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Nine Inch Nails Lawsuit: Duped again?

If an artist claiming he was duped out of a fortune by one or more trusted advisors isn’t the oldest story in the world, it is one of them. And it is so common as to be a cliche: the “creative” personality focused on translating impulse into reality, the attentive enablers handling business and day-to-day affairs – all is well until someone gets a little greedy, maybe feels a little unappreciated, the delicate equilibrium is broken, money is missing, tears are shed, lawsuits fly.

Yesterday, Nine Inch Nails maestro Trent Reznor’s civil trial against his former best friend and manager John Malm began in U.S. District Court in New York. Reznor claims he lost up to $10 million to his former associates due to fraud and breach of fiduciary duties.

Reznor said in court that he was alarmed to find out in 2003 that he had only $400,000 in cash after earning millions over the previous 15 years. The NIN star’s central claim is that Malm tricked him into signing a contract that allowed the manager to collect 20 percent of Reznor’s gross, rather than net, earnings – net being the industry standard.

“It was not pleasant discovering you have a 10th as much as you’ve been told you have,” Reznor said. “John was the business guy, and I was the guy working for nothing in the studio.”

Reznor also admitted that he spent much of the ’90s in a drug and alcohol-induced haze and that he ignored his finances and sometimes signed documents without reading or understanding them. It was only after rehab several years ago that Reznor said he began to comprehend his situation.

Malm’s lawyer Alan Hirth countered that his client worked for free for years and hid nothing from the artist. “Of the millions upon millions upon millions that Trent Reznor and Nine Inch Nails made, the vast majority went into his [Reznor’s] pocket.”

NIN’s comeback album, With Teeth, opened resoundingly at #1 on last week’s Billboard album sales chart, with first-week sales of more than 272,000 copies.

In an interview that now fairly screams of irony, I discussed business affairs with the Cleveland-based Malm in ’93 for Networking In the Music Industry:

    EO – How have your management duties changed with the success of NIN?

    JM – Early on, there were a lot of concerns that we don’t have anymore; such as finding a record deal, getting a publishing deal, finding a booking agent, finding a lawyer and an accountant, and hiring our road personnel for a touring situation. Those days were difficult, but not as intricate as they are now. The first thing was to get Trent a record deal; which we did. The wrong deal, but a record deal nevertheless.

    We also did something that a lot of people don’t do: we set up a merchandising company to handle NIN merchandising. Most people just go to a major, such as Winterland, or Brockum, and do a deal with them. We felt that we needed more control of the merchandising area, so we decided to set up our own company, and it is doing real well for us. I usually refer to finding all of those people as “building the team”. We pretty much have the same team now that we had in 1989 when we first started. That was the beginning.

    Will you explain the merchandising situation?

    Nine Inch Nails has very distinct ideas. We know what we want to do. We know how we want things presented: how they should look, and so forth through audio, video, visuals, and everything else. We like to keep the control in our corner. With merchandising, you usually go to the big companies and they either want you or they don’t. If the company wants you, and usually they want most bands, then they will offer you an advance against what you sell: either in a retail situation or for the road. Usually there are separate deals for the road and for retail. The deal can be tailored however you want, but for new bands, you usually don’t have much leverage because you don’t have a track record. You can’t say, “We did this last tour, so we are going to do this on this tour.”

    We knew from the beginning that we weren’t going to do a deal with a merchandiser. I still get calls at least once a month from merchandisers trying to do a deal, and the money is exorbitant now compared with the early days. There are very few bands, maybe one-tenth-of-one-percent, who do their own merchandising. It’s not done because it’s easier for a manager to say, “Let’s turn our merchandising rights over to someone else. I’ll get my accounting twice-a-year, and things are taken care of.” For a lot of bands, that’s fine. A lot of bands don’t care that their shirts are 50% cotton and 50% polyester; they don’t care that the shirts are thin, or that if you wash it the ink washes off. Our whole philosophy is to give the person paying for it the highest quality goods.

    Fortunately, I had contacts in the merchandising field, and I got someone to run the company for us who had been in the business, and who had been around for a long time. Trent and I make all of the creative decisions, and this guy runs the company on a day-to-day basis for us. It has worked out nicely, and we have started to sign other bands; obviously we have The Wolfgang Press, and we do The Butthole Surfers and The Young Gods. We are starting to sign more and more bands: bands who care about what their product looks like, and who want creative control.

