Aldrich Law Firm, Ltd.
Aldrich Law Firm, Ltd.

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Investment company sues movie producers over deal that soured

A company that invests in motion picture production firms is suing one of the companies it invested in for $44 million. The breach of contract lawsuit claims that Relativity Media defrauded the plaintiff, Aramid Entertainment, and wiped out its investment, partly due to interference by another investment group, which is also named in the suit.

Aramid invested $22 million in a fund belonging to Relativity that was named “Beverly.” In the lawsuit, Aramid says that the Beverly fund had successfully co-financed 18 films distributed by Sony and that Relativity had led executives at Aramid to believe that Beverly could still co-finance at least five to 10 more movies.

However, soon after Aramid invested the money in the fall of 2011, losses stemming from the acquisition of a pair of production companies and the loss of several top executives took their toll on Relativity. In addition, the movies Beverly was financing were losing money. But the company used fraudulent financing structures to hide the problems from Aramid, the company says. Nearly all equity investors in Beverly lost all or most of their investment, according to the lawsuit.

Another investor, Fortress Investment Group, allegedly pressured Relativity to close the Beverly fund early. Fortress paid Relativity $14.5 million to do so, leaving Aramid with nothing to show for its investment, the lawsuit claims.

Attorneys for Aramid described the alleged scheme as “one of the greatest heist stories ever told in the movie business.” Aramid is also suing Fortress over the reported secret payment, as well as using Aramid’s confidential financial information to gain a competitive advantage. Fortress expressed an interest in buying Aramid in March 2010 and had access to those records at that time.

Source: Reuters, “Relatively Hit With $44M Breach of Contract Suit By Aramid,” Brent Lang and Joshua L. Weinstein, Feb. 8, 2012

John P. Aldrich
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