Record Industry Probe Examines Small N.J. Firm : East, West Coast Grand Juries Looking Into Sugar Hill Label

A small New Jersey record company specializing in black “rap” music is being investigated by two of the ongoing federal grand juries looking into suspected organized crime infiltration of segments of the record business, The Times has learned.

Grand juries in Los Angeles and New York are interested in Englewood, N.J.-based Sugar Hill Inc. primarily because of the company’s connection to alleged organized crime figure Salvatore Pisello, who has been identified in court papers as an alleged “high-ranking soldier in the Carlo Gambino crime family” of New York.

In 1983 and 1984, Pisello helped arrange two business deals between Sugar Hill and Los Angeles-based MCA Records. According to internal MCA documents obtained by The Times, the two deals resulted in Sugar Hill receiving loans and advances of more than $3.5 million from MCA in 1984 and 1985.

Sugar Hill Records recently filed for protection under Chapter 11 of the U.S. Bankruptcy Code, claiming liabilities of $1.6 million against assets of about $1 million. The action came on Nov. 22, 1985, a day after the IRS moved to seize Sugar Hill’s assets for alleged non-payment of more than $200,000 in payroll taxes.

Sources say investigators are attempting to determine where the money from MCA went. According to law enforcement sources, prosecutors have subpoenaed Sugar Hill’s business records. Sugar Hill’s creditors also are trying to find out what happened to the funds from MCA, according to several members of the creditors committee who were interviewed by The Times.

The two deals in question are the 1983 distribution agreement between MCA and Sugar Hill and MCA’s 1985 purchase of the Checker/Chess catalogue of master recordings from Sugar Hill. The catalogue includes the early works of such rock pioneers as Chuck Berry, Bo Diddley and Muddy Waters.

Alan Susman, MCA’s outside corporate counsel, said that the company “does not want to get into details with regard to its business transactions” but that it believes the two deals with Sugar Hill “were in the business interests of the company. We thought it then and we think it now.”

MCA previously stated that it had no prior knowledge of Pisello’s alleged organized crime ties and that Pisello has never acted as an agent for MCA in any transaction.

Last May, MCA corporate internal auditors prepared a nine-page report for the company’s board detailing MCA’s dealings with Pisello and his role in the Sugar Hill transactions.

$2.2-Million Advance

According to the MCA internal audit report, a copy of which was obtained by The Times, MCA advanced Sugar Hill more than $2.2 million in accordance with the distribution agreement, and the tiny record company subsequently ran up a net unrecouped balance to MCA of $1.7 million as of March, 1985.

The report states that, in order to recoup its investment, MCA subsequently agreed to purchase the Checker/Chess catalogue for the amount it was owed--$1.7 million--and loan Sugar Hill another $1.3 million to assist with the company’s “current cash-flow problems.”

The report states further that $300,000 of the loan was to pay off a security interest in the Checker/Chess catalogue held by Morris Levy, president of New York-based Roulette Records. As previously reported by The Times, Pisello and Levy are among the key targets of the federal grand jury investigations in Los Angeles, New York and Newark, N.J.

According to documents filed in the recent bankruptcy proceedings, Sugar Hill is jointly owned by Joseph Robinson (45 shares), his wife Sylvia Robinson (45 shares) and Milton Malden (10 shares).

Bankruptcies in 1979-80

However, documents filed in the 1979-80 bankruptcy proceedings of two other Robinson-owned companies, Platinum Records and Astroscope Records, show that most of Sugar Hills’ assets--including the Checker/Chess catalogue--at one time belonged to Morris Levy.

Robinson and Malden failed to return a number of phone calls from a Times reporter.

Sugar Hill attorney Joe Zynczak said in an interview: “To the best of my knowledge, Mr. Levy has currently no proprietary interest in Sugar Hill, although at one time he was involved with Sugar Hill and helped Mr. Robinson through some financial difficulties.”

Documents filed in federal bankruptcy court in Newark indicate that when Platinum and Astroscope got into financial trouble in 1979, the companies were partially bailed out by $750,000 from Levy and Sugar Hill Records Ltd., whose address at the time was 1790 Broadway in New York--the same as Roulette Records.

As a result of lengthy and complicated negotiations in the Platinum bankruptcy, Sugar Hill Records Ltd. of New York wound up owning the rights to the Platinum and Astroscope masters recordings, including the Checker/Chess catalogue, according to the documents.

Attorney Paul Hollander, who represents Sugar Hill in the current Chapter 11 proceedings and previously represented Astroscope and Platinum, said he believed that the debt to Levy and Sugar Hill Ltd. of New York had subsequently been paid off and that the rights to Checker/Chess had reverted to Sugar Hill Inc. of Englewood.

MCA counsel Susman said Wednesday that the company “has no information as to the ownership of Sugar Hill other than what is reflected by documentation between them.”

At the time of the Platinum-Astroscope bankruptcy proceedings, the companies’ most significant asset was listed as the Checker/Chess catalogue--valued at $350,000 by attorneys for the companies.

According to MCA’s internal audit report, MCA purchased the catalogue for an equivalent of $2 million--nearly six times its claimed worth six years ago.

Among record industry professionals interviewed by The Times, there is considerable disagreement about the value of the Checker/Chess catalogue. Some agreed with published statements by MCA executives that the catalogue is “priceless.”

Attorney Zynczak, who has represented Sugar Hill in the licensing of Checker/Chess overseas, said: “I think MCA gave fair value; that catalogue has tremendous value overseas. Plus, you have to look at the potential of licensing that music to motion pictures and the anticipated earnings from the conversion of Chuck Berry and Muddy Waters to compact disk. It could be a tremendous earner if it was exploited and packaged properly.”

However, one attorney involved in the Platinum-Astroscope bankruptcy proceedings, who asked not to be identified, noted that in recent years the Checker/Chess catalogue has passed through the hands of a number of other record companies with little apparent success--from GRT Corp. to Phonogram International to Platinum to Sugar Hill to MCA.

The attorney likened the catalogue to “a freight train full of sardines that no one wants to eat but that’s great to sell.”