including process audits, all the time. If someone is embezzling, they will be caught rather quickly. That’s what happens with publicly traded firms. So no worries here.

      • lfox328 says:

        Kris, I wouldn’t say NO worries, but, yes, less likely that one stray thief could cause such chaos.
        However, even on Amazon and other indie sites, watch your money, monitor your sales, and keep a cool eye on the BUSINESS of writing.

  11. […] royalties meant for the agency’s clients. Among them, one of my heroes, Chuck Palahnuick. This Kristine Kathryn Rusch post gives the […]

  12. […] encourage authors to educate and empower themselves and take control of their author business. Read Kris Rusch's informed article, and Chuck Palahniuk's blog post about how he is broke because of […]

  13. Kathryn C Rooney says:

    If I was attorney for one of their clients, I’d point out the list of missteps by the agency from the time they discovered the theft and argue that allowing them to continue to control my work product would constitute unjust enrichment and that, given the situation was the result of their own negligence, returning my books was the only way they could make me whole. I’m also curious how their internal agreement is structured. I’m willing to bet more than just the accountant will find themselves on the hook for this.

  14. […] could such a thing happen? Writer and editor Kristine Kathryn Rusch has a theory, and I suspect she’s right, though I respectfully disagree with some of her […]

  15. Lela E. Buis says:

    KKR, if writers fire their agents or don’t get one in the first place, then how do they make deals with publishers that will only go through an agent? Access for new writers is an important issue. This is an important part of the system that will need to be changed.

    • If you have a good project and know how to query, publishers will pay attention. If you approach them with an IP attorney (after you’ve made some sales), they’ll pay attention. Better yet, publish indie and keep all the money. That way you won’t have to negotiate one of traditional publishing’s awful contracts.

  16. Matt Buchman says:

    My favorite response to this so far was that I was at a conference talking to a relatively newbie author who was curiously upset that I didn’t want an agent (the RNA didn’t have one either, but couldn’t understand why I wouldn’t). I told her about this embezzlement. “Oh, that could never happen at a real agency.” After assuring RNA that it had and RNA was welcome to read about it in the NY Post, I got this head-shaking humdinger as their first reaction: “Oh, I would NEVER read the Post.” (emphasis not added). I’m still laughing.

  17. DW says:

    Looking through the complaint, it appears that Mr Webb (the accountant) is not an employee of the agency, but in fact is the co-owner of his own accountancy firm which was retained to supply accountancy services to the agency. There also seems to have been an arrangement where the agency sub-let office space from the accountancy firm. The presence of the two companies is going to make the situation even more complicated. Potentially there’s a double-bankruptcy – the agency and Webb’s accounting firm.

    I can’t work out whether New York State requires an accountancy firm to hold professional liability insurance or not. However, even if the state does require it (or the state doesn’t require it but the firm has insurance anyway), then professional liability policies usually work on the basis that the policyholder has to notify the insurance company of any potential claims as soon as they become aware of the potential for a claim. There’s usually no penalty for making a notification, but the penalty for failing to notify the insurance company about a potential claim is that any resulting claim will not be covered by the insurance policy. Since it’s unlikely that Mr Webb was notifying his insurance company about his allegedly fraudulent activity, it seems unlikely that the losses will be covered by any insurance policy. Equally, errors and omission insurance probably won’t cover a deliberate fraud because, technically, a deliberate fraud is not an accidental mistake, which is basically what E&O insurance covers.

    It is possible to get a specific fraud policy to cover a company in case it suffers fraud by its employees. However, such a policy would probably require a firm to have some basic checks and balances in place as a pre-condition of insurance. What we know so far suggests there were no checks. Therefore, the likelihood of either the agency or the accounting company having fraud insurance seems low.

    Equally, given the amounts involved, any insurance company is going to do everything it possibly can to get out of paying. They won’t want to stump up 3.5 million dollars unless they have absolutely no other option.

    • Brett says:

      Insurance companies would fight this to the bitter end. I would be curious about fraud insurance covering one’s own employees – know of a DUI that was technically not covered but the insurance company reimbursed the company for the totaled vehicle, then went after the driver. I suppose it would have to do with their estimate of what could be recovered – years of embezzlement in the seven or eight figure category would be difficult, especially if the money has been blown on high times. Or encrypted and transferred to a small island through several shell companies…

    • I think this is what’s involved in requiring a bond as a condition of employment. Not always done, but a bond is, I think, a dollar-denominated insurance policy on the performance of an employee (or contractor) in a trust position. The cost of the bond is usually affected by the stringency of the requirements the insurance company has in issuing the bond. This a mulit-million dollar bond on an accountant or bookkeeper would cost a great deal, but less if certain requirements and best practices are met. I don’t know whether D&O had a bond on this employee.

