MCA Music & the Mafia:
Did the Justice Department cut Reagan's Hollywood pals a break?

Copyright © 1988 by Dan E. Moldea, author of Dark Victory:  Ronald Reagan, MCA, and the Mob (Viking, 1986)

Regardie's published this story in its June 1988 edition.

   In March 1984 the executives of the nation's record companies gathered at the Diplomat Hotel in Hollywood, Florida for the annual convention of the National Association of Recording Merchandisers. Buyers and sellers in the $ 4.5 billion recording business had come together to unveil their new catalogs, to socialize, and to make deals.

     One of those who had come to do a little business was a mobster named Salvatore James Pisello, who had connections to major organized crime operations in the New York City area. Pisello wasn't the only mobster at the convention. A series of record and tape counterfeiting operations had led federal investigators to suspect that organized crime figures were worming their way into the lucrative music business, and the presence of several hoods at the convention confirmed their suspicions.

     None of the mobsters in attendance had Pisello's cachet, however. He was there not as a greasy hood trying to strong-arm a small-time distributor but as a representative of MCA Records, a subsidiary of MCA Incorporated, the most powerful force in the entertainment industry. Pisello had come to make a relatively small deal on MCA's behalf -- to sell a little more than $ 1 million worth of out-of-date records -- but his appearance was significant. One of the industry's giants was being represented by a mobster. How deeply had the industry been infiltrated? Four years after the convention there's still no answer to that question. But there's a new question: Why has the Justice Department dropped its investigation of the ties between Pisello and MCA?

     Last December, according to sources in the Justice Department, the Los Angeles prosecutor who had started the investigation was called to Washington and told by top officials of the Strike Force Against Organized Crime to eliminate MCA from the probe. David Margolis, the strike force's chief, and Michael DeFeo, his deputy, told Marvin Rudnick, the prosecutor, that he could pursue a tax case against Pisello, who had earned about $ 600,000 in income from his dealings with MCA, but that he couldn't call several of MCA's executives as witnesses nor could he try to determine the exact nature of Pisello's relationship with MCA.

     The action raises a host of troubling questions and has prompted a preliminary investigation by a House subcommittee. While spokesmen for the Justice Department and MCA refuse to comment on the case, the House Energy and Commerce Oversight Subcommittee has interviewed witnesses in an attempt to determine if hearings are warranted and whether Justice Department officials acted properly in killing the investigation.

     The case is certainly worth examining. Why, for instance, when the entire record industry is under the scrutiny of grand juries in at least five cities, would one major record company be exempted from investigation? Why would a supposedly reputable business get involved in a series of apparently unprofitable deals with a man of dubious background?

     One element of the case makes the whole matter even more curious: the names of some of MCA's high-placed friends. These include Robert Strauss, a former chairman of the Democratic National Committee and an MCA board member; Howard Baker, a former U.S. senator and a former MCA board member; and Ronald Reagan, the president of the United States and once one of MCA's most important clients.

     Interviews with industry sources and law enforcement officials, court documents, and MCA's own records indicate that there's an unusual relationship between the Mafia figure and the Fortune 500 company -- a relationship that seems to be just the sort of thing that the Justice Department is supposed to investigate.

     At the end of 1987, when Justice Department officials ended the probe of MCA, they knew the following:

* Pisello is an active participant in the world of organized crime. His name appears on numerous federal reports, where he is identified as a high-ranking soldier of the Carlo Gambino crime family in New York (which is currently headed by mobster John Gotti) and as an alleged narcotics trafficker with links to drug dealers in Mexico, Italy, and Panama.

* Pisello had close business ties with several hoods more powerful than he; some of them had recently been indicted for trying to infiltrate the record industry.

* MCA started to work with Pisello in 1983, although he had no previous experience in the record business.

* MCA lost money on every deal it made through Pisello. The company appears to have lost as much as $ 3 million on these deals, while Pisello made at least $ 600,000.

* MCA executives may have made false and misleading statements to federal officials who were investigating the Pisello case.

* At least six executives of MCA Records were subpoenaed to testify before a federal grand jury in Los Angeles. Five of them refused to cooperate unless they were granted immunity from prosecution.

