BEHIND THE HEADLINES: Rihanna, accountant settle case
To Rihanna, one of the world’s most talked about entertainers, it was a clear case of “gross” financial mismanagement. And her former accountants, Peter Gounis and the firm Berdon LLP, shouldn’t get off scot-free but, rather, they should compensate her for financial loss to the tune of $70 million. That is what Rihanna insisted in a suit filed under her real name, Robyn Fenty, in a United States (US) federal court in New York.
As an example of the bad advice her accountants allegedly gave her, Rihanna cited a US$7 million Los Angeles mansion the accountants allegedly advised her to buy as an “investment” in 2009, a time when her expenses were far too high and rising. As it turned out the house was a mess, rotting from water and mould damage, forcing her to spend more than US$1 million on improvements. As a matter of fact, things got so bad that by the end of 2009 she only had US$2 million in cash, down from the US$ 11 million at the beginning of that year.
“Despite having earned millions of dollars during Berdon’s tenure, Fenty learned that her net income after payment of expenses and exorbitant commissions to defendants was a fraction of that amount,” the court suit claimed.
But that wasn’t all. Court documents alleged that Rihanna was effectively “bankrupt” at the end of 2009, ended up selling the mansion, losing US$2 million on the deal, and was audited by the US Internal Revenue Service (IRS), all because of her accountants’ negligence.
Not true, countered Gounis in court papers.
“At the core of her claim is this belief: someone else is responsible for her conduct and its consequences,” Gounis asserted.
As it turned out, though, the accountants and the Bajan beauty agreed to settle the case, with Rihanna getting US$10 million in compensation. Not bad.
But what happened to the Grammy-winning icon isn’t uncommon. Accountants and celebrities frequently run into trouble and end up in court, with the clients usually getting the dirty end of the proverbial stick. To begin with, entertainment accounting is a specialty requiring a thorough knowledge of the multibillion-dollar industry. The firms which dominate it are what financial advisers call “boutique” financial advisers that handle almost every facet of a celebrity’s life, from paying their rent or mortgage and buying vehicles to paying every bill, advising on contracts and filing their taxes. For those services, the accountants usually charge between five and 15 per cent of their clients’ gross income.
“I’m the one who has to say ‘no, you can’t buy that car right now’,” said Evan Bell, a chartered public accountant in New York, whose client list included Bill O’Reilly of Fox Television and Ivanna Trump, ex-wife of billionaire Donald Trump. “I’m the voice of doom.” In Rihanna’s case, she claimed that instead of the usual fee, the accountants charged what she described as “exorbitant and excessive” fees. As if that wasn’t bad enough, she alleged that the accountant failed to keep proper documentation, which eventually triggered a costly IRS audit, according to published accounts.
Some things are clear about the Bajan’s nightmare. Firstly, some mistakes were made and the accountants have apparently agreed to assume some responsibility for them by settling the matter. Secondly, she has since regained financial health with assets amounting to at least US$43 million. Thirdly, she isn’t the first to suffer at the hands of financial advisers and certainly wouldn’t be the last.
Some cases in point: Larry King, the legendary television talk show once hauled an insurance brokerage firm into court, alleging that he had been swindled out of US$15 million between 2004 and 2007 through complicated insurance transactions.
Kevin Bacon, the actor and his spouse Kyra Sedgwick invested and lost a huge chunk of money with Bernie Madoff, the king of Ponzi scheme.
Jay Z, the music mogul who signed Rihanna to her first contract shortly after she left Barbados, is said to have lost millions in a hotel project when the real estate market went belly-up in 2007.
The bottom line is that celebrities like Rihanna usually place their full confidence in investment advisers, only to find out later it was misplaced trust.
“When we’re paying our clients bills, we know everything that’s going on,” Bell once said. “We know if they are on drugs or cheating on their wives.”
What’s needed is for people to exercise common sense and keep their eyes wide open.