    How did you find the right people to perform the professional functions that you needed help with?

    The lawyer search was pretty easy. I asked people in the business whom I respect for recommendations. I met with several prospective lawyers and we picked our lawyer: a guy by the name of Michael Toorock, from NY. He’s a great guy, and he’s a bulldog when he has to be. We are still with him; he’s one of the people who has been with us from the beginning.

    For a booking agent, I went around to most of the agencies with a tape of Pretty Hate Machine. This was before the band had been really playing out live. Most of the agents just said that they weren’t interested. One major agent said, “We love your band but we won’t sign you because you are on TVT.” That was unfortunate because we would have liked to work with that agent. We ended up with the guy who we have now, and his name is Gerry Gerrard. He is a British guy who worked out in San Francisco in the club scene booking alternative bands. He moved to NY and started his own booking agency: Chaos Management. He then went-in with FBI: Frontier Booking International, which is owned by Ian Copeland, one of the Copeland brothers. FBI then merged with Intertalent, which is a major film agency that wanted to establish a music department. That has since vanished.

    Gerry Gerrard is now back on his own, and within a week or two he will make an announcement about who he is going in with. Gerry has been with us, and has done a great job for us. I sent him a tape. After he heard the first half of the first song, which was “Down In It”, he called me right up and said, “Let’s do business.” He has believed in the band since that day.

    How are things different now?

    I am not hunting for the team members now. I am running the merchandising company; dealing with accounting, Trent’s daily schedule, his interview schedule, his travel schedule, his appearances; anything that Trent is involved with professionally, I am involved with. Since we have done this deal with Interscope Records, Trent and I have our own label called Nothing. Our intention is to make that a legit label by signing other artists. We are in the process of signing other artists right now. Within about a one month, we should have some announcements about some signings. That has given us a lot more meat on the plate; we have a lot more duties.

    As for my daily schedule: I usually get in between 8:30 and 9:00 in the morning. I usually work at the office until about 6:00pm, and then I’ll go home and work until about 8:00pm. I begin the day by going through the mail and going through anything that has been sent overnight. I get a lot of Fed Ex packages. I also deal with England in the morning. I have a partner over in London whom I talk to at least once a day; we go over what’s happening over there. I also talk to the record companies and whatnot over there. By noon, I am usually talking to NY and the East Coast. A year ago, when we were on TVT, almost everyone that we dealt with was in NY: our record company, booking agent, publicist, lawyer. Now, most of our people are in Los Angeles, with the exception of our publicist and lawyer. A lot of my duties have been switched to the afternoon because of the time difference. I start to deal with Los Angeles and the West Coast at about 1:00pm. I don’t have much local business, it is usually national or international. About the only local business I have is with our merchandising company, and it is located in Chagrin Falls.

    Did you expect to be this successful?

    I expected to reach this point, but I didn’t expect it to happen this soon. The main thing is to keep up with it, and you’ll be fine. If you believe in what you’re doing, and you’re good: it will happen. There are a lot of good people in the industry. You can’t be a fuck-up and get by. You may be able to get away with it for awhile, but eventually it all catches up with you. There are a lot of slimeballs in this business, but it tends to weed itself out.

    You have to believe in what you are doing and really work hard. My #1 priority in my life is my company. It’s a seven-day-a-week job. There is no end to it; it’s not like a stock broker who can go home when the market closes. I could get a call at any time. You have to deal with crises when they arise. You can’t worry about what time it is, or how much sleep you have gotten. I like it because I’m not one of those people who can work banker’s hours and then go home and watch Roseanne. Everyday being different is what keeps me going.

    What are some of the problems that pop up?

    There are situations where the record company may act improperly on your behalf; where I would have to go in and say, “You’re not handling it properly; this is how it should be handled.” There are instances where the band is on the road, and the promoter didn’t provide something that’s necessary for the engagement. I might get a call from the booking agent asking if I want the the band to go on or not. Anything can happen, especially with this band. The excitement on the road really gets your blood going. It’s fun. It’s good. If you have ever seen Trent in concert, that’s all real; it’s not staged. Anything can happen, and has happened. We’ve sent keyboard players to the hospital. Anything goes.

    What are you working on today?

    I have been talking to the managers of producers to get discographies from them for the various producers whom we are considering for work on our new label projects.

