Why cuts into vinyl covers?

or records that were returned by the stores to the distributor/manufacturers as dead inventory that didn't move- a/k/a "cut outs." (Labels don't take returns from stores like they used to, except possibly for defects- but stuff that didn't sell? They're stuck with it these days). 
Occasionally, on counterfeit copies of rare records, you'll see the punch hole reproduced in the artwork of the clone copy. The originals were overlooked in the marketplace when released but became collectible later. 

There's a pretty good story associated with MCA and a massive amount of returned inventory that was brokered for resale through Morris Levy.(It amounted to over 60 tractor trailer loads if memory serves). The skim, the scam, the sting and the threats over a wire were what finally led to Levy's conviction in a court of law. And that's really the least interesting part of Levy's life story. Worth reading about if this stuff interests you. 

Richard Carlin wrote what is probably the best bio of Morris that was published a few years ago, entitled Godfather of the Music Business. It has lots of stories and backs up some of the stuff I heard about as a young lawyer in NYC who was doing a fair amount of work in the industry. The record industry definitely had a "mob" issue-- from payola to distribution to pressing plants to various behind the scenes figures. And it wasn’t confined to the States, either. There was money to be made, and in many cases, it was a cash business, as was concert promotion, so when you stand back and look at the business you can see why it presented a lot of opportunities for the criminally minded.
FWIW, Carlin’s portrayal of Levy is pretty even-handed- Levy was in some ways a genius- he had the first integrated jazz club in NYC, got into the rock and roll craze early on, signed unknown acts, then promoted them at rock and roll shows (Alan Freed was one of his promoters- famously went to prison for payola). Everybody was afraid of Morris Levy-- there are some great stories in Carlin’s book about how unwitting young employees would be sent to his office to "collect" not realizing who they were dealing with. Sorry to derail your thread on cut-outs, but Morris Levy was the first person who came to mind. BTW, one of the famous tax scam labels,Tiger Lily, was also a Morris Levy affiliated business. A copy of one of the albums on the label, Stonewall, sold a few years ago for 14k-- the guy who found the copy knew exactly what he had: [url]https://www.brooklynvegan.com/stonewall-lp-se/[/url]

I never looked for hole punched records to find early pressings- I usually looked for white label promos or went by the matrices in the dead wax. 
@yaluaka- I don't think I disagree with anything you wrote- I'm aware of one distributor who will go unnamed that was known for releasing counterfeit copies of records they otherwise had legitimate copies of, either as cut outs or as normal distribution copies. The other thing I was aware of was so-called 'back-dooring' by less scrupulous pressing plants-- pressing more records than called for by the label which was basically unaccounted for inventory that got sold without the involvement of the label and without paying the artists.