* An argument erupted over the relationship between MCA Records and Pisello at an MCA board meeting in 1985. Howard Baker, who was then a board member, demanded that the executives who were involved with Pisello either cooperate with federal officials or be fired. Several of these officials subsequently received raises and promotions.

* MCA continued to deal with Pisello after his underworld ties were made public and he was convicted of tax evasion in 1985.

     On April 8, 1988 Pisello was again convicted of tax evasion for failing to report most of the money he had made in his dealings with MCA.

     For 22 of the years that Ronald Reagan pursued a career in show business, MCA was his talent agency. Lew Wasserman, the company's chairman, represented Reagan during the actor's early days in Hollywood. The late Jules Stein, MCA's founder and a longtime political supporter of Reagan's, negotiated the sale of Reagan's California properties at hugely inflated prices. In fact, MCA's help in the real estate transactions made Reagan a millionaire. Wasserman is a major contributor to and currently sits on the board of the Reagan presidential library, along with Attorney General Edwin Meese and seven others. He's helping to raise $ 80 million to build it.

     So the biggest question of all, and another one that's still unanswered, is: Did somebody do a favor for Reagan's pals?

     Pisello's biggest deal for MCA, which he struck at the Florida convention, involved cutouts -- discontinued records that have been removed from record companies' catalogs. When companies unveil their new lines, they try to unload old inventory. Sold in huge quantities, cutouts are usually picked up by discount operators to sell as budget-priced items in retail stores. To make these deals more attractive, the companies usually add a handful of"sweeteners" -- popular records by major recording stars.

     Federal investigators have discovered that cutout deals attract organized crime figures, who are lured by the opportunity to counterfeit the sweeteners and sell them at a huge markup. After a record is sold in a cutout deal, it's difficult to prove counterfeiting, according to a law enforcement official. "The buyers have written authorization from the record companies to be selling the cutouts and the sweeteners," he says. "You'd have to count every record sold to prove they had manufactured more than the original quantity."

     At the 1984 convention in Florida, MCA sold more than four million cutouts to John LaMonte, a convicted record counterfeiter and the owner of Out of the Past Incorporated, a discount record and tape company in Darby, Pennsylvania. Representing MCA in the sale was Pisello, who had recently begun to work in the record business as a partner of Morris Levy, the president of Roulette Records. Levy, a powerful force in the industry, had previously owned Promo Records, which was once the dominant cutout record company in the country; his partner had been Tommy Eboli, who was then the boss of the Vito Genovese crime family. Government investigators reported that Levy was "under the control" of Vincent Gigante, the underboss of the Genovese family. Also present at the negotiations was Palmer Brocco, LaMonte's partner and a cousin of Gaetano Vastola, a top member of New Jersey's DeCavalcante crime family.

     LaMonte agreed to pay $ 1.25 million for the MCA cutouts, and the deal was finalized several weeks later at the Palm restaurant in Los Angeles. While they were having drinks at the bar, LaMonte, Brocco, and Pisello were joined by several executives of MCA Records. LaMonte later told federal investigators that Irving Azoff, who had recently become the president of MCA Records, was part of the group.

     When the cutout shipment arrived at Out of the Past's warehouse in July 1984, LaMonte discovered that Levy and Pisello had stiffed him; they had "creamed," or skimmed off most of the sweeteners -- recordings by Elton John, the Who, Neil Diamond, and Olivia Newton-John. LaMonte complained that the 60 truckloads of records that MCA had sent him were nothing but junk, and refused to pay Pisello and Levy the $ 1.25 million. They, in turn, couldn't pay MCA.

     LaMonte didn't know that his name had been picked up by federal, state, and local law enforcement officials from wiretaps on the phone of a bookmaker in Union County, New Jersey. He'd been described as a record distributor who owed money to several mobsters as part of a deal he'd made for some MCA cutouts. LaMonte's name had also come up in conversations taped from a phone at Vastola's Video Warehouse, a videocassette piracy operation in West Long Branch, New Jersey.

     In August 1984, just as federal investigators were becoming curious about LaMonte and his MCA deal, Pisello was indicated by a federal grand jury in Los Angeles on two counts of income tax evasion. Pisello had appeared regularly as a suspect in federal reports on organized crime; he had also been a central figure in a 1977 FBI and Drug Enforcement Administration probe of an international narcotics smuggling operation. Although the case had fizzled out, its reports noted that Pisello was "a member of a New York organized crime family" who had "a past history of arranging narcotics smuggling from Europe." A 1978 FBI report noted that Pisello was an underworld enforcer who had once bragged that he "could kill a particular federally protected witness whether he was under the protection of the U.S. government or not."

