Criminal Fraud in Hollywood – Beware of Rackets, Cheats and Scams!
The entertainment industry is a fertile field for fraud. Between the psychological attraction of fame and fortune and the undeniable opportunities for talented people to make large sums of money, which they may have difficulty keeping track of, Hollywood abounds with crimes of fraud. Unfortunately, much of it goes unreported.
Since avoiding these situations is often preferable to reporting them, here are some of the rackets, cheats and scams to warn your clients about and hopefully some ways to prevent them:
Embezzlement. Unfortunately, “creative types” tend to disengage themselves from the details of their financial affairs, placing equal amounts of trust and temptation at the feet of one person. That person is often called a “Business Manager.”
Robert Youngdahl, Los Angeles Deputy District Attorney for the Major Fraud in the Entertainment and Motion Picture Division, reports that fraud is more often brought to light during recessionary times.
“When the Business Manager tends to forget whose money he has,” warns Mr. Youngdahl, “he invests it without authorization, and assumes that the profit will allow him to pay it back. However, in tough times, the investment doesn’t pay off what he anticipated and his embezzlement comes to light more quickly.”
This individual may start out with no intention of stealing. However, when they are dealing with someone who is making enormous amounts of money, and no one else is looking into the finances, they rationalize that their client will never notice the “temporarily” missing funds.
Investments. Business Managers often recommend an investment to a celebrity but rarely disclose the “kickback” they receive as a result. They take greater risks with their client’s money than with their own, and if the deal works out, are in a position to skim the profit. Thus, any investments should be closely monitored by a third party, such as an attorney or CPA.
Investing in the entertainment industry is even riskier. Most industry investments are either in the production or the distribution end, however, in both instances, one will often lose money thanks to what is called “creative accounting” – something not illegal and difficult to prove.
A good example is of a major studio that recently offered ten limited partnerships for the distribution of a grouping of movies. This was a legal, federally-qualified investment for people who wanted to distribute movies from a major company. The 30-page, four-colored prospectus talked about the quality of the movies, profit projections, number of theaters, etc.
Comments Mr. Youngdahl, “I think the offerings were about $30 million each. Of all ten, only one made any profit – and that was a fluke!”
Forging a Letter of Intent. It is not uncommon for a promoter with a script to forge a letter of intent from a bankable star to use it to bring commitments from other stars. He will also use it to raise investors or a line of credit at a bank.
If there is suspicion that the letter is not legitimate, the star will be contacted. Although the star does not want the phony letter to continue circulating, often the last thing he or she wants is to testify in court. Consequently, the celebrity is often unwilling to assist law enforcement.
However, if funds are advanced based upon reliance of the forged signature, your unsuspecting, innocent client will probably become the target of a criminal investigation.
Failure to Report Crimes. Similar to rape victims, fraud victims may feel
victimized by the system and the perpetrator. The celebrity not only fears that disclosure will bring humiliation but also black listing.
Reports Mr. Youngdahl, “We still have a town where you don’t tattle. If somebody steals from you, you probably work it out or write it off. People are afraid to get a reputation for taking things to law enforcement. After all, how can you be in a major production and not see someone skimming somewhere?”
It can take courage to report an act of fraud; however, it only takes wisdom to avoid it. If you can help your clients act prudently, you’ll see them stay out of frauds way.
