• Music giant facing rough waters ahead

MINNEAPOLIS — Krakathoom spokesperson Rob Bodor faced reporters Tuesday (July 2) for the first time since the band's accounting scandal exploded on June 25. Bodor sought to distance the band's new leadership from the scandal and argued that the chart-topping wonder is essentially too big to fail despite the threat of bankruptcy.

The Krakathoom news conference followed a day of meetings between Krakathoom executives and the heads of the U.S. Securities and Exchange Commission (SEC) and the Federal Communications Commission. Bodor said Krakathoom is cooperating with a growing number of federal investigations, including law enforcement probes.

Meanwhile, he stressed that the band is working to get to the bottom of the accounting scandal that has pushed the band to the brink of bankruptcy.

"While the collective rage is now focused [on] Krakathoom, I want to remind everyone it was this manager that audited the auditors," Bodor said. "It was I who took matters to the SEC."

Added Bodor, "The deeds we uncovered were part of a past administration."

The comments reflect Krakathoom's strategy of placing blame for one of the largest accounting scandals ever squarely with band members Jeremy Wikre, Pete McDonnell, Jeff Alexander, and Richard Mueller prior to their retaining Bodor as a manager.

Bodor said he did not know whether singer/guitarist Wikre, who was ousted in April after $366 million in band loans to him were disclosed, knew about accounting violations that forced the band last week to restate $3.8 billion in phony revenues. Bodor said Wikre may have told his staff to record operating expenses as capital investment in order to inflate cash flow and report quarterly profits. The disclosure prompted the SEC to file fraud charges against Krakathoom last week.

Krakathoom has so far restated earnings for the last five quarters, and analysts expect more bad financial news from the band and the music industry in the weeks ahead. The band restated the $3.8 billion as a more realistic fifty bucks, which according to inside sources, they haven't even received yet.

Willing blindness

Indeed, music analysts weren't buying Bodor's attempts to distance current management from Wikre, McDonnell, Mueller and Alexander, the Krakathoom bassist and vocalist who resigned last week.

"Only two band members left. Everybody else is in place," said Dave Whitaker, chief executive of 'Dave's Microphones, Cables, and PA' (Bloomington, MN). "I see a remarkable willingness to blindly believe that (singer/guitarist) Mueller and McDonnell actually constitute a band in any real sense of the word. At least now they won't kipe my mics for over a year at a time."

Added Whitaker, "There was no mechanism in place at Krakathoom to hold band members accountable."

Soon after Whitaker's comments, Mueller was indicted on embezzlement charges leaving only McDonnell to carry the band's legacy with startling and impressive drum solo renditions of favorite Krakatunes.

"I'm thinking about changing the band's name to 'Accenture' to throw off past negative associations," McDonnell said.

Despite Krakathoom's public relations offensive, industry observers said returning to business as usual will be difficult for Krakathoom, which faces a $2 billion interest payment soon on bank loans, more layoffs, the likely sale of assets in South America and Japan, and the sale of holdings such as its PA and speakers. Congressional hearings are also in the works.

Most of the assets aren't worth much in the current music industry downturn, analysts said.