Court Re-Seals Explosive David Bergstein Report After Details Made Public

Ronald Durkin, a forensic accountant and former FBI agent who for the past year has been serving as a court-appointed trustee in the Bergstein matter, issued a nearly 400-page report on April 5 detailing the affairs of Bergstein and his associate Ronald Tutor in the movie business. The report grew out of a rare involuntary bankruptcy case.

 

On Monday presiding judge Barry Russell allowed the report to be unsealed. An attorney for Bergstein, his wife and one of his companies then filed an emergency appeal with the court to try and overturn the ruling on the report, which Bergstein’s attorney claims was to remain private. 

 

The court has now granted that request, but not before the entire Durkin report has been viewed by media including THR.  

 

Bergstein, the beleaguered financier who the federal court had previously found to be responsible for the failings of independent film companies Capitol and Think Film, is the central figure of the report. It documents what he says is a pattern of aggressive, misguided business deals, improper bank dealings, lies and the manipulation of company funds for personal purposes – most notably to pay off substantial gambling debts owed to Las Vegas casinos.

 

Tutor, who is CEO of a publicly traded corporation that is among the largest construction contractors in the world, and is part of a group that bought Miramax from Disney late last year for a reported $663 million, is revealed in the report to the court to have lost millions during his ill-fated partnership with Bergstein that began in 2002. Although he signed documents confirming he was an officer of several related corporations, Tutor is said to have tried to convince the court he was a passive investor with little knowledge of what happened. Durkin makes a strong case that Tutor wasn’t telling the truth about his knowledge.  

 

Tutor had claimed in court documents and under oath that he had sold his interests in the film business to Bergstein in January 2009 for $10, but Durkin lays out what he says is proof that the dissolution of their business arrangement actually took place months later, and that they conspired to back-date documents to make it appear he exited earlier to avoid legal liability.

 

Durkin delves into detail about questionable transactions, including the transfer of movies from one entity to another in an apparent attempt to hide assets. He also documents how companies controlled by Bergstein allegedly deleted thousands of computer files shortly before and after the start of the involuntary bankruptcy case in March 2010.

 

Durkin writes that the creditors who forced the bankruptcy are likely to get nothing back unless the court acts to consolidate all of the many companies that Bergstein and Tutor created and controlled to reacquire the looted assets. He is expected to ask Judge Russell to do that.

 

The report also describes many attempts to thwart the inquiries by the trustee, including legal maneuvering, stonewalling and refusal to allow the copying of key computers used by Bergstein and his secretary to keep company accounts.

 

And what a tangle of accounts there were. Durkin describes more than 70 apparently interlocking corporations had been created, as well as more than 200 bank accounts at a single branch of the Bank of America in Newbury Park, Calif. Most are said to have been opened with the help of a single B of A employee, who it has been reported later left the bank and worked for a time for a Bergstein company.

 

There were other accounts as well, but the B of A situation stood out because many of the accounts are said to have been improperly labeled as “trust accounts” and rules pertaining to the reporting of bounced checks by corporations were apparently not followed. Money is said to have been moved from one account to another to pay bills but those funds were not  properly recorded and usually were not properly documented.

 

The report details deals that included the acquisition of film libraries from Intermedia, Franchise, Capitol and ThinkFilm, mostly paid for with money borrowed from others. Most notable among the lenders was the D.B. Zwirn Special Opportunities Fund, which provided in excess of $45 million. The New York hedge fund behind Zwirn has since gone out of business and a successor company has sued Bergstein and Tutor for repayment of loans they had guaranteed. That case is scheduled for trial next month.

 

The report states that in December 2007, to obtain a $40 million loan from Zwirn, Tutor “represented that he was knowledgeable about the financial condition” of the companies and Bergstein. “Tutor knew his warranty was false, but he signed the guarantee anyway, for purpose of dissuading the Zwirn Group from calling its loans and a prior guarantee that Tutor signed to salvage (unsuccessfully) a motion picture named Stopping Power.”

 

“Bergstein commingled and diverted the proceeds of loans made to, signed by, and/or guaranteed by various” companies he controlled, according to the report, and allegedly used over $1 million of money for corporate purposes to pay off his personal gambling debts in Las Vegas to the Mandalay Bay, Sands and Wynn casinos.