    Also today, I have talked to London a couple of times. Our label in the UK is Island, and I talked to the head of Island over there who is a great guy by the name of Mark Morreau. I also talked to the Island UK press officer about some interviews that have been offered to us for Trent.

    I talked to Interscope about some billing problems. It is mundane stuff, but a lot of what I do is mundane. That’s pretty much it, except for my discussion with that amazing interviewer Eric Olsen.

    He is a bitchin’ dude. Does it ever get easier?

    No. I’m sure that Paul McGuinness, who manages U2, has ten times the duties that I have. I imagine that my duties are ten-fold of those of a local band manager’s. I hear a lot of musicians talking, saying: “If I could only get that major label deal. If I could only get that major label deal, my life would be set.” My response to that is: “No your life wouldn’t be set. It’s then that the stakes and the odds are that much higher. If that happens, you will have to work twenty times harder than you are right now.”

    It’s the whole mentality of: you go out and sign your major label deal and then go out and look for Porsches. That’s not what it’s about. If that’s how you think, then it’s not about making music; it’s about making money. You’ll come and go so quickly, it’s not even funny. If you care, it’s a lot of work. I’m blessed with one of the greatest artists of the 90’s; he’s amazing; he’s intelligent, and he works incredibly hard. I defy anyone to work any harder than he does. He honestly cares. He cares about his fans, and he cares about the work he does. That makes my job a lot easier.

    What are the advantages and disadvantages of working out of Cleveland, not generally thought of as an entertainment hub?

    Disadvantages: I have to travel quite a bit more than I would if I lived in Los Angeles. I’m out in L.A. at least once or twice a month. Ineveitably, as you deal with people day-in and day-out, you either build a friendship, or you come to hate the person. I usually get along with most people so that’s not really a problem for me. Anyway, it’s harder to communicate by phone from Cleveland than it would be to go to lunch with somone in L.A. and shoot the shit and kick around some ideas. Or, if I went to a show at the Agora, I wouldn’t see so-and-so: the booking agent for this band, or so-and-so who works at this label. Those people wouldn’t be here, but if you are in Los Angeles or New York, they are. Instead of running into Jim Benson or you, I would be running into Seymour Stein [president of Sire records], or whoever. That isn’t a power or an ego thing, it’s just a matter of convenience. The music towns are Los Angeles and New York.

    I can get around most of the disadvantages, though, with a fax machine and a phone. With those, you can do most business. If you have to meet with people, you get on the plane and you do it. It may change, but I would rather be here for now because I’m not in the bullshit gossip circles, and rumor mills. Both towns are heavy with that. There is a magazine called Hits, that is basically a gossip rag. I am able to focus on what we’re doing. We’ve got a clear idea – Trent and myself – about what we’re doing now: where we want to go, and how we want to get there. I am able to come into the office here, totally focus on that, and not be distracted by the social whirl. I have it a couple of times a month when I go out there, and that’s fine; I enjoy that, but for the main part of my time I am able to totally focus. Everytime I go to NY or LA, I have to defend myself about living in Cleveland about ten times a day. To them it’s like I’m living on Mars or something.

    What is your background? How did you become a manager?

    I’m from Cleveland. I grew up in Rocky River. I went to Denison University and graduated in Mass Media Communications, with a minor in Film. I was the general manager of our radio station. I’ve always had an interest in this type of work. I realized, somewhere around my sophomore year, that I wanted to be a manager. Most people want to be rock stars, but I wanted to be a manager; probably because I had no talent, but I wanted to get into the business.

    Amazing that you could become so focused at such an early age.

    We had Januaries off at Denison, and two of the four Januaries you had to either design a course at Denison, or you had to design a course elsewhere. It was called “J-term.” At that time I was a huge Todd Rundgren fan. Along with a friend of mine, who was also a huge Todd Rundgren fan, I devised this scam to interview Todd Rundgren. We went through his publicist, and I talked to his manager, Eric Gardner, and we eventually made it up to Woodstock, New York where Todd is based. As I was talking to Eric Gardner on the phone, I said to my friend, “That’s what I want to do for a living.” I had seen other aspects of the business, and I liked management best because I could control my own destiny, and not have to work for anyone else. I wouldn’t have wanted to work for a record company because I would have had a boss.

