Federal investigators from the Department of Immigration and Customs Enforcement (ICE) seized more than 150,000 counterfeit CDs in April from Latin music distributor/one-stop Angelica's Records, one of the leading distributors of Latin music in the United States, according to an RIAA email obtained by Billboard.biz.
Sources familiar with the situation say the ICE enforcement action took place April 27. In an April 29 email to RIAA members, the recording industry trade group said ICE agents executed search warrants at Angelica's headquarters in Phoenix and at the company's distribution centers in Dallas and Chicago, seizing business records and counterfeit CDs that were replicas of legitimate CDs, included releases from all four majors as well as independent Latin labels.
"Preliminary indications are that 3 of every 4 albums being sold by Angelicas were counterfeits," the RIAA said in its email. "The counterfeits were being mixed in with legitimate CDs and being sold at full wholesale price."
Sources say no charges have yet been filed in the case. But the RIAA said in its email that, "Eventually the case will presented to a federal grand jury in Dallas."
An ICE spokesperson says she has "no information" about an Angelica's enforcement action. Angelica's president Melek Portillo had not responded to Billboard.biz's requests for comment at press time.
Suspicious that Angelica's was selling counterfeit product, some labels launched their own investigations by sending anonymous buyers to purchase CDs from various Angelica's locations and from the company's retail clients, relaying their findings to the RIAA during the last several months, according to sources familiar with the situation. It remains unclear whether the one-stop's clients were aware they were purchasing counterfeit merchandise.
The RIAA says in its email that Angelica's was selling counterfeit CDs it ordered from a replicator in California.
The ICE raids on Angelica's follow a September 2010 decision by a U.S. District Court in Los Angeles to grant Latin indie Aries Music Entertainment's motion for default judgment against Angelica's for "unauthorized marketing and selling" of Latin hip-hop artist Dyablo's album "Y Sus Dyscypuloz 2." Under the judgment, Angelica's was ordered to pay $156,600 for infringing on Aries' exclusive right to distribute the album. Aries ordered Angelica's on April 13, 2009 to "cease and desist all unauthorized marketing and selling of the Work" but Angelica's continued selling the work and was served with a complaint in February 2010, according to court documents. In March, the court denied Angelica's motion to set aside the default judgment.
Physical piracy is a serious problem in the U.S. Latin market, with Latin product accounting for a disproportionate amount of all product seized in raids. However, most of the seized product comes from flea markets or similar points of retail -- a legitimate retailer selling high-quality counterfeit product on this scale is unprecedented.
What would motivate a legitimate music distributor to sell counterfeit CDs? Increasingly, industry sources say, lower-priced parallel imports, particularly from Mexico, are wreaking havoc on businesses like Angelica's. Copyright fees are higher in the U.S.-where labels pay per track-than in Mexico, where they pay a percentage of the retail price. As a result, an album imported from Mexico can offer many more tracks than a U.S.-produced album, at a fraction of the price. This is especially true of catalog albums that often include two or even three CDs, or CD/DVD sets.
"Many mom and pops will stop buying from the one-stops and instead import from Mexico," says one source. "And really, they're just trying to survive."
Total sales of Latin music albums in 2010-defined as albums that are 51% or more in Spanish-plunged 25% from the prior year, a far steeper decline than the 12.8% drop in total U.S. album sales during the same period, according to Nielsen SoundScan.