The Producers is one of my favorite movies. Released in 1968, this directorial debut of Mel Brooks follows the crash and fall of Max Bialystock, a Broadway producer, who comes up with the zany idea to produce a guaranteed flop of a play. Armed with such a turkey of a show, Bialystock sells in excess of 100% of the production to his investors and plans to take his ill-gotten gains to retirement in Brazil. Bialystock enlists Leo Bloom, CPA but the two wind up in a quandary when the production of Springtime for Hitler becomes a hit.
Why do I tell you all of this movie history? Ahhh . . . life sometimes imitates art. For those of you unfamiliar with this iconic film, watch this trailer for the film:
Cast of Characters
On February 20, 2014, the Securities and Exchange Commission ("SEC") filed a Complaint in U.S. District Court for the Central District of California naming as defendants:
Note: The SEC Complaint contains merely allegations and the defendants are presumed innocent unless and until found guilty in a court of law.
Los Angeles attorney Braslau reprises the role of Max Bialystock and is charged by the SEC with being the architect of a fraudulent scheme that raised money through a boiler-room operation spearheaded by Chortkoff. Over 60 investors allegedly fell prey to the spiels of high-pressure salespeople (of which Rawitt was allegedly one).
How successful were these latter day wannabe film producers? Howsabout to the tune of dozens of victims coughing up just shy of $2 Million in a movie first presented as "Marcel," but later changed to the far more compelling "The Smuggler." As part of the fraudulent pitch, the scam artists allegedly pretended that well known actors such as Donald Sutherland and Jean-Claude Van Damme would appear in the movie; in truth, such performers were never even approached about the project.
The Bigger Picture
In pumping the deal, Rawitt purportedly promised a 300% return on investment. Now that's what I call a big-time Hollywood pitch! Not a healthy 10% return. Not an impressive 20% return. No, not even the jaw dropping 100% return. Rawitt shoots for the moon -- the blockbuster 300%.
Sensing that he had his audience enthralled, Rawitt further lied about having nearly reached a $7.5 million fundraising goal that would pave the way for filming to begin in summer 2013. As if all that fantasy weren't enough, for good (or bad) measure, Rawitt painted a rosy picture about revenues from action figures and other products that would be tied into the movie. Of course, Rawitt sort of glossed over the part that the defendants hadn't actually sold any licensing rights.
As to whether the wide-eyed investors, dazzled by getting in on a Hollywood film, bothered to do any due diligence -- who the hell knows? If they had, however, they might have learned a few irksome facts:
As an example of what minimal due diligence can disclose, consider this nugget from Rawitt's October 2010 SEC settlement:
3.The Commission's Complaint alleged that Rawitt sold limited partnership interests in a fraudulent and unregistered oil-and-gas offering based in Texas. According to the complaint, Rawitt received, directly or indirectly, sales or other promotional commissions as high as 40%, and pocketed $275,000 in investor proceeds. The Complaint alleges he solicited investors through cold calls, and was neither licensed nor associated with a registered broker or dealer.
Then there was the little issue about the investors' funds. They never quite made it into the movie production but the three defendants are charged with converting the moolah for their own use. As so wryly stated in the SEC's press release about the issuance of the Complaint:
[T]he investor funds that remain aren't enough to produce a public service announcement let alone a full-length motion picture capable of securing the theatrical release promised to investors.
In a parallel action on February 20, 2014, the U.S. Attorney's Office for the Central District of California indicted six defendants who allegedly participated in two fundraising schemes related to bogus film projects. See: Six Indicted in Fraud Cases Related to Telemarketing Operations That Solicited Millions to Fund Fake Movies.
In the first of these two criminal cases, a 29-count Indictment relates to the activities of Mutual Entertainment LLC and Film Shoot LLC. Four defendants related to this scheme are charged with mail fraud, wire fraud, attempted wire fraud, and making false statements. The defendants are:
SIDE BAR: Marty, listen -- can I call ya Marty? That's okay? Fine, listen, call me Bill. Okay, so, Marty, listen, I got this screenplay. Big name writer. Sorry but I can't disclose who he is just yet. But, you know, stay with me here. Anyways, we got a high-powered lawyer, from the biz, you know what I'm saying, right, one of the suits, and he's working with this boiler-room group. I'm thinking To Kill A Mockingbird meets Wolf of Wall Street. Maybe we call Gregory Peck. Wait a minute, he's dead, right. Okay, nix that. We don't call Greg, we call Leonardo. You're in tight with Leo these days, right? Okay, so maybe you call him. The story is pretty straight forward. Lawyer sets up film scam. Brings in some pretty boys to push the stuff. We get some hot broads. Maybe toss in a nude pool scene. Whatever. Then there's a car chase. A crash. Lots of fire. We work in some music the kids like today. Secure the rights on that. Talk to someone about a computer game or, you know, what the hell is that thing on the phone? An app? We get someone to make an app or whatever about the film. I hear that there are big bucks in that. Then we find the guy behind all the Transformers merchandising. I'm seeing the kiddies getting in on this big time. Note to self: work in some stockbroker who's an alien and transforms himself from some mechanical thing into a stockbroker. So, Marty, you in or what?
In the second Indictment, the operators of another company-C22 in the San Fernando Valley-were named in a 19-count indictment that accuses them of mail fraud, wire fraud, and attempted wire fraud. The two named in an indictment focusing on a company known under several permutations of C22 are Mack Machen, 70, of Sunland, the president of C22, and Anthony David Millan, 37, of Chula Vista, the CEO of C22.
This second Indictment alleges that telemarketers for C22 fraudulently induced investments to fund a movie titled "Beyond the Mat." This purported fraud involved some 80 investors who forked over in excess of $3 Million for short-term "bridge loans" and, thereafter, promissory notes promising 13% annual returns. Turns out that in late 2011, the California Department of Corporations issued a Desist and Refrain order directing C22 LLC, Inc. to stop doing business due to its fraudulent practices. Notwithstanding this state order, the federal criminal Indictment alleges that the defendants continued to conduct their business under a different name.
Note: An Indictment contains merely allegations and the defendants are presumed innocent unless and until found guilty beyond a reasonable doubt in a court of law.