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A long time ago in a job far away, we were schooled in the basics of distribution deals: at all times, you need to remember that it’s someone else’s money. You collect and report as if you are only passing the funds on to the real owner. For this, you get a percentage, a fee, a payment that recognizes your own work and effort. But you do not own the money.

This has been foremost in our mind as we read of the decline of the Publisher’s Group West and the chaos it has created. Well over one hundred publishers were stunned by the news of PGW’s bankruptcy in late December. Nothing says “Happy New Year!” like the news that your entire holiday season revenue stream is now part of bankruptcy proceedings.

The Perseus Group has stepped up with an offer that will ultimately pay PGW’s creditors seventy cents on the dollar. Given the fact that these publishers have their own bills to pay — printing costs, salaries, and, yes, royalties to authors — taking less now might not be a bad compromise. It still stings, of course because those creditors aren’t necessarily willing to trim their expectations by 30%.

By all accounts, PGW isn’t the guilty party in this bankruptcy — that honor belongs to the parent company, Advanced Marketing Services. Somehow, despite plenty of warning, AMS neglected to restate its financials. No statements, no money. This is what they call mismanagement and one hopes the managers are made to suffer before the creditors. After all, it’s one thing to take a risk with other people’s money when you’re buying stocks; it’s another thing entirely when you’re already in trouble with the man.

The publishers who were part of PGW’s business weren’t worried too much about the woes of AMS. And at least one publisher performed an audit of AMS’s records:

But even publishers that had closely examined the finances of Advanced Marketing Services were taken aback. New World Library, for instance, sought access to the company’s internal financial data last summer as part of renewing its contract with Publishers Group West. “To our accountant, the financials looked pretty good back then,” Magruder said.

This leads us to remind our dear readers of an important truth. It’s sort of a caveat of the “he who writes the contract, controls the terms of the deal” rule. In this case, he who provides the documentation, controls the information. The auditors, who were likely quite good, only saw what AMS wanted them to see. Things might could get interesting if the auditors were deliberately mislead, but that’s another story for another day.

This story is not good news for the independent publishing world. Heck, it’s not good for the publishing world as a whole. We’d like to think that this will result in a re-examination of how the business works (little things like 90% of a publisher’s inventory sitting in a warehouse give us hives). We do, after all, live in a fantasy world.

Normally, at this point in the post, we’d exhort you to go forth and buy books. Except we’re not sure where the money would be going. Still, buying books never does a body harm, and we’d like to remind the principals of AMS that they took someone else’s money. Karma is a bitch.

• A financial thriller in the publishing world