S&A Newsletter Summer 2007
S&A Newsletter Summer 2007

Managers vs. Agents

by Anthony J. Spotora, Esq.

Recently, I was invited to attend the live performance of an “American Idol” taping at ‘Television City’ in Los Angeles. This taping or rather, pop-hysteria, led to conversations relating to the management of those that do not win the title of the next American Idol.

Now we all know that the winner is locked into a contract with Music Label/Management Company, “19”, but what of the other near-Idols? Who gets to run their proverbial show? This question, in accompaniment to some of the surrounding conversations, and eager talent managers, reminded me of a piece of legalese that has come up time and time again in my practice. The issue: Managers vs. Agents.

Whether you are a bona fide Talent Manager, a Stage Mom, or the girlfriend that listened to her boyfriend’s band play one night at the local pub and decided to serve as its manager, you should understand the differences between the roles that managers and agents are legally entitled to play. . . for your own good.

(cont. from e-newsletter) For starters, agents are licensed by the state they work in and most commonly earn their money by negotiating contracts for their clients. Typically, they also enter into a client agreement which is, in pertinent part, regulated by industry labor unions such as, the Screen Actors Guild (SAG), the Writers Guild of America (WGA) and, the Directors Guild of America (DGA). Through these regulated agreements, the commissions that agents charge their clients are legally bound to a maximum of 10%. Furthermore, it should be noted that agents may not serve as a producer on their clients’ projects.

On the other hand, managers are not commission-regulated, do not need a license to ‘manage’ and, can charge their clients 15% or more. . . and often do. Moreover, managers may produce film or television if they wish and so of course, they are also afforded the ‘glamour’ element in that they might find themselves in the spotlight one Award evening with an Emmy or an Oscar in tow.

In light of these representative differences, and as you might imagine, the ever-evolving entertainment industry has shifted gears over the years to accommodate and benefit from both of these roles. Without surprise to anyone, these specialty services have impacted not only the way talent pursues work, but the manner in which movies and television are actually made.

So what’s the big deal!? We all have a job to do, right!?

Well, one common issue arises from infuriated agents who argue that managers that attach themselves to their clients’ projects as producers are not legitimate producers and are consequently driving up production costs. In lieu of such a contention, agents have put pressure on industry guilds by lobbying to either deregulate agents, or regulate managers. And, while no exact resolution has been reached to date, the SAG has begun to pay closer attention to the black letter law and has consequently cracked down on the procurement of employment by managers. On the what you ask? On getting the talent a gig!

In California, Labor Code Sec. 1700.4(a) defines “talent agency” as “a person or corporation who engages in the occupation of procuring, offering, promising, or attempting to procure employment of engagements for an artist.” Moreover, Sec. 1700.5 provides that “[n]o person shall engage in or carry on the occupation of a talent agency without first procuring a license…from the Labor Commissioner.”

Therefore, ATTENTION ALL MANAGERS: Be Weary of The Services You Provide.

Procuring employment for your artist-client is not only illegal but, should you attempt to collect any unpaid fees, you can rightfully be denied those monies for having performed a service you were not licensed to perform.

So what’s the bottom-line? Both forms of talent reps are still widely used and widely needed in the ‘industry’. Therefore, when they are able to work together, they are likely to increase their odds of making deals. In turn, each of them, along with their hopeful and oh-so-grateful clients benefit significantly . . . but, that does not change the fact that EVERYONE must govern themselves within the confines of the law. . . EVERYONE, Paris Hilton!

Risky Business

Whether pertaining to your personal or professional life, chances are you have entered into, or sought to enter into a partnership at some point. For some, it provides a sense of security; for others, a dinner drink led to a friendly discussion about an idea you had and WHAM, you’re going to move on that idea together – as partners, or; for those timid-hearted types, perhaps you gravitated toward a partnership because you simply wanted half the responsibility, half the risk, and half the potential blame.

Well, whatever your cause, and whatever your (personal) purpose, you could stand to save yourself a lot of time, frustration and money by knowing up front what sort of partnership you’re actually getting into.

Whereas some people use ‘partnership’ more as a term of art (i.e., corporation owners may call themselves ‘partners’, but that does not necessarily make it so), there are, in fact, a variety of legally recognized partnerships. They are: (1) General Partnerships; (2) Limited Partnerships; (3) Limited Liability Partnerships; (4) Limited Liability Companies and; (5) Joint Ventures.

And of these different types of partnerships – some governed by corporate law and still others governed more by contract law – the one that is of particular interest in this article is that of the “General Partnership”.

Attorneys are often surprised to find the staggering number of parties involved in general partnerships who believe they are being afforded certain corporate law advantages. Let’s take a moment to touch upon a bit of the confusion.

(cont. from e-newsletter) A General Partnership is like a sole proprietorship except that there are two (2) or more persons conducting business under one name. Unlike Limited Liability Companies, for example, no articles need to be filed with the Secretary of State, nor does the partnership even need to enter into a written partnership agreement (although it has been considered a terrible idea not to).

