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Music Industry Faces Cd Marketing Probe

Tue., Oct. 14, 1997, midnight

FBI agents and federal prosecutors are looking into whether millions of dollars worth of CDs have been diverted and sold, cheating artists like Madonna out of royalties and ripping off big music companies.

The concerns have prompted Time Warner Inc., the world’s largest media and entertainment company, to examine its own music distribution business for the second time in two years.

According to two longtime industry insiders who say they have been interviewed by the FBI, the questions center on whether unscrupulous employees have been misdirecting newly manufactured CDs and selling them improperly for cash.

The problem, industry critics said, is a distribution system that at best lacks adequate controls and at worst is littered with pockets of stubborn corruption.

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