Investors Say They Have Evidence of Paramount Pictures Financing Fraud

Investors Say They Have Evidence of Paramount Pictures Financing Fraud

THR reports that for more than five years a group of investors have kept the plates spinning of a lawsuit against Paramount Pictures that alleges the studio bilked them out of $40 million.

The investors gave Paramount $40 million for a slate of 25 films between 2004 and 2006. Titles included “Mean Girls,” “Collateral” and films starring Denzel Washington, Meryl Streep,  and Nicole Kidman. The plaintiffs claim they lost the entire $40 million in part because after receiving the money, Paramount abruptly stopped pre-selling their films overseas, which is one way to mitigate losses before a film is even released:

According to the plaintiffs’ latest court papers, “Had Paramount adhered to its past foreign preselling practices, Plaintiffs and other investors would have suffered at least $100 million less in their aggregate losses in the Melrose Slate.”

Although the investors say they lost $40 million on those 25 films, Paramount is alleged to have “earned over $400 million in revenues from ‘distribution fees’ deducted from the revenues shared with the Melrose investors. Indeed, in a forecast with respect to the anticipated Melrose Slate prepared months before the closing of the transaction, Paramount privately predicted a loss on the 2004 films of $32 million for the investors and a profit of $37 million for Paramount.”

During good years the movie business as a whole might make 4% to 5% profit. If you have $40 million to invest, why movies then? The wealthy have access to all kinds of sure things investment-wise that will guarantee a better return.

This might not be the case for these particular investors, but many wealthy investors involved in Hollywood ignore smarter investments in favor of Tinseltown because those millions of dollars are a golden ticket into the glamorous lifestyle, parties, film shoots, drug-fueled orgies, and barely legal starlet-wannabes.

You want to sip champagne with Charlize, yacht with Brad and Angie, dine with George…? Drop millions into the black hole of death that is Hollywood accounting.

If you want to get a tiny taste of Hollywood accounting, read the full THR piece on this one situation. The complexity of the financing doesn’t mean Paramount did anything wrong. I’m not inferring that. I don’t know. But who would drop $40 million into this mess under any circumstance?

Charlize is hot, but she’s not that hot.

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