     Thus it came as a surprise to Rudnick when, several months after the indictment, he was informed that Pisello had become "engaged in a substantial business transaction with Sam Passamano, an executive with MCA Records in Universal City," according to an affidavit Rudnick filed in court.

     Rudnick started his career as the state attorney in charge of the 1975 investigation of Thomas O'Malley, a Florida state treasurer and insurance commissioner who was impeached and later convicted in federal court. A Justice Department trial attorney for 10 years, Rudnick handled numerous cases that involved organized crime, white-collar crime, tax fraud, and drugs. As an assistant U.S. attorney in Tampa, he had unraveled the well-publicized Florida Power Corporation's "daisy chain" oilpricing scandal. He spent three years with the strike force in Las Vegas, where he was cocounsel on the Aladdin Hotel/Teamsters loan kickback case.

     A critic of Rudnick's says that he "is sincere and is effective in court, but he is also a zealot who is possessed by a conspiratorial state of mind. His whole career has been spent as a government prosecutor, and he may not understand how things work in the real world. He will see corporations and everything they do in the context of organized crime."

     After Pisello's first prosecution ended in a mistrial, he was reindicted in December 1984 and convicted in March 1985 for failing to pay taxes on $ 210,000 in income. On the day of his conviction he was asked in court where he worked. He replied that he was the West Coast representative of Sugar Hill, a New Jersey-based record company that specialized in black artists, including Chuck Berry. On Sugar Hill's behalf he had negotiated an exclusive pressing and distribution contract with MCA.

     With Pisello convicted, government investigators began to follow the leads that had been suggested by his connections. When they tried to locate Passamano, they were told that he no longer worked for MCA. "An MCA employee, however, confirmed that Pisello was engaged in numerous transactions with MCA Records," Rudnick wrote in an affidavit to the court. He then issued subpoenas to Sugar Hill and to MCA Records, seeking "production of business records regarding Salvatore Pisello."

     But the judge in the Pisello case, Harry L. Hupp, demanded to know why the strike force was going afield of the tax case. Rudnick explained that he wanted to "provide a clear picture of Pisello's financial condition" in his sentencing memorandum. Rudnick also submitted evidence of Pisello's organized crime connections, including affidavits from the Los Angeles Police Department's organized crime intelligence division and from the federal Drug Enforcement Administration.

     Hupp wasn't impressed. He said that the organized crime information was hearsay and irrelevant to the tax charges against Pisello. He quashed the subpoenas.

     According to court documents, Rudnick then approached MCA. He called the company's chief counsel, Allen Susman, and asked him to voluntarily supply information about Pisello and MCA. Susman put Rudnick in contract with Myron Roth, a vice president of MCA, and two other unnamed executives, a move that lessened the government's suspicions about MCA's involvement with Pisello. Roth told the investigators that Passamano was the real villain in the Pisello matter.

     What the MCA executives told Rudnick, which he included in his sentencing memo, explained Pisello's role as middleman. Pisello had to come to the company in 1983 when he convinced MCA to distribute records for Sugar Hill. According to MCA, Pisello was to receive 3 percent of the deal; he collected more than $ 125,000. However, by the time Pisello was sentenced, Sugar Hill had developed cash flow problems and owed MCA $ 1.7 million.

     MCA had also paid Pisello $ 100,000 in a venture to sell mats for break-dancing. The mats proved to be unsalable and cost the company $ 95,000. Rudnick noted the cutout deal as well, pointing out that although the records had been shipped a year earlier, "the clients have yet to pay."

     Rudnick concluded that Pisello had collected at least $ 250,000 from MCA over two years for deals that had apparently cost the company nearly $ 3 million.

     Upon completing the sentencing memo, Rudnick asked Zack Horowitz, MCA Records' legal counsel, to ensure its accuracy; Horowitz confirmed its contents.

