Sitting at a corner table in a dark restaurant on Toronto’s Queen Street, Robert Thompson-So is attempting to explain how the acquisition of iconic hip-hop label Death Row Records went sideways so quickly. It was only a year ago that Thompson-So was leading the purchase of Death Row, paying US$18 million to pull the label out of bankruptcy. The acquisition, funded by New Solutions Capital Group, a private bank that employs Thompson-So, was designed to create a “new breed” entertainment company to be the linchpin of WIDEawake Entertainment Group, a Toronto-based multimedia business led by chief executive Lara Lavi, a former songwriter and Seattle music lawyer.
Sipping a coffee while his advisers, former Motown Records talent scout Mickey Stevenson and Death Row producer and engineer John Payne, listen from the other side of the table, Thompson-So [no relation to the author] tries to make sense of how the record label has been derailed for three months in a legal fight for ownership control. While there haven’t been threats to throw anyone off a balcony, as Death Row founder Marion (Suge) Knight is alleged to have done to a rival over a songwriting royalty, the beleaguered label finds itself once more at the centre of a drama, this time in Ontario court.
Lavi, 49, was unceremoniously dumped as CEO of WIDEawake in November and has been battling in both Canadian and U.S. courts ever since. Ugly accusations have been tossed by both sides in and out of court. New Solutions says it is just attempting a “workout” – a term used to describe a situation when a securitized lender takes over an asset that has defaulted on a loan – while Lavi says the bank didn’t know what it was doing with Death Row. The battle may not be gangsta, but it is no less nasty.
“The story right now hasn’t been the business, but what has been going on inside the business,” says Thompson-So, managing director of capital markets and investments for New Solutions. “We’re trying to get away from that.”
Thompson-So, 38, says New Solutions was just trying to secure its investment when it removed Lavi, who had an ownership stake in Death Row, though just how much of a stake is in dispute. Lavi fought back, taking action in a New York court that yielded a temporary restraining order against Thompson-So and New Solutions’ chairman, Ronald Ovenden. Though the New York order has expired and Thompson-So is now at the helm of Death Row, Lavi continues to claw away for her stake.
From Lavi’s perspective, the problem is questionable Canadian lending practices, coupled with meddling of the financier, namely Thompson-So and Ovenden. “I’d suggest the words to use for a company like New Solutions in the context of this is financial vampires,'” Lavi says emphatically.
Legal battles are hardly anything new at Death Row, a label founded in Los Angeles by Knight, a former professional football player, in 1991. Amid allegations of violence and threats, Knight built the most famous and successful hip-hop label in history, signing acts like Snoop Dogg, N.W.A. and perhaps most famously, Tupac Shakur. It was Knight’s thuggish ways that brought the initial downfall of Death Row. Incarcerated in U.S. prisons off and on for most of a decade starting in 1997 for a variety of crimes, including assault and parole violations, Knight’s stranglehold on Death Row faltered, as did the label’s commercial fortunes. By 2006, he was embroiled in legal action with Lydia Harris, wife of the company’s co-founder, and the label eventually plunged into receivership two years later, being placed up for auction.
In June 2008, Tennessee-based Global Music Group won the auction, paying a reported US$25 million for the label, though it later claimed assets from the sale, including master recordings, were missing and potentially stolen. A month later, the Global Music deal fell through, placing Death Row back on the auction block. At the start of 2009, WIDEawake, a little-known music company with only a solitary obscure singer on its roster, captured headlines by snapping up the label.
The acquisition of Death Row was always intended to be part of a workout that started in 2005, when New Solutions took control of Sextant Records after that label, which issued albums by the likes of rapper Choclair and Saskatchewan popsters the Northern Pikes, defaulted on a loan. In a typical workout, a lender will often operate the asset and try to make it financially attractive so it can be sold and the loan recovered. “We often lend money to companies that can’t get traditional bank financing,” Thompson-So explains, noting interest rates and fees on loans from New Solutions can run between 23% and 25%.
