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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.

Boiler room salesmen also embellish the profits to be made in specific demographic TV 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 the Director of the FTC's Consumer Protection Bureau. "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:

blue bullet point 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.
blue bullet point 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"
blue bullet point 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 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 FTC 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 which charged the defendants with misrepresenting potential investment returns. This case initially stemmed from "Project Risky Business," an investment fraud sweep.


 

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