     Shortly after Pisello received his two-year sentence in the tax case, reporter William K. Knoedelseder, Jr., of the Los Angeles Times wrote a story based on an internal audit of the Pisello matter for MCA's board of directors. The lead to the story read, "MCA Records was more deeply involved with reputed organized crime figure Salvatore Pisello than previously revealed in court."

     The audit concluded that MCA's deals with Pisello were sound as long as the properties involved were worth what MCA's executives had said they were. But it noted some unusual business practices, such as the company's having "no signed agreements with Pisello" or his companies.

     An unnamed MCA official gave the Times the company's unofficial explanation. "Our guys simply got swindled out of $ 250,000," he said. "After the first deal went bad, they should have cut it off, but in the hope that they could eventually salvage things, they threw good money after bad."

     The audit stated that Pisello had been working with Roth and Dan McGill, the vice president of finance for MCA Records, but said that Passamano was the executive in charge of negotiating all cutout sales. It was noted that Azoff, the division's president, denied any association with Pisello, even though Azoff was present at the meeting when the Sugar Hill deal was struck. The audit also cleared all MCA personnel of having knowledge of Pisello's ties to organized crime.

     But Passamano, who was fired in November 1984 after 34 years with MCA, tells a somewhat different story. He's suing MCA for wrongful termination, claiming that he was used as a fall guy and that his superiors were the ones who pushed for the Pisello deals.

     "Myron Roth came to my office prior to the 1984 NARM convention and told me that Sal Pisello was going to represent MCA at NARM to see if he could sell cutouts to his friends," says Passamano, who claims that he raised objections to MCA's cutout deal with LaMonte but was overruled. "After that, all I was told was to give Pisello anything he needed. I did the paperwork and kept my records, documenting what I did and who told me to do it."

     The audit also noted a Pisello deal that wasn't mentioned in Rudnick's sentencing memo: MCA paid Pisello $ 50,000 for his role in negotiating the sale of one of Sugar Hill's record lines -- a deal that later appeared to be of questionable value.

     Ther audit told a different story than the one that MCA's officials had given the government several months earlier. More and higher-level MCA executives were involved with Pisello, and the deals themselves were more suspect than the officials had made them appear. The government's interest in MCA was renewed.

     The audit report had been prepared for a meeting of MCA's board on May 2, 1985 in Chicago. A major topic of discussion at the meeting was the Pisello situation. According to a source familiar with the meeting, "There was a hell of a fight over Pisello."

     According to the source, the board split into two principal factions at the meeting. The one led by Wasserman, the chairman of the board, and Sidney Sheinberg, the president of MCA Incorporated, wanted to ride out the storm and take no action. The other was led by Howard Baker, the former Senate majority leader, and Felix Rohatyn, a prominent New York investment banker. Baker had been appointed to the board in late 1984 along with Strauss, the Democratic power broker. Baker had recently made it known that he was interested in running for a Republican presidential nomination in 1988. He argued that MCA should rid itself of Pisello and his shady business associates. According to the source, he demanded that MCA's executives tell federal investigators what they knew about the Pisello deals and that anyone who didn't cooperate be fired. It's not clear where Strauss stood on the issue. He declined to be interviewed for this story, as did Wasserman, Sheinberg, and Baker.

     In the end, it seems, Wasserman and Sheinberg prevailed. At least two of the executives who were involved in the Pisello deals were rewarded. Roth was promoted to president of MCA Records; Azoff who was named president of MCA's Music Entertainment Division, later became the third-largest stockholder in the company when it bought several of his personal businesses in return for stock valued at $ 25 million.

     In the meantime, the corporate auditors were putting pressure on MCA Records to collect the money that Pisello and Levy owed. The pressure ultimately fell on LaMonte, who had coughed up only $ 30,000 in nearly two years, as well as $ 600,000 in notes payable to Levy -- only half of what was owed.

     Soon after the board meeting, LaMonte told federal investigators, Pisello had called him and threatened his life if he didn't pay up. When LaMonte refused to pay unless the sweeteners were replaced, Pisello said that he wanted the entire shipment back. Shortly thereafter Dan Westbrook, a vice president of MCA Records, checked the merchandise in Pennsylvania to see if it was intact. Despite Pisello's conviction for tax evasion and the revelation of his connections to organized crime figures, MCA continued to deal with him.

