The MLC is holding $1.2 Billion in publicly traded securities
The MLC is holding $1.2 billion in investments, and no one seems to be watching closely, writes Chris Castle. Find out why more in the industry are questioning where the money is going and who benefits.
The MLC is holding $1.2 Billion in publicly traded securities
by CHRIS CASTLE via Music Tech Policy
It’s becoming increasingly clear that the MLC has little to no oversight. The Copyright Office is tasked by Congress with oversight authority over this quasi-governmental organization. Nothing. The Copyright Office haven’t even concluded their mandated five-year review of the MLC that started a year ago. Not only has no one responded to Congressman Fitzgerald’s inquiries about the MLC’s oddball finances, the Copyright Office hasn’t responded to the many public comments demanding answers on the MLC’s sketchy finances as demonstrated on their tax returns.
The MLC’s 2023 tax return shows the quango is holding $1,212,282,220 invested in publicly traded securities which is a fortune for an organization that makes no money and has no profits.
The Supplement to the MLC’s 2023 tax return includes this language:
In our Form 990 for 2023, we provided information regarding funds we were holding in banks and
investments as of the beginning of 2023 and the end of 2023. These included assessment funds that we
subsequently use to fund our operations; royalty funds we were not yet able to distribute and on which we are required to earn interest in accordance with the Music Modernization Act (MMA) of 2018; and royalty funds we were holding pending distribution.
What the MMA actually says in the black box penalty language of 17 USC §115 (d)(3)(H)(ii) is:
Interest-bearing account.—Accrued royalties for unmatched works (and shares thereof) shall be maintained by the mechanical licensing collective in an interest-bearing account that earns monthly interest—
(I) at the Federal, short-term rate; and
(II) that accrues for the benefit of copyright owners entitled to payment of such accrued royalties.
The black box penalty in 17 USC §115 (d)(3)(H)(ii) is similar to the late fee charged to licensees. The code creates an incentive for the MLC to pay out unmatched funds quickly to avoid the market share distribution of black box which could happen any minute now (particularly since the Copyright Office hasn’t completed the five-year review it started over a year ago).
This language of 17 USC §115 (d)(3)(H)(ii) does not “require” the MLC to “earn interest”, it requires them to PAY interest. Because it is inextricably tied to job performance, it would not be a payment borne by the licensees as part of the administrative assessment as part of the “collective total costs.”
That’s why it’s a penalty. It is, in my view, absolutely false and misleading to state in a matter under the jurisdiction of the federal government that the MLC is in compliance with a code section that does not say what they say it says. And it’s not just this one time, the CEO has said almost these exact words in testimony to the House IP Subcommittee and in supplemental written testimony to answer questions for the record from the Subcommittee.
Even if you want to be generous and accept the MLC’s argument–and it’s just an argument–that the MMA “requires” the MLC to “earn” interest, an “interest bearing account” simply does not contemplate “investing” other people’s money–your money–in publicly traded securities by a stock broker. When asked direct questions about who bears the downside and who gets the ups on their stock trading, the MLC has never answered the question.
The closest to an answer we get from the plain statutory language is that the MLC is required to pay interest on unmatched funds at the “federal short term rate” which is approximately 4.23%. Does that mean that if the MLC makes more than a 4.23% return they keep the upside? Or if the stock brokers don’t achieve that return, does that mean the licensees cough up the difference in additional administrative assessment contributions? Unlikely, so would the MLC’s board members pass the hat? I’ll believe that when I see it.
While the MLC refuses to answer who participates in the benefits or downside of the investment policy, the amount invested in publicly traded securities over 12 months has radically increased from $804,555,579 at the beginning of 2023. As of the end of 2023, the MLC’s holdings in publicly traded securities alone increased to $1,212,282,220, approximately a 50% gain over 12 months. What we don’t know is if that gain is due to slick stock trading, monkey with a dartboard or the addition of new money, Madoff-style.
The MLC offers this explanation:
At the beginning of 2023, we were holding $138.8 million in “Savings and temporary cash investments.”
By the end of 2023, we had moved $131.1 million of these funds to “Investments – publicly traded securities,” leaving the remaining $7.7 million in “Savings and temporary cash investments.” At the
beginning of 2023, we were holding $804.6 million in “Investments – publicly traded securities.” By the
end of 2023, the amount of funds we were holding in this category increased to $1.2 billion. This year-
end amount included the $131.1 million we had moved from “Savings and temporary cash investments”
into this category during the year.
Realize that this language explains nothing. Not only do they round down by $12,282,220, they simply describe movements of cash.
So once again, we are presented with a document that avoids the key issue at best and is misleading at worst. But what is clear is that the MLC has more in holdings that approximately 130 regional banks that have substantial disclosure obligations. It’s looking more like a hedge fund.
Cui bono?
