The day the SGAE fell in for "Teddy" Bautista
Investigators believe chairman of royalty collection body's board must have known about embezzlement scheme
Not a day had elapsed since elections to the board of directors at the Sociedad General de Autores y Editores (SGAE), Spain's largest copyright collection society, when civil guard officers suddenly raided its headquarters at Palacio de Longoria, in downtown Madrid. Workers were quickly sent out of the landmark modernist building, following orders from High Court judge Pablo Ruz. The agents were looking for evidence of a large-scale corruption scheme allegedly involving four of SGAE's executives, including the long-serving chairman of the board, Eduardo "Teddy" Bautista, who was about to confirm his leadership of an organization that is as powerful as it is controversial.
They and five other people were arrested on Friday and charged with embezzlement, fraud and gross misadministration over a racket that allegedly diverted large sums (possibly in the order of millions of euros) from SGAE to private firms controlled by executives from the collection agency. The fraud, which is being investigated by the Anticorruption Attorney's Office, allegedly went on between 2003 and 2007. These firms appear to have received 26.4 million eurosfrom SGAE's digital unit between 2003 and 2009. Investigators who looked at the services the companies provided said "it is difficult to claim" that this amount corresponded to market prices.
The racket allegedly diverted millions to firms controlled by SGAE executives
Microgénesis may have sent invoices that charged for non-existent services
The raid involved searches at 16 other premises as well as the suspects' homes
Besides Bautista, whom investigators believe must have been aware of what was going on, police arrested director general Enrique Loras and financial director Ricardo Azcoaga. But the main suspect in the case is José Luis Rodríguez Neri, a former board member and the current director of the Sociedad Digital de Autores y Editores (SDAE), a unit of SGAE created in 2000 to protect intellectual property rights on the internet and in digital media. This unit contracted most of its work out to a private consulting and IT firm called Microgénesis, which was alternately run or controlled by Neri, his wife, his sister-in-law and various other business partners.
Microgénesis developed some of SGAE's main digital projects, such as the Teseo system, which designs computer applications for the defense of intellectual property rights on the internet; it also created Portal Latino, a website devised to disseminate Spanish-speaking culture and provide online services to authors. The company allegedly sent SDAE invoices that overcharged for its services and possibly even charged for non-existent ones.
Judge Ruz is also looking into a second set of companies that worked with Microgénesis and were equally linked to the suspects. Ruz referred to these companies as a "parasitic business network."
The role played by Teddy Bautista, a former musician-turned-copyright manager, seems secondary in principle, according to investigators. Yet Rodríguez Neri was one of his most trusted aides, and Bautista personally appointed him to lead SGAE's digital unit. Sources familiar with the investigation said that, considering how Bautista personally oversaw most aspects of the organization's operations, it is difficult to believe that he was unaware of Neri's activities, and probably tolerated them or, in the words used by Judge Ruz, "authorized, tolerated and also fomented" the fraud.
The investigation was triggered by an accusation filed in 2007 with the Anticorruption Attorney's Office by several restaurant, internet and computer business associations who considered themselves victims of the "digital canon," a controversial tax levied pre-emptively by SGAE on gadgets able to store copyrighted digital material, regardless of what their eventual use would be. Recently, SGAE lost a court case against a computer store owner who refused to pay thousands of euros to SGAE for selling this kind of technology.
In 2010, then-High Court Judge Baltasar Garzón began proceedings in a case that was eventually shelved (Garzón himself was suspended from his duties over unrelated cases in May 2010) and reopened last Thursday, when the Civil Guard asked Judge Ruz for permission to carry out the raid.
The suspects involved in Microgénesis, besides Neri himself, are his wife María Antonia García Pombo, former president of the company; his sister-in-law Eva García Pombo, former CEO; Rafael Ramos, the manager, and an employee named Celedonio Marín. Eva García Pombo and Rafael Ramos also held positions of responsibility at SDAE. A woman named Elena Vázquez, who held most of the shares in Microgénesis, was also arrested.