     On May 18, according to federal documents, the stakes in LaMonte's dealings were raised when Vastola met with him at a motel in Hightstown, New Jersey. When LaMonte refused to pay his debt to Pisello and Levy, Vastola hit LaMonte with a single punch that crushed the side of his face. After the assault LaMonte became convinced that Pisello and Levy were trying to extort the money from him and agreed to cooperate with federal agents who had Vastola and Levy under electronic surveillance.

     The evidence from the wiretaps makes it clear that MCA was on the minds of people besides Pisello. During a conversation taped on September 12, 1985, Levy said that he was "getting nervous, and I'm not the nervous type. MCA is getting hot. And they have a right to. I don't want them to sue because they can hurt me. . . . If I have to send them the money, I will. I have to pacify them now."

     In conversation on September 23 Levy made a cryptic reference to dealings between another high-ranking mobster and MCA. A videotape reveals Levy lamenting that he and Vastola "had paid Dom (Dominic Canterino, a lieutenant in the Vito Genovese crime family) more money to make peace with MCA than we collected from LaMonte." Canterino, who was present at the taped meeting, had been paid at least $ 30,000 for his services. What he did to earn the money was never explained.

     Three days later federal investigators taped a conversation between Vastola and Levy. "I want everything resolved more than you because I know what it means," Vastola said. "I know what the problem you're having right now (with) MCA (is). And I want it resolved, and we're gonna resolve it. One way or another, John LaMonte will pay this money. I don't care how. He's gonna pay."

     As an undercover witness, LaMonte began to wear a wire and allow FBI cameras to film events that took place in his office. He has become a key witness in two federal grand jury investigations -- in Newark and New York City -- into the mob's infiltration of the record industry. LaMonte and his family were placed under federal protection.

     As the FBI gathered evidence against Vastola and Levy, the Los Angeles Strike Force Against Organized Crime opened an investigation into Pisello's business relationship with MCA. In the wake of the Los Angeles Time's story on MCA's audit, the government's suspicions that something wasn't right with the relationship were revived. Investigators discovered that they hadn't even been informed of at least one major deal in which Pisello was involved: MCA's $ 3 million purchase of Sugar Hill's Chess/Checker/Cadet catalog.

     The strike force's investigation sought to discover why a member of the Gambino crime family was doing business with MCA without signed contracts. Why was Pisello making money in repeated deals while MCA was losing millions? In addition to what MCA had paid Pisello, the audit made it clear that Sugar Hill had received more than $ 3.5 million in loans and advances from MCA. Several years earlier Sugar Hill had placed the value of the Chess/Checker/Cadet catalog at $ 350,000, yet MCA had paid more than $ 3 million for it. Perhaps the inflated value was accurate, perhaps MCA had been taken, or perhaps the link to Pisello were more pervasive than they seemed.

     In February 1986, a federal grand jury in Los Angeles began to investigate the relationship between Pisello and MCA, as well as allegations of payola in the record industry through the use of independent promoters. The new head of the strike force, Ted Gale, authorized subpoenas of MCA and Pisello's company, Consultants for World Records.

     On May 19, 1986, within three months after the grand jury investigation began, Wasserman became the largest individual contributor to the Ronald Reagan Presidential Foundation, donating $ 517,969 for the construction of the Reagan library, according to documents obtained from the California secretary of state's office.

     The government's probe into the record industry and the mob intensified in September 1986, when a federal grand jury in Newark indicted 21 people for a variety of racketeering charges, including the extortion scheme against LaMonte. Among those named in the 117-count indictment were Levy, Brocco, and Vastola. Other grand jury investigations continued in Los Angeles and New York City, while grand juries in Philadelphia and Cleveland began to look into payola and the ties between the record industry and the mob.

     According to federal investigators, Pisello wasn't indicted in Newark because a second tax case was being made against him in Los Angeles. However, his name did come up on some of the wiretaps, according to a federal law enforcement source who has heard them. One wiretap picked up Brocco explaining to LaMonte, who was then his partner, that Pisello was "owed favors" by an unnamed MCA executive who had greased the way for Pisello to enter the company. Brocco said that Pisello had "done a job" for the unnamed executive. Brocco didn't elaborate.