 

Once Bergstein took control of a company, according to the report, the required quarterly reports to the talent guilds (DGA, WGA, SAG) stopped; and residuals owed to performers and talent were not paid. The guilds were among the creditors who supported the forced bankruptcy case.

 

The report says that Bergstein had a strategy of acquiring companies with film libraries by purchasing their debt, then driving them into bankruptcy so that his other entities – which he claimed were not related — could buy them back at a lower price, usually with borrowed money or by arranging credit.

 

“Bergstein used time pressure and misinformation to deter over-bidders and to justify purported credit bid purchases by his affiliate,” states the report. 

 

Bergstein apparently tried that in the U.K., where the report says he put a corporate shell that had been Capitol Films into bankruptcy and then tried to use another company he and Tutor controlled to buy the assets for a fraction of their value. The U.K court handling the insolvency (the U.K. form of bankruptcy) saw that something improper was going on and blocked the deal before it could close, according to the trustee’s report.

 

Although Tutor was a party to all of Bergstein’s dealings at least through early 2009, in the end he too is said to be angry at Bergstein. Their main holding company was called R2D2, not after the Star Wars character, but as a play on their names, Ron and David. Bergstein failed to file taxes for R2D2 for about 8 years, from 2002 until 2009, according to the report, which also details other IRS claims against Bergstein personally.

 

According to the report, even after it became obvious to Tutor that the partnership was having difficulty, he continued to sign loan guarantees to try and salvage what was already invested. 

 

Speaking about a November 2007 loan guarantee for the movie Stopping Power during a deposition with the trustee, Tutor is said to have had trouble recalling signing a guarantee for $16 million. Tutor said Bergstein “was bringing me a whole string of guarantees, and it – I needed to sign because he was signing, and they wanted the partners to sign. And he went to great lengths to explain to me that I had no risk because – And he would generalize. We had foreign sales, we had whatever.”

 

Pressured by Bergstein, Tutor said he signed the guarantee: “So I just started signing every guarantee put in front of me. And I think there were a number of them, a lot of which have come home to roost.”

 

In another deposition, Tutor testified that he was not knowledgable about the finances of the companies he was signing guarantees for to keep Zwirn providing funds. “How could I be aware,” he said, “if I can’t even get a tax return on the guy?”

 

But he signed anyway. “I wasn’t happy about it,” Tutor testified under oath. “But he (Bergstein) had signed the guaranty and I felt we were in a position where Zwirn was demanding it be signed to continue to fund. And he (Bergstein) assured me through a whole series of analyses, that my exposure was really very limited because of the asstes involved and the cash flows. And I really felt like I was in a position that if I didn’t sign it, I could jeopardize the whole operation.”

 

When Tutor finally walked away from his movie business partnership with Bergstein in 2009, he and his accountants, according to the report, repeatedly asked Bergstein for tax filings so they could document his losses, and take them as a deduction on Tutor’s taxes. 

 

On July 27, 2010 in a deposition, Tutor told the trustee that he was upset with Bergstein because he had not prepared and filed tax returns for R2D2: “I angrily would constantly call and demand that he do tax returns, because he knew there were losses and I wanted to incorporate them in my personal returns.” 

 

Bergstein never supplied the filing because he had not filed the taxes, the report says.

 

In his July deposition, Tutor said it was his inability to get Bergstein to do the taxes that finally pushed him to the breaking point in their relationship. “It was one of the reasons,” Tutor testified, “that I finally became unenamored and said I had enough and wanted out.”

 

After Tutor was out, as part of the bankruptcy case, Bergstein filed R2D2 taxes for 2002 through 2008. He still has never filed for 2009, the report says. 

 

Yet according to the report Tutor continued to pay for lawyers to defend the many cases against Bergstein and the companies he controlled.

 

In any case, Tutor’s investment of millions in R2D2 didn’t turn out to be a very good bet. When the taxes were filed they revealed the company reported large losses every year, from a low of $300,000 in 2003 to a high of $10 million in 2007 and $15 million lost in 2008, according to the report.

 

The report is accompanied by 21 volumes of documents, data and information copied off Bergstein company computers – at least those Durkin was allowed to access. The report goes into detail about many other movies and situations which were handled in a questionable way.

 

Calls to the Bergstein camp seeking comment on the substance of the report were not returned.