12:04am PT by Alex Ben Block
Two New Lawsuits Filed as David Bergstein Film Finance Mess Heats Up (Exclusive)
The legal war involving movie investor David Bergstein and hedge fund manager David Molner has gotten even nastier with the filling of new lawsuits on opposite ends of the U.S.
Molner heads Screen Capital International and represents the Aramid Entertainment Fund, an investment group based in the Cayman Islands. On Monday, Aramid and Screen Capital filed a suit in a New York State court against Bergstein personally, along with Wimbledon Financing Master Fund, Stillwater Capital Partners, Gerova Financial Group, Fortis Bank, Joseph Bianco, Charles Frederic & Co. and others.
The suit alleges “tortious interference with business relationships,” claiming Bergstein and the others “sought to embroil Aramid in a sea of shareholder suspicion, depressing the value of its entertainment portfolio, cutting off (Aramid’s) ability to conduct normal business operations” and spoiling the opportunity to sell most of Aramid’s entertainment portfolio to “a strategic buyer.”
Under New York law, that suit was first registered several weeks ago, but the full complaint was only filed Monday. The Aramid group seeks $190 million plus legal costs and additional punitive damages.
Bergstein, who with partner Ronald Tutor invested in a series of movie companies beginning around 2003, was president of the Pangea Media Group and an owner of R2D2 before it was caught up in an involuntary bankruptcy case. Earlier this year a federal judge in Los Angeles forced R2D2 and four other companies controlled by Bergstein, including ThinkFim and Capitol Film, into bankruptcy as a result of petitions brought by Molner and some 35 creditors.
That case continues. Ronald Durkin, the court appointed trustee over-seeing those companies, has been active in investigating what happened to the assets of the bankrupt entities and whether Bergstein and Tutor acted fraudulently by back-dating contracts and other actions. The next hearing in that case is Aug. 1.
Another lawsuit was filed Friday in Los Angeles Superior Court by Wimbledon and Stillwater against Molner, Screen Capital, Aramid Capital, Stonehenge Capital Co., Future Capital Partners and others involved with Aramid including Timothy Levy, Thomas McGrath, David Bree, Roger Hanson and Thomas Adamek, as well was the Aramid Entertainment Fund. Molner believes that the legal action was filed at Bergstein’s instigation to hurt him and Aramid, in part as revenge for the involuntary bankruptcy case, and over other issues.
“Bergstein’s motivations to harm Plaintiffs were manifest,” says the Aramid suit.
On Monday Bergstein denied in an email to The Hollywood Reporter that he instigated the suit: “I have not paid for any legal bills, and they are fully aware that this is baseless,” Bergstein wrote to THR. “Nonetheless, payment of the legal fees have nothing to do with the merits of the complaint against Molner and the other defendants. [The legal fees issue] is a smoke screen. The facts are true or not."
Bergstein was backed up by the attorney who filed the suit, Daniel Petrocelli, who said: “Mr. Bergstein is not a party to the lawsuit and is not paying for it. The attacks on him, like those on the plaintiff investors, are a sideshow. The question in the lawsuit is whether defendants engaged in unlawful self-dealing. The Court isn’t going to be fooled by diversionary tactics."
The Wimbledon suit charges a breach of fiduciary duty, fraud, unjust enrichment by Molner and others, among many allegations. The suit seeks at least $60 million, appointment of a receiver to take control of the Aramid Entertainment Fund, legal costs and other damages.
“For the last three years Defendant Molner deliberately hid from AEF’s auditors that he and the other defendants executed a series of ultra vires, insider transactions designed specifically to siphon funds from AEF shareholders,” says the Stillwater suit. “Molner and defendants entered into multi-million dollar loan agreements whereby they used AEF capital to obtain monetary and equitable benefits for themselves – rather than for the benefit of AEF and its shareholders.”
The inference by Petrocelli that there are attacks on the plaintiffs relates to questions about the credibility of Wimbledon and Stillwater. Both funds were acquired in January by Gerova Financial, now based in Bermuda. The two funds are the subject of numerous lawsuits including half a dozen class action suits by investors who say they have not been allowed to cash out, have not been paid, and who allege fraud by the fund managers. The angry investors are demanding to know what happened to some $500 million they believe those behind Gerova looted from the funds, especially Stillwater.
Gerova, meanwhile, in the past year lost 90% of its stock market value before being de-listed by the New York Stock Exchange in February. It no longer trades on any exchange. It has also gone through frequent management changes, and in June withdrew its listing with the U.S. Securities & Exchange Commission just before it was required to file financial reports.
