Accusations of Fraud, Nonexistent Companies, and Shadowy Chinese Billionaires: The Very Strange Saga of Digital Domain

Deadpool - still 1 -Colossus -H 2016
Courtesy of Twentieth Century Fox Film Corporation

Digital Domain’s MOVA technology has won awards and been featured in blockbusters like 'Deadpool' and 'Guardians of the Galaxy,' but a rash of recent lawsuits reveal new details of potentially fraudulent business dealings in China and the Virgin Islands that ultimately could derail multiple big-budget Hollywood films.

Earlier this month, stunned employees at Digital Domain’s Playa Vista base looked on as several boxes filled with some of its most valuable assets were wheeled out of the building, placed into waiting vans, and, as detailed in legal documents, carted off to an undisclosed location.

The disappearing cargo was MOVA, the facial-capture system that first was used to create an enhanced Brad Pitt for the Oscar-winning effects on 2008’s The Curious Case of Benjamin Button. Since then, its makers have received numerous other accolades, including a 2015 Technical Achievement Academy Award. Today each VFX house has its own facial-capture approach, but the MOVA system is considered among the most advanced — and one of Digital Domain’s strongest assets.

But now, the technology is at the center of a legal battle that has halted Digital Domain’s use of MOVA.  This legal limbo could spell trouble for several big film projects, such as Sony’s Dec. 17-scheduled release Passengers, starring Oscar-winner Jennifer Lawrence; and Disney’s live action Beauty and the Beast, which is slated to open March 17, 2017.

As Digital Domain’s lawyers recently wrote in a publicly available court filing: “DD3/Digital Domain already has captured data of an Academy Award-winning actress for a $120 million motion picture. The movie release date is December 2016. Although the capture is complete, the data from this project has not been processed and must be. In addition, DD3/Digital Domain also has captured another well-known actress for a character that is integral to the story of a sequel of a well-known science fiction film.”

Passengers appears to be the only such film that fits this description. Contacted by THRPassengers studio Sony Motion Pictures claimed that while it did contract facial motion work from Digital Domain in February, it will no longer be using any MOVA-related work in its final product. Sony said the release date won’t be impacted.

THR has also learned that Denis Villeneuve’s Blade Runner awarded work to Digital Domain, though that film only just entered production this month in Budapest.

Creating a believable CG face and performance is a long, complex process. If Digital Domain still has access to MOVA-captured facial data on current work, alternate approaches may be available to complete the shots. What remains unclear is how far back technicians have to go to complete existing work, said one VFX veteran. “If they can’t use the acquired data, it would appear they have to start again,” the source added.

Last week, a judge issued a potentially devastating ruling that could affect Digital Domain’s future plans. Magistrate Sally Kim levied a recommended “summary judgment” against a Chinese firm that acquired the MOVA tech on behalf of Digital Domain in May 2013. That firm’s behavior in recent years, Judge Kim noted, had made “a mockery of the system of litigation in this country.” If a federal judge finalizes the ruling in the coming weeks, the use of MOVA tech at Digital Domain could be finished for good.

In the meantime, the ongoing lawsuit has also brought to the fore questions about DD3’s place in a vast network of Chinese and British Virgin Islands firms whose purpose and structure a federal judge has singled out as being “fraudulent.”

“You can’t be at Digital Domain without being nervous,” said one former employee. “There aren’t a lot of [visual effects] jobs in L.A. … and there’s this turmoil. But they get paid on time and they keep getting work.”   

But that may now be in doubt. DD3’s attorney’s filed a motion saying that depriving the firm of access to MOVA would “cause clients to seek alternatives to MOVA, which will permanently injure MOVA’s brand and advance competitor interests.”

Representatives from Deadpool director Tim Miller’s Blur Studios declined to comment, but it has been reported that Deadpool 2 is already in production.

Digging into the recent history of Digital Domain uncovers a tangled series of enigmatic ownership deals in Asia and the Virgin Islands. Many of these complicated international financial dealings are only now coming to light as they are being challenged in legal proceedings that could derail the company’s ability to conduct business.

The China Connection

The arc of MOVA’s creative and commercial evolution – from humble beginnings in a Silicon Valley warehouse to the bright lights of Hollywood — remains clouded by questions.

For one, questions remain about Digital Domain’s place in a Byzantine network of Chinese and offshore firms. Several Chinese figures associated with Digital Domain Holdings Limited (DDHL), the holding company that owns DD3 and the MOVA tech, have run afoul of Chinese authorities in Chinese leader Xi Jin Ping’s years-long anti-corruption sweep. Even as MOVA was helping generate fortunes on the Hong Kong stock exchange, investors from the Chinese mainland and Hong Kong with ties to DDHL and to DD3 itself were running into legal trouble, sometimes with strange and serious consequences.

Days before Digital Domain’s Visual Effects Chief Greg LaSalle and his colleagues took home the Technical Award in 2015, one Chinese media mogul, whose company had owned a majority share of a previous incarnation of Digital Domain, died while in government custody after being picked up on charges of corruption. Then, six months after the Sci Tech award was presented, another investor with a majority share in Digital Domain was arrested and, according to Chinese sources, remains in jail today. A third man who had been an early investor fled China after learning he was being sought after, and is still a fugitive.  