    Anyway, I graduated from college, and I didn’t go into this business. I started working for my father in a sales position. He owns his own company. He knew that I didn’t want to do what I was doing, and he gave me the time to take off to go have meetings with people. It was very beneficial to have a father who was supportive like that. One thing led to another, and I started working with a couple of local acts, Lucky Pierre and System 56, and eventually the Exotic Birds.

    Trent Reznor was with the Exotic Birds at the time. We were totally in sync, and we got along great. I realized what a talent he was, and I was unhappy in the Exotic Birds management situation. One day I said, “I’m leaving the organization. I feel that I can’t take you where you want to go. I’ve got one idea where you should go, and you have another idea of where you should go. Let’s split and good luck to both of us.” The day I did that, Trent said, “If John’s not involved, I’m not involved.” He left, and the rest is pretty much history. That was 1987.

    Was Trent already writing?..

    Yes. That was part of the conflict that he had with the band. He wanted to do more of his own material, and be more of a writer and a frontman for The Birds. Andy [Kubiszewski] wanted to keep that for himself, which is totally understandable. It was Andy’s band, and Trent realized that, and he realized that he was only going to a certain level with them. He really had the desire to do his own thing, and I encouraged him to do so. There’s no hard feelings. Trent did some demo tapes at the Right Track in Cleveland. I said, “They’re amazing. Let’s go.”

    What should a band look for in a record deal?

    When you are looking for a label, know what your priorities are. When we were looking for a deal, it was never a money thing. It was always, Who will leave us alone? Who will give us the most creative control? That was the reason that we went with you know, that label. We went with them because it was promised, and it was somewhat in writing that we could control our artistic destiny. The second the ink was dry, the rules changed and it was a nightmare. Trent has proven as an artist that he knows what he is doing. Everything was a fight at the former label; we always got what we wanted, but a decision that could have been made in ten minutes would literally be dragged-out for months.

    Will you give me an example?

    Just the art work for the album was a six-month battle. We ended up with what we wanted originally, by the artist whom we wanted originally: a guy by the name of Gary Talpas who has also been with us from the beginning. That was a fight because Gary was from Cleveland so he couldn’t possibly know what he was doing. Insulting stuff like that.

    Today with Interscope, we have complete artistic freedom. We have our own label. Nine Inch Nails reports to Nothing Records. Nothing Records delivers their product to Interscope Records. “Here’s finished art work; here’s finished recordings; here’s finished advertising that you can place; here’s finished bio pictures.” Everything is in our control. Interscope impacts us in no way; other than selling the records, getting them out there, and helping on the marketing side. That’s the main difference between our deal now and our deal then.

    What have the sales been on Pretty Hate Machine?

    This is going to sound ridiculous-a manager not knowing the sales figures- but due to legal and political problems with the previous label we have not been given the correct sales figures. We’ve audited them and found discrepancies, but I don’t want to get into that because I don’t want to be sued for libel. But the record has gone platinum. Broken has gone platinum too, but platinum for an EP is only half a million. Broken has done over 700,000.

    Artistically speaking, has Trent always been moving toward the heavy guitar sound on Broken, or is that an aberration?

    I wouldn’t say that it’s an aberration, but that was pretty much it, and now he is moving on to something else. He’s always fancied the harder side of things; I mean you listen to Pretty Hate Machine, and then see the band live: the live performance has a lot more balls. Trent’s idea was that although he loves synth music (his training is in keyboards), the synth bands like Depeche Mode, or Front 242 were always boring-as-shit live. With Depeche Mode you get a great light show, but the other bands are just boring. Trent wanted to give a live rock and roll feel to what is basically synth music. Hence the live show. There’s guitars and drums and rock. He wanted to give the fans a show: not just see a guy standing there pressing two buttons and not sweating.

UPDATE
This post has been altered to reflect that Richard Szekelyi is no longer a party to this lawsuit.

About Eric Olsen

Career media professional and serial entrepreneur Eric Olsen flung himself into the paranormal world in 2012, creating the America's Most Haunted brand and co-authoring the award-winning America's Most Haunted book, published by Berkley/Penguin in Sept, 2014. Olsen is co-host of the nationally syndicated broadcast and Internet radio talk show After Hours AM; his entertaining and informative America's Most Haunted website and social media outlets are must-reads: Twitter@amhaunted, Facebook.com/amhaunted, Pinterest America's Most Haunted. Olsen is also guitarist/singer for popular and wildly eclectic Cleveland cover band The Props.

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