David Bergstein Grilled for Three Hours in U.S. Trustee's Office
Looking uncomfortable during three intense hours of grilling Thursday at a second creditors hearing in the U.S. Trustee's office in downtown Los Angeles, beleaguered financier David Bergstein said he didn't know, didn't remember or didn't have the resources to answer questions about the affairs and assets of the five movie companies he ran, including Capitol and Thinkfilm, which were forced into involuntary bankruptcy earlier this year.
However, when asked by Leonard Gumport, the attorney for court-appointed bankruptcy trustee Ronald Durkin, if it was not a fact that he backdated a contract by more than a year to make it appear his business partner Ronald Tutor had sold his interests in the movie business to him for $10 prior to the bankruptcy action, Bergstein defiantly and repeatedly said, "No," it was not true.
Gumport hammered away charging the document showing the sale of a holding company called R2D2 was actually created around May 2010. Bergstein said he couldn't remember exactly when he signed that agreement, but that it was some time in the first or second quarter of 2009. The involuntary bankruptcy case began in March 2010.
In recent filings, the trustee has raised the specter of criminal as well as civil sanctions against Bergstein and Tutor for fraud, providing false information and more. One big issue is whether they lied about that sale to keep Tutor from having to testify.
Just how much money Tutor lost investing in the movie business with Bergstein came into clearer focus earlier this week when July 2009 email exchanges between executives at Comerica Bank, one of Bergstein and Tutor's lenders, became public.
The documents indicate Tutor invested $42 million in the movie business (directly and through R2D2) and spent another $45 million as part of an aborted settlement with defunct hedge fund D.B. Zwirn.
Tutor, who is CEO of the international construction company Tutor Perini, settled a lawsuit with the group now representing Zwirn about two months ago for an estimated $70 million, making his total exposure nearly $150 million.
According to the Comerica memo, Bergstein invested $40 million in the movie business through R2D2. Other investors listed are Stephens Inc., a Little Rock, Ark., investment bank that put in $7 million, and investor Jerry Schwartz, who put in $6 million. Other unidentified minority investors also put in $3.2 million.
Just before the Thursday hearing, Bergstein filed a revised schedule of how much money is left in the bankrupt entities. He had filed an earlier schedule that listed zero in every category. The trustee demanded he re-do the schedule, so this time Bergstein wrote in the space for dollar amounts that it was "unspecified."
That brought a sharp rebuke from the trustee, who said that it was impossible to complete the required creditor's hearing until Bergstein filled in his best estimate of what is left and what is owed. "I don't know," insisted Bergstein, agreeing what he provided was not accurate. "I don't have the staff any more (to pull together the numbers)."
Bergstein blamed much of his troubles on his former attorney Susan Tregub, whom he said withheld documents and violated his trust after he gave her his power of attorney.
"She lied for a year and a half," charged Bergstein, adding that he was awaiting a court order to go to her house and look for the missing documents.
After she left Bergstein's employ, Tregub worked with the creditors group that brought the involuntary bankruptcy action. Bergstein claims she abused attorney-client privilege.
Bergstein sued Tregub in L.A. Superior Court in the name of his companies. Since federal bankruptcy court Judge Barry Russell officially put five of them into bankruptcy, those entities have been run by Durkin as trustee.
Last month, Bergstein's attorneys served a subpoena on Durkin and Gumport to force them to be deposed in the Tregub case. The trustee responded by using his power to pull the Tregub case out of state court and make it part of the bankruptcy case.
"If the insiders (Bergstein and Tutor) are permitted to embroil the Trustee and his bankruptcy counsel in abusive state court litigation involving claims of privilege that rightfully should be controlled by the Trustee," Durkin says in a federal court filing made last Friday, "(it is) largely (to) seek to conceal crime-fraud communications with Tregub that are not entitled to claims of privilege in any event."
"The subpoenas," Durkin adds, "were served in an effort to disrupt and delay an ongoing statutorily mandated investigation of fraud committed by the insiders (Bergstein and Tutor) before and during the bankruptcy cases in which the insiders utilized various counsel (knowingly and/or unknowingly), including Tregub, to conceal assets and information from the Trustee, creditors and the U.S. bankruptcy court."
The reference to their counsel is a warning that Durkin plans to hold to account those lawyers and accountants who helped Bergstein and Tutor commit what he believes was a fraud. He has said the law doesn't discriminate between the professionals who acted in good faith and those who were part of the conspiracy in terms of possible sanctions.
There is a hearing on Aug. 9 before Judge Russell to hear the Trustee's request to be relieved of the attorney-client privilege requirement he inherited when he took over the five bankrupt companies. There is a lot of speculation that if the judge grants his request, as expected, a lot of very explosive documents could be made public.
The trustee set Sept. 14 to continue the creditors hearing, which normally would be a single session. The trustee said it will continue until Bergstein provides the information about assets and debts that is required.
It also came out during the hearing Bergstein is claiming he is a creditor of the bankrupt companies as well and is owed about $1.5 million. Tutor, through a company he owns, is claiming he is owed $45 million. If it is proven they acted improperly, they would not be able to collect anything when the remaining assets are liquidated.
Bergstein was defiant during the hearing. He refused to answer any questions having to do with a related Capitol Films insolvency case in the U.K. where Bergstein is also being charged with falsifying documents. The U.S. Trustee and his British counterpart have been trading information on the cases and trying to be helpful to each other.
Bergstein said would he not discuss anything having to do with the British case and threatened to walk out of the creditors hearing if such questions continued. Gumport ignored him and asked the questions anyway to get them into the record.
One accusation Gumport brought up from the U.K case was that Bergstein had diverted money paid by Warner Bros. which should have been accounted to certain movies (from which royalties and residuals would be paid) to his own personal account. Among the money Gumport says was diverted was $200,000 related to the movie Transformers: Dark of the Moon.
After Gumport finished, creditors were given the opportunity to question Bergstein. Those who did were Mark Sharf of Marritt, Hagen & Sharf, representing a fund associated with the American Federation of Musicians; Joseph Kohanski of Bush, Gottlieb, Singer, Lopez, Kohanski, Adelstein & Dickinson on behalf of SAG, DGA, WGA West and others, and finally David Molner, who represents the Aramid Entertainment Fund, and who was instrumental in forming the creditors.
Bergstein threatened not to fill out the schedules as Durkin demanded, or show up for the Sept. 14 creditors hearing, which he said would again waste his time with the same questions over and over that he has already answered. He said he would only attend if ordered to do so by Judge Russell. Gumport said that he would put a request into motion to force him to provide the figures and appear.