Realizing the era of digital music was upon it, New Solutions transformed Sextant into WIDEawake Entertainment, placing Lavi, who had provided legal representation to a Sextant musician, in charge of its fledgling operation. Lavi says the goal was to make WIDEawake a multi-faceted entertainment business, creating films, putting out music and working in video games. It retained a large studio office space in Toronto’s Liberty Village and promoted an album by its sole act, singer Sean Jones. When Jones’s album failed to sell, and with the label hemorrhaging cash, New Solutions brought in a new executive to fix the problem. Thompson-So, a former Bay Street banker with connections in Hong Kong, was asked to find an acquisition that could improve cash flow, make the company more attractive for a sale, and help get the lender out of a bind. Though it hardly seemed like an obvious choice for a private bank, Thompson-So felt Death Row fit the bill.
“Given the initial estimates, we were supposed to get out all the costs, and making this work should have been easy,” he explains. “Everything was numbers driven, and this was an easy one to figure out.”
After all, Death Row had several of the biggest rap releases in history in its catalogue, and albums like Dr. Dre’s The Chronic, Snoop Dogg’s Doggystyle and Tupac Shakur’s All Eyez on Me continued to sell without any marketing or support throughout the label’s financial difficulties. Lavi expected Death Row’s annual income from album sales, digital sales and publishing to be around US$5.4 million, according to documents filed in Ontario court. In the same document, Lavi added that if the label were to issue a new album by Tupac Shakur utilizing unreleased recordings, it could expect to sell “at least 300,000 to 500,000 copies which would result in additional net income of US$1.2-million to US$2-million.” Acquiring Death Row looked like the fix New Solutions was hoping for, but in order to skirt an existing Canadian distribution deal for WIDEawake, a new holding company, WIDEawake Death Row Entertainment, was set up in the U.S. In documents submitted in the Ontario court proceedings, Lavi’s Very Juicy Entertainment is listed as controlling 34% of the holding company, while New Solutions’ Ovenden had control of the remainder. However, official documents setting up the ownership situation in the state of Delaware were never finalized.
Despite the rosy financial predictions, little went according to plan after the acquisition, though, the deal gained significant media coverage. Lavi says there were problems before the Death Row purchase, but the situation grew worse afterward. “There was a lot of contradictory behaviour, and it wasn’t until the Death Row purchase that things got really serious and I realized I had to put my foot down,” she says. “They were putting their own investors’ money at risk, they were putting my career at risk, and they were putting themselves at risk.”
Lavi says Ovenden – who would not speak for this story despite having a majority stake in Death Row and referred all questions to Thompson-So – never understood the investment it would take to relaunch Death Row, claiming the financier was “double dealing” by operating as a lender and majority owner. “At the end of the day, that’s what [New Solutions] actually cares about – money,” she says. “They take a security position in any company and as lenders based on the unique lending laws [in Canada], take a rather aggressive position with the companies they lend money to.”
Lavi contends she was protecting her interest in the business, which now included a state-of-the-art recording studio being built for the company. “If I were acting in the way that benefited me the most personally, I’d have run out of this place screaming,” she explains. “But I stayed in there and tried to make the business work.”
However, less than six months after acquiring Death Row, Thompson-So and New Solutions began to question Lavi’s ability to lead the business. Though a distribution deal for Death Row was struck with E1 Entertainment that included a $4-million advance on future sales ($2 million of which went directly to New Solutions) and a publishing deal was inked with Evergreen Copyrights, Lavi could be difficult to work with, say former employees. Though Lavi often referred to herself jokingly as a “Jewish soccer mom” in interviews, according to e-mails submitted in the Ontario hearing, she would often sign her name as “Lara, gangsta soccer mom.” Employees say it was a title she attempted to live up to.