Meanwhile, Steve Perlman, the eccentric Silicon Valley entrepreneur and mogul who led the team that invented MOVA and is now fighting the Chinese firms in court, raised the stakes even higher recently, going after the VFX firm itself and alleging in a court filing that “since 2013, DD3 has orchestrated a plan to gain benefit from the MOVA assets, but avoid any liability for their theft and use.”

A Troubled History

When Digital Domain opened in Venice, Calf. during 1993, Hollywood immediately took notice with its high profile founders, director James Cameron, legendary creature and makeup effects creator Stan Winston and VFX veteran exec Scott Ross, who had held executive positions at ILM and Lucasfilm.

One of its first projects was True Lies, which opened in 1994 and earned a VFX Oscar nomination for Digital Domain’s work; a year later its work on Apollo 13 marked its second nomination. Meanwhile, it’s fledgling commercial VFX unit quickly became the talk of the advertising world, providing extensive VFX on a Jeep “Snow Covered” commercial for Bozell that won the 1994 Grand Prix at the Cannes Advertising Festival. At this point even the company’s office space was generated attention; in the center was the Frank Gehry-designed conference room known as ‘The Whale.’

Digital Domain’s work was honored with an Oscar for the first time in 1997 for Cameron’s Titanic, but that groundbreaking work also took a toll on the company, which nearly sank due to overtime charges, and strained the relationship between Ross and Cameron.

One by one, the partners left the company, and in 2006, the company added a new high-profile director among its partners: Transformers director Michael Bay. That year, the company was acquired by an affiliate of Wyndcrest Holdings, an investment group whose principals included Bay and businessman John Textor.

But VFX is not now and has never been a particularly lucrative industry and in 2012 Digital Domain went bankrupt.  

A consortium of investors including Che Feng, lead by the well-liked entertainment mogul Li Ming of Galloping Horse, paid $30 million for a 70% share in Digital Domain. But within a year, Galloping Horse U.S had sold Digital Domain, this time for $50 million to another Chinese firm — a peculiar buyer that dealt mostly in copper and plastic scraps around China.

This firm, Sun Innovation, had one key advantage: It was traded publicly on the Hong Kong stock exchange. This kind of backdoor entrance to the exchange was known as a “reverse merger” and gave shareholders in Sun Innovation a chance to piggyback on news about Digital Domain. It was a triumphant marker of China’s entrance into Hollywood.

Just days before the 2015 Sci Tech awards, Chinese authorities arrested Li Ming in Beijing and brought him in for interrogation. According to a report in the French newspaper Le Monde, the Galloping Horse head was tranquilized and may have died while being questioned. His body was released only after his family agreed not to perform an autopsy. Ming was reputed to be close friends with a former senior ranking police official who was also a subject of scrutiny by Chinese authorities.

A majority shareholder in Sun Innovations was a man named Che Feng. Little is known about this shadowy and discreet investor, but a few details have emerged over the years. According to Andrew Wedeman, a China scholar at Georgia Tech, Feng “started out selling blue jeans.”

Feng married the daughter of the former Central Bank Governor of China, who was was supervising Ping An Insurance, which was virtually bankrupt at the time. Through his marital connections, Feng bought a big block of stocks from a Chinese overseas shipping corporation at a low price. The value shot up and Feng was suddenly worth $1.7 billion dollars.

“Che looks like mostly a tycoon,” Wedeman says. “He wasn’t in the Army, and didn’t have an important position, and he comes and goes in the public record.”

By 2012, Feng had become an investor in Digital Domain through the Galloping Horse deal. He also controlled Sun Innovation through the employees of his Ever Union Capital before the Galloping Horse consortium decided to sell Digital Domain to Sun Innovation, a deal in which Che Feng acted as guarantor. When that last sale was finalized, Digital Domain’s CEO Ed Ulbrich left the company and was replaced by Daniel Seah, a mergers and acquisitions manager from Simsen International Finance Group with no experience with Hollywood, visual effects or the entertainment industry.

But while Feng’s mysterious business dealings had been the subject of speculation in the Hong Kong press, it was his relationship to Seah that raised eyebrows in Hollywood.Seah told Variety that a “Mr. Che” was an investor who had casually gotten in touch in 2012.

Digital Domain co-founder Scott Ross relates an encounter that suggests Seah’s ties to Feng were more personal. In an interview with THR, Ross said he met with Seah in 2014 when Seah invited him to a late afternoon lunch at The Firehouse, a popular Venice restaurant.  According to Ross, Seah ordered some small snacks and several whiskey cocktails. During the lunch, Ross claims that Seah told him that he and Che Feng were “extremely close.”

“Seah told me that in China you call people your big brother or uncle, and when Che tells me to do things, I do them.” Ross recalls. He added that Seah told him that it was Che who made the big decisions, and that he, Seah, basically followed orders.