Around 50 Civil Guard officers took part in a raid that was dubbed Operation Saga and also involved searches at 16 other business premises as well as the suspects' homes. The operation took place just hours after SGAE announced the winners of the elections to the board of directors: the team backed by Teddy Bautista. It would have meant four more years of rule for him and his followers and supporters. The opposition obtained 43 percent of the votes, yet failed to get a single seat on the board.
Now, with Bautista and several other SGAE chiefs under arrest, the people left behind are scrambling to put together a new team to run, at least temporarily, a giant operation that collected 365 million euros last year alone on behalf of its 100,000 members - and now, it seems, on behalf of some executives as well.
Eight key plot points
- What is SDAE? SDAE is an acronym for the Sociedad Digital de Autores y Editores (Digital Society of Authors and Publishers), a 100-percent owned branch of SGAE, which itself was founded in 1988 as a private entity to manage and collect copyright royalties. SGAE has several of these branches, which help it conduct its various royalty-management businesses. Others on the list include Fundación Autor, which deals with training and promotional work, and Arteria, which runs SGAE's theater network.
- How did SDAE work? The unit was created by SGAE in late 1999, and its main duty was to manage new technologies and intellectual property rights on the internet. This relatively small and occasionally deficit-running branch was allegedly used to funnel funds from SGAE into private companies controlled by corrupt executives. SDAE was considered illegal almost from its inception, so much so that in 2007 the courts ruled that its creation was void and reprimanded SGAE for using it to carry out "a truly lucrative management activity, under the guise of promotional and training assistance work." Corporations such as Sony and Universal accused SDAE of unfair competition back in 2000, because, they argued, its goals included "the electronic and digital publishing of music and scores," an unlikely mission if indeed its mandate was to manage intellectual property rights.
- Why was SDAE shut down? SGAE modified the unit's corporate purpose to avoid having to close it down. But in March, when a new digital copyright management system called Teseo was implemented, it was decided that SDAE would be liquidated. The deadline for doing so was June 30, the same day that SGAE held elections to the board of directors. Just hours later, the Civil Guard raided SGAE headquarters.
- What is Microgénesis? Before SDAE was created, digital management of intellectual property rights fell to SGAE's Research and Development Committee. Much of that management was carried out by the private firm Microgénesis. Among its tasks was the development of the Teseo project and various programs to sell music on the internet.
- What is the relationship between SGAE, SDAE and Microgénesis? On one hand, Microgénesis obtained most of its revenues from SDAE commissions, meaning that the latter's shutdown in late June put Microgénesis in a delicate financial situation. SDAE and Microgénesis also shared some executives, such as José Luis Rodríguez Neri.
- Who is José Luis Rodríguez Neri? He was the president and CEO of Microgénesis, a company that he left on February 4, 2003. Neri was then appointed director general of SDAE, and left a former business partner, Rafael Ramos, in charge of Microgénesis.
- Who are the people arrested on Friday? Besides Neri and Eduardo "Teddy" Bautista, the chairman of the board of SGAE and SDAE, there is Enrique Loras, who is the director general of SGAE and a board member of SDAE, and SGAE's financial director Ricardo Azcoaga. The judge also took statements from Elena Vázquez, the main shareholder in Microgénesis, and Celedonio Martín, the company's financial director. Neri's wife María Antonia García Pombo was the sole manager of Microgénesis until 2001, while his sister-in-law Eva García Pombo was a board member until 2003. Rafael Ramos is the firm's current manager.
- When did the investigation begin? In 2007, several associations of internet users, computer and IT businesses and restaurant owners filed a complaint with the Anticorruption Attorney's Office, accusing SGAE executives of unjust enrichment, misappropriation and fraud. In 2010 Judge Baltasar Garzón began proceedings.
- What is the role of the Culture Ministry in all this? Culture Minister Ángeles González-Sinde told EL PAÍS that her ministry has no mandate to watch over SGAE as a management group, because those powers were devolved to the regions in 1997.