The SEC, which linked Gerova to another firm that was declared a Ponzi scheme and shut down, had earlier raised “serious doubts” about whether the assets of Gerova were worth what the company claimed. Gerova has not filed any financial reports since the end of 2009, just before it acquired Wimbledon and Stillwater.
Until this past February, when he resigned, Joseph Bianco was acting CEO and a board member of Gerova. He has been associated with Bergstein previously. Bianco was head of Sheridan Square Entertainment, a music venture which took loans from the D.B. Zwirn hedge fund. When Sheridan was near bankruptcy in 2006, Bergstein and Tutor stepped in and assumed liability for Sheridan’s debts. Sheridan later went out of business. Zwirn sued Bergstein and Tutor over those and other guaranteed loans, and earlier this year reached an out of court settlement for a reported $70 million.
The suit by Aramid charges that, “Bergstein appears to have caught a break when his old friend Bianco, as CEO of Gerova, came to control defendants Wimbledon, WFM and Stillwater Funds, three former shareholders in Aramid” representing at one point 10% of Aramid’s shares.
Wimbledon and Stillwater sued Molner and Aramid last September in Los Angeles in a filing that was highly publicized at the time. It was while the involuntary bankruptcy case was still in doubt, and Aramid, like other financial firms, was suffering from the recession. That suit was quietly dropped three months after it was filed.
Aramid’s board hired two outside lawyers who investigated and cleared Molner and the board of the Aramid fund of any wrong-doing. Petrocelli scoffs at the idea any lawyers hired by the board were actually independent and says that report was never released to investors to this day.
In February, Molner told the Hollywood Reporter: “I solidly believe Bergstein and Tutor were behind this (September) lawsuit. It is now clear that the lawsuit had no merit whatsoever. The real motivations behind it and the connections to Bergstein and Tutor are self-evident for anybody who cares to examine them.”
Molner said at the time that he and Aramid were all damaged by the suit and the adverse publicity, adding: “We intend to pursue the people who are responsible at a time of our choosing."
On Monday, Molner said the suit filed in New York was that response. He also claims that the suit filed on behalf of Stillwater and Wimbledon is an attempt to deflect attention from the suit by Aramid.
Petrocelli says that is nonsense. He says that the latest suit stands on its own and reflects serious concerns by investors about the way Molner, Aramid and the others have operated. He points to a report carried out by Chris Borde, who for about nine months was an independent member of the board of the Aramid Entertainment Fund.
“Chris Borde,” says Petrocelli, while on the board “was commissioned to investigate investor complaints and prepare a report. His report identified a number of asset valuation and loan impairment concerns. He required additional information, but it was not provided. After several requests were disregarded, he resigned from the board.”
Molner and others on the board at the time say Borde breached his duty as a director by gaining access to insider information and then passing it to outsiders, including Bergstein. Molner says it was that breach of his fiduciary duty as a board member that was the reason they limited Borde’s access to certain confidential information.
The big addition to the latest version of that suit against Aramid is that these investors are complaining that Aramid stopped paying dividends to Wimbledon and Stillwater, which are described as non-voting shareholders in the Aramid funds.
The suit says that “in an effort to punish Plaintiffs for attempting to stop the looting of the fund, [Molner and the board] deliberately caused AEF to immediately suspend any and all distributions to the Plaintiffs and no other shareholders as a punitive measure for moving to protect their assets and enjoin defendants fraud and misconduct.”
In the suit and in an interview, Molner tells a different story. He says that when Wimbledon and Stillwater transferred their interest in Aramid to Gerova, they did so without the permission of the Aramid board, violating their shareholder agreement. When Gerova sought permission after the fact, Aramid refused, and stopped making payments to them. They say Gerova also tried to acquire Aramid, but the board turned down their offer.
Petrocelli said Monday that this suit was unrelated to the legal filling last September, and that he had gone over all the charges. However, in the second cause of action it repeats a claim from the earlier suit that Molner pursued “an involuntary petition on a claim with little chance of recovery and significant risk to AEF and its constituents, in breach of the Defendants fiduciary duties.”
That is an apparent reference to the action led by Molner to gather creditors to bring the federal case against the five companies controlled by Bergstein, which succeeded in bringing those companies into bankruptcy. It was that victory which led to Bergstein and Tutor making a multi million-dollar settlement on claims by Aramid earlier this year.