Probe Determines Charges Against David Molner Made 'Without Merit'
Two lawyers studied the charges made in the lawsuit, filed Sept. 2, against the lead creditor of David Bergstein’s companies, concluding that they were either untrue or contradictory.
In the midst of the federal involuntary bankruptcy case against five companies controlled by David Bergstein, the lead creditor and driving force in bringing the case was hit with a lawsuit that raised troubling questions and allegations.
The suit, filed Sept. 2, was a direct attack on the credibility, character and business practices of David Molner; his company, Screen Capital International; and Aramid Capital Partners, an offshoot of a Cayman Islands fund. It was brought by Wimbledon Financing Master Fund, WFM Holdings and Stillwater Market Neutral Fund, all described as investors in Aramid Entertainment Fund.
When the suit was filed, there was a blast of publicity about Molner allegedly having used the Aramid fund as his “personal piggy bank” to defraud investors and that he had launched his “frivolous” efforts to foment the involuntary bankruptcy case against Bergstein and his business partner, Ronald Tutor, to divert attention from his own wrongdoing. It also suggested the Aramid fund was in financial trouble.
The legal notice relating to the suit was never actually served on Molner nor his companies, which made it impossible for them to reply to what they considered outrageous charges. Then the suit was quietly withdrawn Nov. 23 without publicity.
What really happened?
Molner and Aramid have spent months answering that question. An independent committee of the board of Aramid hired two experienced lawyers who spent four months studying the charges in the suit.
“We interviewed many, many people, reviewed the underlying documents for all the transactions that had been raised as issues in the complaint, and then made a report to the board,” attorney Jim Sanders of the Reed Smith law firm, who is a former prosecutor and SEC official, told The Hollywood Reporter. He added, “We found the allegations about the involuntary bankruptcy proceedings to not be justified and to be without merit, and the remaining allegations in the complaint did not justify any change in the funds operational structure.”
The independent board members issued a statement that all of the allegations were untrue or contradicted by disclosures in the fund’s offering documents. The fund, which remains solvent and operational with more than $200 million in assets, also reaffirmed that Molner’s status and involvement remain unchanged.
Molner said he has been involved in $7.5 billion worth of transactions in recent years and had never been sued. He hasn’t publicized his involvement, but his group provided financing for Summit Entertainment and debt financing for a number of movie slates for companies including Sony and Paramount. Among those financed were Paramount’s Transformer movies and best picture Oscar nominee The Social Network.
Sanders worked on the investigation with Jim McCarroll, who heads the Reed Smith hedge fund practice in New York. McCarroll said they acted completely independently and got full cooperation from Molner and Aramid. “In the course of our independent investigation, we evaluated, among other things, their independence from David Molner and other involved parties and found them to be fully independent.”
In the weeks since, Molner has done his own investigating and concluded that the so-called investors who brought the lawsuit were acting at the behest, and with the financial backing, of Bergstein and Tutor.
“I solidly believe Bergstein and Tutor were behind this lawsuit,” Molner told THR this week. “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 that he, his company and Aramid were all damaged by the suit and the adverse publicity. “We intend to pursue the people who are responsible,” Molner said, “at a time of our choosing.”
Bergstein and Tutor did not respond to requests for comment.
Bergstein was until recently head of a company called Pangea Media Group, and currently operates under the banner of Graybox LLC.
Tutor is the CEO of Tutor Perini, a prominent publicly held construction company. He was also a key investor in the $663 million acquisition of Miramax Films from Disney, for which Bergstein served as a broker. Bergstein is no longer involved with Miramax, the company’s CEO said last week.
On Feb. 10, the involuntary bankruptcy case effectively concluded when federal Judge Barry Russell put all of the Bergstein-controlled companies into bankruptcy in a rare legal action. That came about after Molner and his lawyers were able to document how Bergstein had misled the court, especially as to the names and number of creditors.
That number was important because it would change how the case would be handled by the court. More creditors would make it a more complex action and more difficult to bring to a verdict against the Bergstein-controlled entities.
Instead, Molner personally tracked down three of the named creditors, and his lawyers got sworn statements that they were not creditors as claimed. It was those statements, and other evidence, that led the judge to make legal history by placing Bergstein’s companies in full bankruptcy. Those companies — including Thinkfilm, Capitol, Capco and R2D2 — are now under the control of a court-appointed trustee.
During the next few months, the 1,300-plus movies that Bergstein’s companies control, and other assets, are likely going to be auctioned to repay creditors. Molner said this week the companies he controls will use the money they are owed as the basis to bid to take control of the film library and possibly other assets.
“They have lost one of the most remarkable bankruptcy trials in history, and the assets they have been putting together for 10 years will now fall into the hands of creditors,” Molner said. “We expect to be at the front of that line.”
Molner and Aramid also expect to be in court in May for a trial in a suit they brought against Bergstein and Tutor to force repayment of personal guarantees they signed between 2006 and 2008 for an estimated $17 million, that were part of loans made by Aramid to finance such movies as Love Ranch and $5 a Day. Those films were later seized in a foreclosure action by Aramid.
May is also when a trial is scheduled in a suit brought by the successor to D.B. Zwirn, a bankrupt New York hedge fund, which was a primary financier of Bergstein and Tutor in the years they were building a movie company. The suit also alleges that Bergstein and Tutor signed personal guarantees that have not been repaid.
The story of the lawsuit filed in September involves other individuals of dubious reputation, some of whom have had past business associations with Bergstein and Tutor. Most of the companies that brought the suit, including Wimbledon, have since been folded into Gerova Financial Group Ltd., a Bermuda-based entity.
On Wednesday, the New York Stock Exchange halted trading in shares of Gerova, saying it was evaluating the need for further disclosures about the company and whether it was suitable to continue being listed. The shares of Gerova have lost 90 percent of their value since June after Dalrymple Finance LLC issued a report calling Gerova a “shell game” and raised questions about whether it committed fraud and overvalued assets.
Molner clearly feels vindicated but is still angry. “That complaint had no merit,” he says of the September lawsuit, “and was clearly intended to harass and embarrass.”
Molner now intends to “focus on the most effective way to recover for our shareholders any liquid assets. We will take all necessary steps, including litigation, against what is a connected group of adversaries.”