​Stealing From Authors

​Perhaps the first rule of fight club should be "make sure you get paid," after a bookkeeper at the literary agency that represents Fight Club novelist Chuck Palahniuk and other famous authors was arrested for allegedly stealing authors' royalties. The Guardian reports that Darin Webb, an accountant at Donadio and Olson in New York, allegedly took more than $3.4 million from the firm's clients over a two-year period.

According to the charges, Webb made false and fraudulent representations in monthly financial reports and emails to clients. The alleged fraud came to light after another client of the firm complained about not receiving an expected $200,000 payment and Webb responded to the author with false explanations. Instead, the charges claim Webb converted the funds to his own use. Webb allegedly confessed to the charges during a video interview.

Lessons Learned

Many people aspire to or have become authors and artists. These individuals need to protect themselves from the particular fraudulent activity represented in this story and other publishing-related frauds. Additionally, literary agents and publishers need to implement controls to prevent and detect fraud to better safeguard their authors' interests.

The accused fraudster in this story is an example of a classic deadbeat thief — a person or company that hires an author and never pays that individual for his or her work or pays the author erratically. In some cases, the firm grudgingly pays a far lower amount than was originally promised. Demanding full payment up front is an arrangement to which few publishers or agents will ever agree. Making matters worse in this case, Webb was using his position at a well-known agency to steal from its clients, illustrating that this type of fraud happens at reputable firms.  

Here are two areas of concern for agents, publishers, and the authors they represent:

• Legitimacy of the business. Literary agents and publishers are represented by organizations such as the Association of Authors' Representatives (AAR) in the U.S. or similar associations operating in other countries. Membership in these organizations is one indication of reputability, because agents must meet competency requirements to join and must abide by a code of practice that excludes some common abuses such as referral kickback schemes.
  
  Organizations such as AAR and the American Society of Journalists and Authors (ASJA) also report on complaints against association members. ASJA offers advice on dealing with unfair provisions in book, periodical, and online publishing agreements, as well as strategies for dealing with late payers and nonpayers.
  
  However, membership in one of these associations is not an infallible guarantee against fraud. Like any company, literary agents and publishers may have employees who commit fraud. As such, authors and artists cannot focus only on their content. Instead, they should take control as much as possible. Many authors and artists manage the business aspects of their careers and intellectual property, including copyright, publishing, distribution, and royalty/fee management.
  
  
• Business operations. Authors typically inquire about how publishers or literary agencies will distribute and publicize their work, rather than how they will be protected. These firms should have financial controls in place. For example, the firm should regularly scrutinize its accountants' management of client and accounts activities — including requiring dual authorizations of checks and payments. Who provides this oversight and how, including audits?
  
  One way to protect authors from fraud is to establish a clear contract that specifies the financial arrangements of the author's agreement in writing. This contract should include measures such as regular or interim installment payments and schedules, and consequences when deadlines are not met.

Going beyond this story, here are other publishing fraud schemes:

• Pay-to-publish companies. Such companies charge excessive fees to print a book, produce a shoddy product or no product at all, or make misleading claims about their capabilities to market the book, distribute it to bookstores, and have it reviewed. Few authors make decent money by publishing their own books, and most never come close to earning back their investment in such arrangements. Most authors are well-advised to focus their efforts on honing their craft and finding a reputable agent.
   
• Agents who charge up-front fees. Some disreputable literary agents charge fees for "reading," "representation," "evaluation," "retainers," or "marketing." Whatever they are called, agents should make their money by selling an author's work, not by charging him or her to do other things.
   
• Pay-to-play writing and anthology contests. There are many writing contests where the sponsor is trying to make a profit on entry fees. Some of these contests require authors to assign to the contest operator any publishing rights in their work — sometimes exclusive rights — even if the work is not the winner.
  
  Anthology contests pose similar problems. Authors submit a poem or short story, then they are notified that their work has been selected for inclusion. At that point, contest organizers pressure them to buy several copies of the (expensive) book in which their piece is presumably going to appear.