“Turns out that reason he called the meeting is because he wanted my blessing or involvement now that [former CEO Ed Ulbrich] was gone and he was running it,” recalls Ross. “I started asking lots of questions. Why did Ed leave? What’s his relationship with Che Feng? We talked about all those things.” Ross says Seah then told Ross he thought that investing in the visual effects business was a bad idea, and that he had told Che as much.

Che apparently thought otherwise.

Another former DD employee also confirms that Che Feng was a regular presence at the DD3 offices and contributed to corporate strategy.“Daniel had a relationship with him,” says this former employee, “We all met him. I don’t know the details of their working relationship at all, but [Che Feng] is a great guy.”

In any case, the investment went forward. “Not only did they pursue it, but Seah was also told by Che that he had to come to America to run the company,” says Ross. “Seah was shocked because he knew nothing about that business.”

Seah declined to be interviewed for this article.

Rise and Fall

Thousands of people have been rounded up and arrested in Chinese president Xi Jinping’s anti-corruption sweep. Some have died.

But whatever Li Ming did or did not say in that interrogation room, a flurry of activity was about to erupt around DDHL and DD3.

In the five months after the Sci Tech award, DDHL’s valuation rose from 274 million to 4 billion on the Hong Kong stock exchange, an increase of roughly 1,500 percent. Steve Perlman, in his legal filings, notes that it took Google 15 years to achieve that same level of growth.

On May 10, 2015, according to legal filings, “DDHL announced at a press conference and press release that MOVA technology was used creating a “Virtual Human” of the late pop diva Teresa Teng (DD3’s CEO stated, “The Virtual Human process involves a combination of the groundbreaking work of our visual effects artists and our exclusive, Academy Award winning MOVA technology”). In that week alone, DDHL’s stock value rose from $1.7 billion to $4 billion, more than doubling its already extremely high price.”

A week later, Zhang Xiaoqun, a relative of Che Feng and currently a shareholder in Digital Domain Holdings and the Chinese firm that had purchased the MOVA tech from LaSalle, sold more than $200 million of his DDHL stock.

Then, on June 2, Chinese authorities in Beijing arrested Che Feng “on charges including over $15 billion in money laundering,” according to court records. After its dizzying post-award climb, DDHL stock collapsed by 90 percent after Feng’s arrest.

In June, Chinese media reported that while in detention Feng had started telling authorities about the involvement of other Chinese officials’ “inside involvement in a 100 billion RMB money-laundering case.”

DD3 officials have remained mute about the nature of Feng’s involvement in the company.

When THR asked if he Ross was certain that his conversations with Seah had occurred as he had related them, Ross said, “Exactly like that. I would take the stand on it.”

A spokesperson for Digital Domain declined repeated email and telephone requests for comment.

Meanwhile, Guo Wengui, another Chinese investor who was involved in the sale of Digital Domain to Sun Innovation, and became a Digital Domain shareholder following the sale, has vanished. The Washington Times has reported that China wants Wengui back. “I have a sneaking suspicion that he has permanent residence,” says Andrew Wedeman.

“China has been rounding up billionaires for months,” says the former Digital Domain employee, “There’s some sort of new regime that is trying to make a point with these guys. I don’t know what Che’s business structure is, but it’s curious to me that’s it’s interesting to anybody.”

Meanwhile, back in Hollywood

As fortunes were being made and lost in Hong Kong, another shift was taking place in a California federal court that continues to have serious repercussions for DD3SHST, (which was owned by the same investors who owned DDHL, but was an unrelated company,) to whom Greg LaSalle had sold the MOVA tech, was becoming unresponsive to repeated demands from court officers for documentation of its case.

SHST had sued Perlman’s Rearden in 2013 but now it was failing to produce documents, its lawyers were unreachable and unaccounted for, its phone numbers were unavailable. It was as if it had never even existed in the first place.

In a recent court filing, SHST’s American lawyers conceded that even they were confused by what had happened.“SHST appears to have gone dormant,” the lawyers wrote, “Despite diligent efforts, SHST’s counsel has not received any response to any of its multiple attempts to communicate with SHST, including to obtain the requested verifications. From SHST’s silence, it appears that SHST no longer has any active business, no officers, no active board members, no employees, and no one else who can provide the verifications which Defendants began demanding in March 2016. Accordingly, the undersigned counsel will be taking necessary steps to initiate the process of withdrawing as counsel of record for SHST in this litigation.”

By the late spring of 2016, a new British Virgin Islands based company called Virtual Global Holdings, a wholly owned subsidiary of DDHL, had been introduced into the mix .

In a further sign of just how enmeshed DD3 was with the larger DDHL vault of companies, district judge Judge John S. Tigar pointed out that it was DD3’s own attorney, Joseph Gabriel, who had brokered the deal on behalf of SHST.

Tigar wrote, “Gabriel’s declaration is silent regarding the details of this transaction and how he could represent a party that is nominally adverse to his own client. These circumstances give rise to substantial doubt whether DD3 is a wholly separate entity from either VGH or SHST.”

Seemingly incessant shuffling of assets and companies didn’t sit well with Tigar, who concluded in June that “badges of fraud exist in this case,” and added that “the confluence of these several badges of fraud constitutes substantial evidence of VGH and SHST’s actual intent to defraud.”