  18. […] Galaxy’s Edge co-author Nick Cole forwards a dire warning to authors from Kristine Kathryn Rusch. […]

  19. […] An Agent Nightmare Revealed by Kris Rusch. And for her Patreon patrons she added a couple of links I will share with you. My commentary will probably NOT be as informed as hers, but well… I’m not her, LOL! ? […]

  20. Isabo Kelly says:

    I’m not a lawyer or expert so I could be wrong about this, but it seems to me the writers are creditors if this goes to bankruptcy court, right? So if I were in the position of having partial ownership of my copyright sold to the agency, I’d be asking my lawyer if I could get that part if my property returned to me as part of what the agency owes me. There’s still the complication of valuing the property and the agency’s portion of it, but better to get it all back and have control again than not.

    One of the biggest issues I see for the writers would be proving how much they’re owed to a bankruptcy court if all the paperwork went through the agency and the bookkeeper tampered with it. I just filed the creditor claim paperwork in relation to the AllRomance Ebook bankruptcy and they wanted proof of what I was owed along with the official form. I’d saved a copy of my last royalty statement (and didn’t sign away my rights to that money), so I have the paperwork. An author who hasn’t even seen their statements will have to rely on duplicate information from publishers and whatever the forensic investigation turns up (My husband is a forensic accountant so I have vague and generalized insights into that end of things and I seriously don’t trust most companies to even know what money is where now sigh) To get their property back they’d also have to rely on the courts to value it, and hope it comes in as equal to or less than what they’re owed. A lot of hope and fingers-crossed involved there though.

    Anyway, just a late night, tired brain thought. I’m grateful it’s not a problem I need to worry about in relation to my own business.

  21. Natalie K. says:

    Kris, I read this post in the morning as I ate breakfast, but didn’t have a chance to comment before leaving for work. Thanks for reporting about this—even though you’ve warned about agents in the past, it never truly hit home with me until I read this!

    Anyway, by profession I’m an internal auditor and CPA-in-training (I’m applying to take some more classes so I’ll be eligible to sit for the exam, yay!) and the lack of internal controls in this situation is APPALLING. In a business, you never, ever, ever, ever want to have just one person in charge of handling the money the way this bookkeeper did. It’s called lack of segregation of duties. Segregation of duties is one of the simplest and most effective ways to help deter fraud. Like you said, at least have another person signing off on those big checks!

    Honestly, this is enough to put me off agents FOREVER. A writer could have the most honest agent in the world, but that wouldn’t do a bit of good if there’s someone unscrupulous in the back office like the aforementioned bookkeeper. Again, thanks for writing this post! 🙂

    • cioranfan says:

      One thing that made me chuckle was KKR’s comment about how it was “[t]ime to get away from this very 1950s way of operating.” A 1950s way of operating would have in fact had a strict separation of duties, simply based upon the sheer amount of manual effort needed to keep up with the paperwork. Automation has eliminated the need for an A/R,A/P, etc., clerk. Flattening the organization chart certainly has its benefits, but ensuring a strict separation of duties becomes increasingly more difficult with fewer bodies in the back office.

  22. […] (6) FORENSICS. Kristine Kathryn Rusch teases apart a major news story about embezzlement at a literary agency in “Business Musings: An Agent Nightmare Revealed”. […]

  23. To the greatest extent possible.

    I assume the perp has no money left, so they won’t get much back. Why do I say that? If he did have liquid assets, wouldn’t he have paid the $200,000 to the author asking where the royalty was to keep him/her quiet?

    And if the perp HAD paid that author, how much longer would it have taken for someone to notice the theft?

    Of course, I could be mistaken and the perp didn’t think the author would raise a stink.

  24. emmiD says:

    OMG. Thank you for reporting this. I’ve not seen anything anywhere. And this is major!

    Have to wonder where those Writers and the agents for the estates are, that they’re not checking on things.

    This willful blindness infects lots of people, unfortunately. I’ve personally seen it in the education field. I’ve heard about it in small businesses. And we’ve all read the headlines for major companies that ignored proper oversight. Something in the human psyche is too willing to trust. And something is also too willing to try to get by with taking a little here then more and more. And then something else in us is too willing to look away, saying that’s not my job.

    It is our job, for us, for those we care for, for those we don’t care for…because we should aim for honor, dammit, not base instinct.

  25. Christina York says:

    There are policies that do cover this kind of problem. Among them are D&O (Directors & Officers) but who knows whether the finance guy was that high up. There are also riders on liability to protect the company from the bad actions of an employee. Depending on what kind of coverage they have – and I agree wholeheartedly with Thomas E that anyone with a fiduciary responsibility should be covered – the agency might have a hope of surviving. Without that I expect they will run to bankruptcy before they are sued into a smoking crater.

