VIP trial will affect future of German film investment

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COLOGNE, Germany -- Remember Andreas Schmid, the former king of German film finance who raised more than $500 million in private equity and helped bankroll dozens of features including "Lucky Number Slevin," "The Upside of Anger," "Lord of War" and "The Punisher"?

He has been all but forgotten, two years after his uber fund VIP shut down and he was thrown in jail on suspicion of fraud and tax evasion.

But Munich's state attorney's office hasn't forgotten Schmid.

While Schmid and VIP have dropped off the business pages in Germany, prosecutors Alexander Meyberg and Michael Koch-Schulte are slowly building their case against Schmid and partner Andreas Grosch. Grosch continues to mingle with the international film crowd -- he was spotted at Cannes this year -- but Schmid remains in jail, a "flight risk," according to the state attorney.

On Tuesday, Meyberg and Koch-Schulte will begin their last round of questioning before the court. The evidence will include new statements by U.S. producers flown to Munich to go on the record about VIP's way of doing business. Schmid and Grosch are accused of defrauding the German tax authorities of more than $300 million.

Conspicuously missing from the list of witnesses are Avi Lerner and Trevor Short of Nu Image/Millenium Films. Lerner and Short produced the thrillers "Control" (2004) and "Edison" (2005) with cash from VIP. Both canceled their flights to Germany at the last minute. It is unclear whether judge Huberta Knoringer will allow their earlier testimony -- given in Los Angeles and reportedly critical in the prosecutors' case against Schmid and Grosch -- to be admitted as evidence.

The VIP trial is important because of the effect the ruling will have on Germany's other film funds.

"The decision will set a precedent. It will affect all of us and all the (film fund) investors," Rainer Bienger, former head of the Cinerenta film fund, told The Hollywood Reporter.

More subtly, the VIP ruling could help determine whether Germany's high earners return to films as an equity investment.

"No one wants to touch film at the moment. There is so much scorched earth," explained a Munich investment adviser who used to specialize in selling film funds to German investors. "If Schmid and Grosch get off, that could change. We might see people start to come back. If they lose, and lose badly, you can forget about private placements on any scale in Germany for a long time."

Barring an out-of-court settlement -- an option that becomes more realistic the longer Schmid remains behind bars -- a ruling on the case is expected in October at the earliest.
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