FBI Accuses Purported Film Financier of Running 'Ponzi-Type Fraud Scheme' (Exclusive)

The FBI has arrested Preston Waters CEO Nicholas Mussolini and charged him with knowingly devising a scheme to obtain money by fraudulent pretenses.

More than two years ago, Preston Waters made a splash by announcing to Hollywood trade publications that it would be fully financing 10 to 15 projects a year in the $20 million to $60 million budget range. Its first project was to be a UK sci-fi thriller budgeted at $22 million called Lucidity from the directors Bert & Bertie about a dystopian future in which an addictive drug allows memories to be downloaded and traded.

But the financing never came to fruition. Last November, the producers sued after allegedly being "scammed" by individuals who were working with Preston Waters and held themselves out to be film financiers.

The Lucidity producers might not have been the only victims.

The Hollywood Reporter has obtained a criminal complaint filed two weeks ago in New York federal court against Mussolini that says he's been the target of an FBI investigation since October.

According to court papers detailing the nature of the investigation by FBI special agent Allan Rains, the investigation commenced after federal authorities received a complaint from an individual referred as "Victim #1."

Mussolini is alleged to have told this individual that he could obtain a $10 million loan, but that the individual would first need to make a $750,000 advance fee to close the loan. Mussolini is said to have accepted $150,000 last March as an initial deposit to secure the first $1.5 million. The loan never materialized.

Similarly, Mussolini is alleged to have accepted $458,000 last February from "Victim #2" to make an $11 million loan happen. The deal was structured so that Mussolini would take 75 percent of the business venture's profits until the loan was paid off and 50 percent thereafter.

Victim #2 is said to have gotten $150,000 back, but not the loan as promised, and is still out $308,000, according to the FBI.

The money was represented by Mussolini as going to pre-approved costs of acquiring and setting up the collateral and investment structure, but law enforcement says that Mussolini had $1.285 million deposited into bank accounts from which debit-card purchases were made that were "personal in nature."

The description of the alleged fraudulent activity closely matches with the story of the Lucidity producers, who said in a lawsuit that they were promised $22 million but first had to put up $300,000. That lawsuit was filed against Varicorp International and an individual named Rhett Shepard, described to THR by an internal Preston Waters source as working closely with the company. Recently, in LA Superior Court, default judgments were entered against Varicorp and Shepard.

FBI agent Rains has testified that an analysis of Mussolini's bank accounts reveals that last March, the defendant returned a small portion of the money to Victim #1 and Victim #2 and made payments to other individuals.

"Based on my training and experience, I believe these individuals and/or entities are additional victim clients of Mussolini," writes Rains. "Based on my knowledge, experience and training, I know that payments of this nature are typical in a 'Ponzi' type fraud scheme. These payments are often made to pacify investors, or in this case, individuals and/or entities who were required to pay advance fees for loans, the funding for which was never realized."

Mussolini is now being charged with a count of wire-fraud that carries penalties of up to 30 years in prison as well as a $1 million fine. He has been released on bail.

Fonda Kubiak, the attorney representing Mussolini, tells THR, "It's early in the investigation, and we are taking steps to formulate the defense."

The website of Preston Waters is now off-line. According to an archive of the site, the company advertised project funding for motion pictures, real-estate construction, restaurants and hotels.

E-mail: eriq.gardner@thr.com; Twitter: @eriqgardner