     Meanwhile, back in Hollywood, Wasserman celebrated his 50th year at MCA with a huge party on December 14. Held at the Universal Studios lot, the black-tie event attracted more than 1,300 of the top names in politics and show business. Johnny Carson was the emcee. Frank Sinatra, appearing on videotape, sang, Lew's the Champ to the tune of The Lady Is a Tramp. Ronald and Nancy Reagan sent their greetings from the White House via videotape; they told Wasserman that the president would soon be out of work and asked playfully for his help in getting him a new job. Offering additional evidence of the cozy relationship, Nancy Reagan sat to Wasserman's right at a May 1987 luncheon in Los Angeles that was given by the Volunteers of America in her honor.

     On February 27, 1987 Baker resigned from MCA's board and became Reagan's chief of staff. Strauss remained on the board and became a key adviser to the 74-year-old Wasserman, who had been ailing.

     On July 9 Pisello was indicted again; this time it was on three counts of tax evasion based on the nearly $ 600,000 he'd made while he worked for MCA from 1983 to 1985. The government charged that Pisello had attempted to conceal the money by laundering it through a series of bank accounts, one of which was linked to Levy's Roulette Records. At the arraignment Rudnick argued that Pisello was "a threat to the safety of others" and should have to post a high bail. Rudnick said that he had evidence that Pisello had once offered to shake down an independent promoter who owed money to Sugar Hill Records and that Pisello had once told an unnamed executive of MCA Records that he could "take care" of the Reverend Al Sharpton, a New York civil rights leader who had threatened to boycott certain record companies and rock concerts.

     Pisello, whom Rudnick referred to as "a Mafia enforcer," may even have threatened to kill Sharpton. In a January 20, 1988 interview with Newsday, Sharpton, who was working as an FBI informant, said that after he threatened to boycott Michael Jackson concerts, "one of these nice mobsters threatened to kill me. Sal Posillo (sic) . . . They got a guy to sit on a meeting with me and let him threaten me on behalf of one of the biggest record company presidents in the business." The March 24, 1988 issue of Rolling Stone magazine reported that Azoff, who had a financial interest in the Michael Jackson tour, admitted to having been the executive whom Pisello approached with an offer to "take care" of Sharpton. Pisello's alleged threat against Sharpton is still under investigation, but to date has not been supported by other witnesses.

     In late September 1987, at a pretrial hearing, Rudnick revealed that two MCA executives had invoked their Fifth Amendment rights against self-incrimination when they were subpoenaed to testify before the grand jury. Upon hearing this, Pisello's attorney, David Hinden, jumped up from his chair to object. He claimed that the prosecutor was being unfair to MCA, that the statement was irrelevant, and that Rudnick "was trying to change a tax case into a Mafia case."

     It was obvious what the government was trying to do: it wanted to convict Pisello again, sentence him to a long prison stretch, and then convince him to turn state's evidence against MCA executives in return for a lesser sentence.

     After that hearing, MCA went on the offensive. The company publicly accused Rudnick of lying and denied that any MCA executive had opted for the Fifth before the grand jury. Rudnick didn't respond to the charges, but another law enforcement official familiar with the investigation says that the government had indeed subpoenaed executives of MCA Records, including Roth, McGill, John Burns, Horowitz, and Azoff. With the exception of Azoff, all had sent letters to the government through their attorneys to announce that they planned to take the Fifth Amendment if they were forced to testify without immunity from prosecution. It's the Justice Department's policy not to put a person on the stand if he says in writing that he intends to take the Fifth. Eventually, only McGill was granted immunity.

     MCA also asked for a meeting with the U.S. attorney's office to register complaints about what it considered to be improper behavior on the part of the prosecutor. According to sources, those at the meeting included MCA attorneys Allen Susman, Ronald Olson, Robert Hadl, Gale Title, and Dennis Kinnaird. Representing the federal government were Richard Drooyian, the chief deputy to U.S. Attorney Robert Bonner, and Robert Brosio, the chief of the criminal division.

     On October 2, 1987 MCA filed a formal complaint against Rudnick "to protest the many unfounded and inflammatory statements (he has made) regarding MCA and its executives and employees." The complaint was forwarded to the department's Office of Professional Responsibility in Washington, which refused to confirm or deny an investigation of Rudnick.