Payne, the former Death Row engineer who was retained by the bankruptcy trustee through the sale and became a consultant to WIDEawake, said Lavi’s ego trumped smart business decisions. “For [Lavi], it was a stepping stone to something else,” he says. “She wanted to be bigger than the business.”
E-mails from WIDEawake employees submitted as evidence in the Ontario court proceedings paint Lavi as an unstable, often vindictive boss. One of New Solutions’ allegations involves Lavi setting up a personal bank account in order to deposit company cheques, making allegations about the sexual preferences of employees, conspiring to attempt a takeover of the business with the backing of a mysterious financier and being publicly critical of management, namely Mickey Stevenson, as well as hiring a private detective to investigate Payne. “I have spoken with many employees who fear that [Lavi] is so out of control and vindictive that she will attempt to destroy them if they don’t do her bidding,” one former employee stated in a court-filed affidavit.
Amid the infighting, Death Row managed to get only two albums and a box-set collection of songs to the market. The first was a remastered version of Dre’s The Chronic, while the second was a rarities collection from Snoop Dogg. Neither was a huge commercial success – Thompson-So says The Chronic sold 50,000 copies in 2009, while Snoop Dogg’s album sold only 30,000.
With the company in disarray and the new multimillion-dollar asset failing to fulfil its potential, on Nov. 9 Ovenden convened a shareholders’ meeting for WIDEawake Death Row and fired Lavi. But Lavi wasn’t prepared to walk away, launching a legal action in New York, claiming she held the majority interest in WIDEawake Death Row Entertainment, adding that incorporation documents for the company in Delaware were incomplete and raising questions about corporate governance. She captured a temporary restraining order in the process and issued a press release stating she was the only one who could speak for the company. “I have always been known as the sole person behind Deathrow,” she stated in her claim to the court. “Deathrow has been and will continue to be run by me exclusively.”
Lavi’s time on top may have damaged the business, limiting marketing and sales support for a box-set release of Death Row hits, but it didn’t last long. Within a month, Ontario Superior Court Judge Colin Campbell ruled that Lavi was not an officer or director of the company, ordering her to not interfere with the operations of Death Row. The only solution to the infighting, Judge Campbell said, was a settlement that would see the ownership situation resolved. It was time for a corporate divorce. The court closed for Christmas with the judge directing the parties to find a solution.
Lavi says she plans to make an offer to acquire Death Row, though she would not disclose how she would finance the transaction. “I am operating on the good faith and proper energy that a settlement will come,” she explains. “There’s no inability on my part to settle.”
Thompson-So says New Solutions has yet to receive an overture and is prepared to simply take over the business.
What happens to Death Row next is unclear. At a Feb. 17 hearing, Judge Campbell promised to rule on ownership shortly. Lavi continues to argue that New Solutions has lumped debt onto Death Row, increasing a potential buyout price in the process, while Thompson-So says his bank would like nothing more than to be out of the music business. He says New Solutions will continue to operate Death Row, restructuring it so it can be refinanced by a traditional lending institution with the possible conclusion of a public offering or sale. “If someone would pay the amount of the debt incurred plus a dollar, we’re out,” he says, pegging the value of the debt at between US$23 million and US$25 million. “This is just another commercial loan transaction that started as a workout and continues to be a workout. Please – step up to the table and take us out.”
Despite the latest battles over the business of Death Row, Payne says that the heart of the label is a vast catalogue of classic rap material – albums that have been tied up in financial mismanagement for far too long and include unreleased material by the likes of Tupac Shakur. Hip-hop fans don’t care about the bankruptcy and legal wrangling in Canadian courts, he says. They want access to the music, and Death Row can once more be a success if New Solutions can simply get product into stores and onto digital music sites. “The way in which we are going to create a market for this product isn’t going to change,” he says. “The whole thing that made this catalogue successful was it was music of the people.”
He pauses, leaning back in his chair.
“We have tons of fans waiting on this product, and if it gets to the ears of the fans, it’ll work.”