  26. Shanese Brown says:

    Wow. This post was incredibly sobering. I am not a writer but I love reading your blog. I have listened to you sounding the alarm about the dangers of the old publishing regime to authors for years. Hopefully when word gets out about how easily your royalties can be stolen like what happened at Donadio & Olson more authors will wake up. If you are making money from your creative endeavors you are in business, period.

  27. […] Kristine Kathryn Rusch posted an article titled An Agent Nightmare Revealed, talking about an accountant/bookkeeper who embezzled more than $3 million from a major literary […]

  28. Deanna says:

    Great post as always. Your blog is so insightful and helpful to writers. I wish I had discovered it sooner!

  29. Peggy says:

    As to the question of insurance coverage, it’s possible (not LIKELY, but possible) that the agency had Errors & Omissions Insurance, aka professional liability insurance which:

    “The coverage focuses on alleged failure to perform on the part of, financial loss caused by, and error or omission in the service or product sold by the policyholder. These are causes for legal action that would not be covered by a more general liability insurance policy which addresses more direct forms of harm. Professional liability insurance may take on different forms and names depending on the profession, especially medical and legal, and is sometimes required under contract by other businesses that are the beneficiaries of the advice or service.”

    (Taken from this Wikipedia article: https://en.wikipedia.org/wiki/Professional_liability_insurance#Errors_and_omissions_insurance )

    I’m not an expert, but that kind of insurance might (just MIGHT) cover part of the civil damages. The criminal charges … yeah, no insurance I know of covers criminal activity.

    • Marradin says:

      Not entirely true if the accounting firm was separate. If the accounting firm was separate, then it would be covered under some vendors and contractors insurance, I think.
      But I am an ocean away and on a different continent, so the details in the law may differ significantly.

  30. Linda Jordan says:

    I’ve stayed far, far away from agents and I admit I don’t understand the contracts, mostly because I’ve never seen one. This is a fascinating, although terrible story.
    I’m struggling to understand your worst case scenario. If a client has given their agent a partial ownership of a book, and things go south. Say the agent ends up in bankruptcy, you say the writer loses control of their book. But the agent only has partial ownership of the book. It makes sense to me that the writer would have some power here, since they also have partial ownership of the book. The way you worded it, I’m wrong and the writer has no power in the situation. Can you explain why?

    • Everything the bankrupt entity owns (including partial ownership) gets examined by the bankruptcy court. I’m not a lawyer and I don’t know how this usually goes, but think houses. If you co-own a house with someone and they become bankrupt, there would be a division of some form. Or the other owner (the non-bankrupt one) would lose control, because the bankruptcy court is simply trying to get through this case. In any circumstance, the non-bankrupt person (in this case, the writer) needs to hire a lawyer and argue for control of the property. In the best case scenario for the writer in that instance, the writer would be able to buy back the portion of the property they sold to the agent. But that’s best case. You’d have to figure out how to buy back something you should have kept ownership of in the first place. Truly convoluted and ugly stuff.

  31. Wow. I’ve never had an agent and discontinued looking for one. This makes me very glad of that history.

  32. Thomas E says:

    You can insure against fraud using a crime extension of a corporate liability insurance policy. Pretty much any body with a fiduciary duty OUGHT to have such an extension but since no writer in the history of mankind has ever checked that there agency has insurance against fraud no agent will have it.

    Such insurance policies will require good accountancy practice including setting up escrow accounts for clients money to ensure client money doesn’t become an asset in bankruptcy. (Maybe different in the US). Plus regular audits. Plus basic requirements for handling paperwork e.g. supervision by chartered (in the UK) or qualified accountants.

    All theoretical. Basic sensible business practices which vary depending on jurisdiction but are basically the same…

  33. Teri B says:

    “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.”

    And it may be that they have no legal requirement to do so until theft to each individual author is proven. And even if there is a legal requirement, they knew the coming shitstorm would be so massive that they wouldn’t care if they got into more trouble. Exactly what I would have expected them to do. Exactly what will happen the next time this happens, which it will. (And doubtless already has, but on a scale that was easier to just pretend didn’t happen. And that’s the thieving without permission, different than the institutionalised embezzlement Kris keeps pointing to.)

    But the best part is, after being stolen from, lied to, and deliberately kept in the dark, these writers could now lose control of their work, as it is sold to the highest bidder to pay bills.

    Agents aren’t regulated. They don’t have criminal records checks or bylaws to follow. There is no control at all. There is no professional body to call them to account and there is no recourse against an agent unless you can actually prove something criminal. Bonded cleaning people are more regulated than agents.

  34. paladin3001 says:

    I think this story right here. Not that your expansion upon it (although it’s rather informative in it’s own right) tells us why we don’t want agents. I am looking forward to a rather bland career as an indie writer.

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