     At the same time the company retained William Hundley to plead its case to top Justice Department officials. Hundley, who had headed the department's legendary organized crime division under Attorney General Robert Kennedy, had recently joined Strauss's firm, Akin Gump Strauss Hauer & Feld.

     Hundley confirms that he met with Margolis and DeFeo of the strike force. He says that he wanted to tell Justice Department officials that MCA was willing to cooperate in any organized crime investigation. "I said, 'Look, we're going to cooperate,'" Hundley explains. "'Whatever you want from the corporation. You want to talk to people? You want documents? Get in touch with me. I'll see you get them in a hurry.'"

     The Washington prosecutors sent Hundley to talk to John Newcomer, the new head of the strike force in Los Angeles. Hundley says that he discussed the Pisello case with Newcomer and asked about MCA's status in the investigation. Hundley says that he inquired, "Are we a target? If you tell me we're a target, maybe my attitude is going to be different."

     In mid October MCA received a response from Newcomer. "The allegations (against Rudnick) are a cause of great concern," he wrote to MCA, "and we have taken the necessary steps to ensure that only relevant statements that are factually accurate will appear in pleadings and oral arguments." He concluded by saying, "Neither MCA nor any of its executives or employees are targets of that case and its attendant investigation."

     Perceiving Newcomer's statement as complete vindication, MCA began to boast about his letter to the press. When reporter Chris Blatchford of KCBS-TV in Los Angeles did a story suggesting that MCA might have headed off a federal probe, the company responded angrily, citing the letter. "After revealing to your reporter a letter which confirmed consistent, prior oral assurances that neither MCA nor any of its employees were targets or subjects of the investigation, the broadcast mischaracterized MCA as, somehow, stopping the investigation," MCA's general counsel, Robert Hadl, wrote.

     At the time Newcomer's letter was written, Rudnick had been trying to get several MCA executives to testify about their relationships with Pisello. He had also secured the cooperation of a lawyer who represented three former MCA executives, including Passamano, who were suing the company. (Passamano had also been among those questioned by the U.S. House Energy and Oversight Subcommittee, which had begun a preliminary investigation of the MCA-Pisello matter.) When Newcomer's letter appeared, their attorney, William Dwyer II, was shocked. He wrote to Rudnick, "Are you (or your record industry investigation) for real? I'm made to wonder whether you're toying with us. . . . How is it that your boss wrote MCA's leading lawyer saying, in essence, 'Forget it, your client's clean'?"

     By Thanksgiving 1987, according to law enforcement officials and reporters covering the case, Rudnick was being portrayed as a loose cannon -- not only by Pisello and MCA but by his own people at the Justice Department.

     "Something was rotten somewhere," recalls Dwyer. "My clients had cooperated fully with Rudnick's investigation. Since he had his stripes taken away, we haven't given the government any further cooperation -- and the government hasn't asked us for any."

     Several weeks later Rudnick's two superiors in the strike force, Margolis and DeFeo, summoned him to Washington and, according to sources, told him to confine his case to Pisello, and not to cause MCA "any embarrassment." Margolis, DeFeo, and Rudnick refuse to comment on the conversation.

     But on March 29, 1988, when Pisello's tax evasion trial began in Los Angeles federal court before U.S. District Judge William Rea, MCA's murky role was again made an issue -- this time by the defense lawyer and the judge as well as by Rudnick. In his opening statement, Rudnick -- with Newcomer sitting beside him and Hundley sitting in the back of the courtroom -- charged that Pisello had evaded taxes on $ 450,000, most of which had been received through "relationships" with top MCA executives. Pisello's defense was that much of the money had come in the form of loans, which he intended to repay.

     According to observers of the trial, Newcomer's presence appeared to be an attempt to rein in Rudnick. The two had several arguments in front of witnesses. "I had never seen improper pressure on a prosecutor not to follow a case where it ought to go," says a lawyer who's familiar with the trial, "but Rudnick had a terrible time with Newcomer in this case." Newcomer didn't respond to repeated requests for an interview.

     McGill, the chief financial officer of MCA Records, was the only MCA executive to testify at the trial. He said that Pisello couldn't have borrowed the money because all loans of more than $ 10,000 had to be approved by Sheinberg, MCA's president. McGill attested that the money had been approved by Roth, who was then the president of MCA Records, and that even after Pisello failed to fulfill his business obligations, MCA continued to advance him money for other business deals, as well as $ 50,000 for an unspecified purpose in January 1985.

