CBS Suit Charges Mismanagement at Ex-Records Unit

CBS Inc. has sued the two top executives of its former record division, CBS Records Group, for allegedly mismanaging funds in the days before the division was sold to Sony Corp. for $2 billion last December.

Filed in New York Supreme Court, the CBS suit names Walter Yetnikoff, president and chief executive of the now Sony-owned CBS Records Inc., and Seymour Gartenberg, executive vice president of the company. It claims that Yetnikoff, Gartenberg and others “conspired” to reduce CBS’ profits from its record group in 1987 by making “unjustified and improper . . . payments, accounting entries and adjustments.”

The CBS action is a counterclaim to a class-action lawsuit filed against the company and its chief executive, Laurence A. Tisch, last March by two record company executives.

Ralph F. Colin Jr., a vice president of CBS Records, and Robert T. Kennedy, the director of accounting for the company, claim that they and other record group employees were shortchanged on bonus payments when the division was sold. Their suit asks for $1.5 million in compensation and $3 million in punitive damages.

A spokesman for CBS Records Inc. said Thursday that “the CBS counterclaim against Walter Yetnikoff and Seymour Gartenberg is a smoke screen. The suit is a ploy by CBS in an effort to avoid paying bonus money owed to CBS Records executives by bringing a phony legal maneuver against the two most senior executives of CBS Records Inc.”

Inventory Cited

The CBS counterclaim was filed May 6 but was not publicized by the company until last week, when Tisch briefly alluded to it in a speech to shareholders at the company’s annual meeting in New York. A spokesman for CBS Inc. said Thursday that the company would not comment on the matter beyond what is stated in the legal papers.

Specifically, the CBS counterclaim states that the actions of Yetnikoff and Gartenberg caused the record group’s operating profit for 1987 to decrease by $16.3 million--to $169.2 million, calculated at the close of the sale in January, 1988, compared to a projected $185.5 million in November, 1987--despite higher than expected revenue.

The CBS suit claims that the record group’s management “failed to follow the instructions and requests of CBS to the detriment of CBS.”

“For example, on Dec. 15, 1987, Gartenberg refused the instruction and request of CBS that a physical inventory be taken prior to Jan. 4, 1988, in order to reduce any adverse effect on shipping (and hence, sales reporting) on Jan. 4 and 5 (the last two days CBS was credited with earnings)” from the records group.

According to the suit, Gartenberg later admitted in a letter to Tisch that “the disruption of shipping activity caused by the taking of physical inventory on Jan. 4 and 5 resulted in ‘the dissipation of $3.5 million of CBS Inc. shareholder funds.’ ”

Staff writer Jay Sharbutt and researcher Eileen V. Quigley in New York contributed to this story.