Steven Mnuchin Wins Appeal in Film Finance Fraud Suit

Steve Mnuchin Hearing - Getty - H 2017
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As Steven Mnuchin navigates a trade war triggered by new tariffs, the Treasury Secretary at least won't have to worry about continuing litigation over his dealings with Relativity Media, a film studio that is now in bankruptcy once again. On Tuesday, a New York appellate court affirmed a decision allowing Mnuchin to escape fraud claims brought by RKA Film Financing.

RKA sued Mnuchin as well as Relativity's founder Ryan Kavanaugh in 2015, claiming it was misled into lending Relativity tens of millions of dollars for print and advertising expenses and its money was misappropriated. Around the time that funds were allegedly misspent, Mnuchin's OneWest bank loaned about $160 million to Relativity. Mnuchin would also spend time on Relativity's board as its co-chairman.

Despite allegations that Mnuchin conducted due diligence over Relativity's finances and had inside access to how Relativity used its P&A facility, a New York Supreme Court justice in June 2017 dismissed claims and rejected various theories about Mnuchin's knowledge of wrongdoing, including via his personal friendship with Kavanaugh.

New York's First Department comes to the same conclusion.

"The allegations underlying the fraud causes of action do not give rise to a reasonable inference that defendant Mnuchin participated in, or had knowledge of, the alleged fraud scheme," states the decision. "The allegation that the board of directors of Relativity Media, LLC was involved in the company's day-to-day operation and financial transactions is insufficient to raise an inference that Mnuchin, by virtue of his position on the board, personally participated in or had knowledge of the other defendants' alleged fraud. The allegation that Mnuchin became aware, through due diligence conducted by companies he owned in conjunction with previous transactions with Relativity, that the funds that plaintiff had invested were used for working capital, and not for print and advertising expenses only, as it had been promised by the other defendants, is insufficient to raise the inference that he was aware that misrepresentations had been made or that they were part of a fraud scheme."