A significant difference between formally established partnerships (i.e., LLC’s, LLP’s, etc.) and that of a general partnership is that each partner in a general partnership is jointly and severally liable for the actions and debts of the partnership. Since any partner may bind the partnership, the other partners may be held liable for actions, contracts and/or debts in which they didn’t even know existed. Take that one step further — partners can even be held personally liable for the acts of agents or employees that had apparent authority to bind the partnership.

So, for those of you not wishing to formally establish a partnership at the state level, and, whether you are willing to entertain and execute a partnership agreement or not, you may wish to have a better understanding of the risky business you could be entering into, or, may already be involved in, as a partner in a general partnership.

The “Prime Bank” Scheme Epidemic

A fast talking promoter brings a “once in a lifetime, risk free” investment opportunity to a potential investor. The promoter promises the potential investor that his money will be pooled with other investors to reach a set aggregate amount for investing. Once the pooled funds reach the aggregate amount, the money is to be invested in debt instruments guaranteed by the top prime banks. The promoter promises the potential investor that the guaranteed debt instruments will yield a high profit return immediately. He also promises that there is no risk in the investment because the potential investor can cancel the agreement at any time and receive the return of his principal investment. The potential investor believes what the promoter is telling him and becomes an investor investing $1,000,000 into an “escrow account” with an established bank to take advantage of this “unique opportunity.”

The investor enters into an investment agreement with the promoter and a third party which the potential investor does not know, and opens a “non-depleting escrow account” at a banking institution selected by the promoter and the third party. The promoter and the third party represent to the investor that the money he deposits into this “non-depleting escrow account” is protected by the escrow law of the State of California. The third party undertakes the duty of becoming the investor’s escrow agent and promises to manage and invest the investor’s money. The third party issues a series of “interest payments” to the investor leading him to believe the investment is performing as planned. A few months pass and the investor requests the return of his $1,000,000. The promoter and third party stall and give the investor a series of excuses as to why it is taking so long to get the money back. (cont. from e-newsletter) The excuses range from (1) be patient, the money will be available any day; to (2) an accounting audit is being conducted and once it is completed, the money will be returned; to (3) the money has been invested and a return of the capital as well as profits are forthcoming. The above describes how an unsuspecting individual is led into investing in a “prime bank” scheme.

The term “prime bank” usually describes the top 50 banks (or thereabouts) in the world. This term is often used by fraudsters looking to give some legitimacy to their cause. Conspirators offer investors extremely high yields in a relatively short period of time through access to “debt instruments” (i.e. bank guarantees or standby letters of credit) guaranteed by banks, which they say can be bought at a discount and sold shortly thereafter for an exorbitant premium. Investors are told:

(1) The minimum investment can be raised by a group of individuals who pool their money to make such opportunities available to small investors.

(2) The potential annual profits are easily attained with little risk, and such returns are guaranteed.

(3) The investment program must be cloaked with secrecy given the privileged group of people who are invited to participate. Thus, investors must sign confidentiality, non-disclosure and non-circumvention agreements which prevent the investors from discussing the investment with anyone else or discovering the identities of the other investors.

(4) The funds will be deposited into a “blocked account” at a bank of the conspirators’ choosing.

(5) The funds are secured by a guarantee issued by a top money center bank. There are many terms that are commonly seen in documents presented by fraudsters in marketing the “prime bank” schemes. They often mimic and misuse legitimate banking terms, which often confuse the investor. A list of common terms and phrases used are as follows:

* Non-disclosure
* Prime Bank Debentures, Notes, Guarantees, Letters of Credit
* Prime World Bank Debentures of Financial Instruments
* Funds pooled together for minimum trade
* Exit Buyer
* Collateralize the funds
* Conditional SWIFT Payment
* Market to Buy or Sell Letters of Credit
* Proof of Funds
* Standby Letter of Credit (SLC)

This type of scheme has become such an epidemic in the investment industry that it prompted The Securities Exchange Commission (“SEC”) and other federal and state agencies to issue explicit warnings to the public about “prime bank” fraud schemes. In September 2003, the SEC issued a warning to all investors about “Bogus ‘Prime Bank’ and Other Banking-Related Investment Schemes.” The SEC warned that “individuals and entities are targeted, including municipalities, charitable associations and other nonprofit organizations.” The SEC further warned that some promoters of these schemes avoid using the term “Prime Bank note” in an effort to convince the investors the program is not fraudulent. However, and regardless of the terminology used, the basic pitch – that the program involves trading in international financial instruments – remains the same. The point of this article – be aware and informed before you invest your hard-earned money.

DISCLAIMER: The information provided herein is intended to provide general information and does not constitute legal advice. You should not act or rely on such information without seeking the advice of an attorney and receiving counsel based on your particular facts and circumstances. Some of the legal principles mentioned might be subject to exceptions and qualifications which are not necessarily noted. Furthermore, laws are subject to change and vary by jurisdiction. Please see our entire web site disclaimer, available in our menu options and incorporated herein by this reference.
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