Film, Media
and Entertainment Investment Fraud
Titanic Sized Losses
A film production company calls and tells you that it is raising
capital to produce a high-quality, low-budget family film with
actors who are willing to sacrifice their usual high salaries for
the sake of art.
The films are to be produced by a noted filmmaker. They state
that his prior films have generated 5 to 1 returns for investors
and that he and his films have won certain awards, including a
Cannes Film Festival award. Claiming that the independent film
market, cable television and video stores have increased the demand
for movies, you are "guaranteed" to make your money back.
According to their prospectus, your money will be spent on production,
distribution and the screenplay.
It turns out the principals of the scam are also the "producers" and "screenwriters." They
take most of the money raised and then use a small amount to produce
a low-quality film that is unlikely to turn a profit, let alone
be released commercially.
They also sell substantially more units in their film investment
partnerships than they claim they will sell, thereby diluting each
investor's interest in the film and raising the break-even point
for the partnerships.
Even if a film succeeds at the box office, financial backers are
usually the last to recoup their investment from the project.
Pitch men also hawk the profits to be made in special interest
television programming, but the success of any new network venture
requires a rare combination of creative programming, an ability
to get access to cable systems and an ability to draw viewers and
advertisers.
"Potential investors need to be on the alert for grifters
who take their money and promise the gold, glitz and glitter we
all associate with the entertainment world," said Jodie Bernstein,
Director of the FTC's Bureau of Consumer Protection. "Unfortunately,
titanic profits are reserved for very few investors or groups of
investors; generally people who know the industry very well and
who take a very cautious and studied approach to investing."
A Supporting Cast of Documents
Over a four year period, while operating as J S Productions, one
con convinced twelve individuals to invest approximately $390,000
with claims he was buying and selling rights to blocks of advertising
time on cable and radio stations.
He fabricated, then provided to investors, ad agency contracts
purporting to be between him and a broadcaster which entitled him
to purchase below-market-value advertising time.
When there were no profits from the fake contracts he blamed another
New York-based ad agency, saying they were withholding proof that
the ads actually ran until it was paid. He then provided his investors
another fabricated document, a $3.2 million contract which he said
would be used to satisfy the supposed debt.
To convince his investors that they would still profit from their
investments and to keep them from contacting law enforcement authorities,
he created more fabricated documents, including:
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A contract with Trump Plaza Hotel
and Casino, entitling him to 10% of the gross receipts for
the production of "Smoky Joe's Café," plus
$1,000/week for booking the show. |
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A one-year contract with a major
radio network, paying $7,500 weekly for hosting a weeknight,
four-hour radio program, the "Certified Gold Radio Network" |
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A contract for two payments of
$195,000 for allowing Nickelodeon to broadcast 75 one-hour "Dean
Martin Celebrity Roast" programs to which he had exclusive
rights. |
A Saintly Bond
Production bonds, to supposedly fund the making
of a feature film of the life of St. Patrick, were sold to investors
by a special "Foundation" through the Internet, religious
periodicals, private delivery services and by mail.
They were offered in denominations of $1,000, $5,000
and $10,000 and promised investors interest in the amount of
10.55% per annum. The maximum amount to be offered was $5,750,000
but they only raised about $2,500,000.
They failed to disclose some material facts such
as; the risk involved; the inability of the issuer to repay the
bonds; that transactions between the Foundation and its principals
were not at arm's length, or most importantly, that none of the
Foundation's officers had any prior experience at developing,
producing, directing, distributing or marketing a feature length
motion picture.
Federal
Trade Commission v. Affordable Media, LLC, et al.
The Federal Trade Commission established a redress fund for eligible
consumers who purchased blocks of "Media Units" - blocks of
television commercials that promoted various products - from Affordable
Media. The fund stems from a complaint filed in 1998 charging the defendants
with making false representations concerning likely investment returns.
This case initially stemmed from "Project Risky Business," an
investment fraud sweep.
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