     Passamano, the fired MCA executive who had handled cutout sales for 20 years, testified that in 1984 Roth had told him that Pisello would be taking over all cutout sales. Roth was never called to testify and refused to comment for this story.

     The trial turned up evidence of a series of questionable business practices surrounding the sale of MCA cutouts. In one instance, according to a witness, Pisello had received 460 $ 100 bills from the buyer of some MCA cutouts while sitting in the parking lot of a bank in Santa Monica. Another witness, this one called by the defense, testified that he had been told to come up with $ 50,000 in cash for Azoff, who was then president of MCA Records.

     John Gervasoni, the head of Scorpio Music, a New Jersey cutout distributor, had agreed to buy one million cutouts from Ranji Bedi, who claimed to represent MCA. Gervasoni was told that he had to come up with a down payment. "Bedi wanted me to meet him in Las Vegas with $ 50,000 in cash," Gervasoni said when questioned by Pisello's lawyer. "He wanted me to put it in a brown paper bag. He told me it was for Irving Azoff." Gervasoni said that he hadn't fulfilled the request and had no way of knowing if Bedi was telling the truth. Earlier Bedi had testified that he hadn't made any cash payments to MCA's executives. Azoff was never called to testify and refused to comment for this story.

     MCA responded to this testimony with another indignant statement. "We are appalled that a tax evasion case has turned into a vehicle to voice hearsay statements, distorted comments, and lies against MCA and its executives, none of whom are on trial," MCA's officials wrote. "To comment further would be to dignify these outrageous and scurrilous statements."

     Gervasoni also testified that in 1985 MCA's executives began to worry about the various cutout deals. After he protested to them that he hadn't received records he'd paid for, he got a call from Horowitz, the legal counsel of MCA Records. "Zack confirmed my deal," said Gervasoni, "but said I had to keep my mouth shut, that they were having problems over at the record company, that MCA Corporation was doing an audit, and the government was asking questions and looking around, and he was concerned." Horowitz was never called to testify at the trial.

     Judge Rea asked Gervasoni if he'd ever obtained the rest of his records. "No. They sued me for counterfeiting and tried to put me out of business," he replied. MCA had filed suit against Scorpio Music for counterfeiting in March 1986, and Gervasoni had countersued for breach of contract shortly thereafter. Both suits were dismissed last June by a federal judge.

     On April 8, 1988, Pisello was found guilty of two counts of income tax evasion.

     In announcing his verdict, Judge Rea said that Pisello had had no intention of repaying MCA, and that therefore the money wasn't loaned to him. Then, pointing his finger at MCA, he wondered aloud why the company was so reluctant to make Pisello pay up. He noted that Pisello had given MCA three undated checks that had been drawn on an empty account only after MCA "was being audited by Price Waterhouse and (MCA's executives) needed something to reflect that they were making some effort to collect." He also couldn't understand why MCA had "made no effort to institute legal proceedings against (Pisello) to recover on these transactions."

     In his closing argument Rudnick managed to raise the questions that had made him suspicious of MCA in the first place and which remain unanswered.

     "The lesson learned from this trial is that when you have business deals made in a corrupt atmosphere, it breeds unreported income and tax evasion," Rudnick said. Pisello and MCA had had a business relationship, he added, "not because of his background in the record business but for some other unexplained series of events that cast a cloud over the testimony at this trial.

     "Why is this man getting all this money?" Rudnick asked.

     "Where did all these people get the idea that this was the man to pay for all these deals?"

     The secrecy surrounding MCA's decision to do business with Pisello and the Justice Department's decision to kill the investigation of this association raises serious questions, particularly in view of President Reagan's long relationship with the Hollywood corporation.

     Only one member of MCA's board of directors would speak on the record. Mary Gardiner Jones, the president of the Washington-based Consumer Interest Research Institute and a member of MCA's audit committee, says that she remembers the May 2, 1985 board meeting in which the Pisello matter and his association with MCA executives were discussed. But she added that "those are inside, internal issues." When she was told that the strike force's investigation of MCA's relationship with Pisello had been killed, she replied, "Well, maybe for good reason. There is no relationship."