July 24, 2014 4:07pm PT by Eriq Gardner
Florida Launches Explosive Lawsuit Over Visual Effects Company's Blow-Up
After handing over a substantial amount of tax incentives only to watch Digital Domain falter, Florida is now taking action in an effort to recover tens of millions of dollars from the VFX company's former executives and board members, including leader John Textor. On Tuesday, the state filed an expansive, politically explosive fraud lawsuit that opens in an incendiary manner:
"The script had the makings of a big-budget Hollywood blockbuster: greed, corruption, special effects, and a star-struck audience willing to suspend belief. In the real world, there was no Hollywood happy ending. The hero did not save the day. The villain was not defeated. Instead, the story ended with Florida taxpayers being cheated out of over $80 million dollars."
Digital Domain Productions was started by Avatar director James Cameron in 1993. Years later, the company would be out of his hands. An iteration would declare bankruptcy, selling some of its prime assets to Galloping Horse America (which then sold Digital Domain 3.0 to Sun Innovation) and auctioning off other intellectual property including valuable 3-D movie patents.
In the autumn of 2012, as Digital Domain Media Group declared bankruptcy, reports began circulating that Florida's Department of Economic Opportunity was investigating the money that was spent by the state and some of its counties to convince Digital Domain to set up shop there under the pretense of thousands of jobs being created. This week's lawsuit appears to be the result of the lengthy investigation, although coming in the midst of an important election, the lawsuit's descriptions of lobbying, corporate influence and the role of gubernatorial candidate Charlie Crist in the Digital Domain episode will undoubtedly become quite hot in the Sunshine State.
According to the complaint (read in full here), the Digital Domain company that James Cameron set up in California had become a "de facto Ponzi scheme."
Digital Domain might have had extensive movie credits, including digital visual effects work on Titanic, Apollo 13 and Transformers, but the lawsuit also says the company had incurred "crushing debt." Then the lawsuit steps back to present the larger picture surrounding the industry.
"The special effects industry has changed significantly since 1993, when computer generated imagery ('CGI') for movies was relatively new," the lawsuit reads. "Computer technology has become cheaper and more powerful, making computersand in turn CGI technology, cheaper and more accessible. As a result, CGI has almost completely replaced special effects technology used in the past like stop-motion, matte paintings, miniature models and the like. Today, the visual effects industry is highly competitive with very thin margins, which Digital Domain California acknowledged — along with numerous other 'risk factors' — in documents it filed with the SEC in 2007... in an unsuccessful bid to take the company public."
That was the year the VFX company's alleged fraud "began in earnest," continues the lawsuit.
Indebted, Digital Domain is said to have "hatched a new plan" that included setting up a brand-new company in Florida, using its history in Hollywood to obtain grant money, using the grant to bail out its California side and then merging the two entities.
Textor, now chairman of Pulse Evolution, which most recently did the 3-D re-creation of Michael Jackson at the Billboard Music Awards, allegedly was the "pitch-man" for the plan that was code-named "Project Bumblebee."
According to the complaint, "Textor never told the State that as soon as Digital Domain Florida obtained the grant, the money would be committed to repay Falcon," referring to Falcon Mezzanine Partners, the California company's principal lender. "He and others within Digital Domain Florida deliberately withheld that information."
The complaint then describes how at first a proposed $20 million grant was rejected by an entity charged with vetting potential economic development projects, but how Textor allegedly "made an end-run around Enterprise Florida by wooing then-Governor [Charlie] Crist and the Florida Legislature."
The lawsuit spends pages detailing Crist's role, his relationships, his communications with Textor and ultimately his influence. Crist is currently in an election battle with current Florida Governor Rick Scott.
In 2009, Digital Domain is said to have succeeded in getting the $20 million from the state, plus an additional $82 million from St. Lucie and Palm Beach counties. "Project Bumblebee had stung Florida," says the complaint, which then goes on to describe the aftermath: another failed IPO for Digital Domain, the inability to get traditional financing, the leaning of the company on “death spiral financing,” and finally bankruptcy, a "virtual fait accompli."
"In an ironic twist, Digital Domain Florida sank just like the Titanic," says the lawsuit, referring of course to James Cameron's film.
Florida is now going after Textor, Digital Domain Media Group's board members, its public accounting and consulting firm of SingerLewak, various financial service firms that assisted the company and Falcon.
Meanwhile, Textor is hitting back at the lawsuit.
"This lawsuit reads as a politically motivated fiction," he tells The Hollywood Reporter. "The studio was built, the workers were hired, the state audited and confirmed that Digital Domain met all of the grant requirements."
Textor adds that "Governor Scott's inspector general conducted a thorough investigation and found no wrongdoing by me or any of those involved in awarding the grant. Now months before a close election, the governor has chosen to create new headlines by hiring a law firm that only recently chose to represent me in the same matters."
The former head of Digital Domain believes those lawyers have acted unethically by gathering confidential information from him. But he believes he acted forthrightly.
"While I accept that the closure of Digital Domain severely impacted our jobs creation project, I still support its mission," he says. "We built two separate programs to deliver on the jobs promise — an animation studio that would create 500 jobs and a college to inspire thousands more. It's worth noting that while the studio failed, the college continued to prosper even after the bankruptcy."