Investors have filed a class action lawsuit seeking $11 billion in damages against Crypto platform FTX’s  founder Sam Bankman-Fried and various  celebrity endorsers who   promoted the platform, including Shaquille O’Neal,  Larry David, Tom Brady, and Stephen Curry. FTX filed for bankruptcy on Nov. 11.
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The lawsuit alleges that the failed  FTX Platform was based upon false representations and   deceptive conduct to take advantage of   unsophisticated investors who made investments. The complaint states  that FTX and its affiliates used  celebrity endorsers to raise funds pouring billions of dollars into the  FTX Platform to keep the company  afloat.

The suit alleges that the endorsers  never disclosed the nature, scope, and amount of compensation they personally received in   exchange for the promotion of the FTX Platform, and  that a  failure to disclose is  a violation of the anti-touting provisions of the federal  securities laws. Furthermore, Plaintiffs alleged that  none of these defendants performed any due diligence prior to marketing   these FTX products to the public.

The lawsuit cites other celebrities similarly accused and prosecuted for failing to disclose their paid   endorsements including  Kim Kardashian and basketball player Paul Pierce. According to the FTC, investors  have lost more than $80 million in crypto scams, due in large part to celebrity endorsements. Kim Kardashian reportedly  settled similar claims this year by the SEC for $1.26 million without admitting any  wrongdoing.

Read the lawsuit

William Sadleir  was sentenced to six years in prison for his participation in two fraudulent schemes relating to investments made by a New York-based investment fund (the “Fund”) in indie film distributor Aviron Pictures, LLC and its affiliated entities. Sadleir pled guilty to two counts of wire fraud, one relating to each of the schemes.
 
Sadleir was the chair and chief executive officer of Aviron and oversaw its operations from in or about 2015 until in or about December 2019.

In the Advertising Scheme, Sadleir  misappropriated millions of dollars that the Fund had invested in Aviron. Sadleir  represented to the Fund that Aviron had invested this money in pre-paid media credits with the advertising placement company MediaCom Worldwide. Sadleir  actually  used a sizable part of those funds for his personal benefit, including to purchase a private residence in Beverly Hills for approximately $14 million dollars.

 In the other scheme, Sadleir  engineered the illicit and fraudulent sale and refinancing of assets worth more than $3 million that secured the Fund’s loans to Aviron. Sadleir  used the forged signature of one of the Fund’s portfolio managers on releases to remove the liens on certain secured assets. He  did so in order to sell or refinance the assets without the Fund’s consent, thus depriving the Fund of its collateral on outstanding loans.

In addition to the prison term, the Judge sentenced Sadleir  to three years of supervised release and ordered Sadleir  to pay $31,597,000 in forfeiture and restitution.
Sadleir was expelled from Aviron in 2020 after he and the company were sued by BlackRock for fraud. He was later charged by federal prosecutors and the Securities and Exchange Commission. The 68-year-old producer has also pleaded guilty to money laundering and fraud charges for pocketing nearly $1 million in Paycheck Protection Program loans meant to help Aviron stay afloat during the COVID-19 pandemic.

Criminal Complaint

SEC Complaint 

U.S. District Judge Raag Singhal in South Florida sentenced Jason Van Eman, a 44-year-old movie producer from Oklahoma to 262 months in prison for his part in a financing scheme that defrauded investors out of more than $60 million. The defendant was also ordered to pay $9 million in restitution.
 
After a six-week jury trial, a  federal jury found Van Eman, doing business as Weathervane Productions, guilty of conspiracy, wire fraud and money laundering.  Van Eman promised the victims that his partner Benjamin McConley  would match any funds that the victims contributed to their projects.
 
Van Eman and his co-conspirators then stole the victims’ money by moving it to their personal and corporate bank accounts. To make the scam more credible,  they recruited Benjamin Rafael, a Wells Fargo bank employee, whose role was to assure victims that their cash contributions had been matched and that their money was secure – neither of which was true.
 
Van Eman, McConley, and Rafael used the stolen money to purchase luxury cars, watercraft, real estate, jewelry, home furnishings, designer clothes, and private and commercial air travel. Van Eman used some of the stolen cash to fund movies in which he was cast.  
 
Co-conspirator McConley was sentenced to 13 years in prison after pleading guilty to one count of conspiracy to commit wire fraud. Bank employee Benjamin Rafael was sentenced to 30 months in prison plus  three years of supervised release.
 
Van Eman’s credits include producing the Sundance hit “The Tale”  with Laura Dern and Jason Ritter. He has 23 producer  credits and 10 acting credits listed on IMDB.
 
To learn how investors can better protect themselves see my article: The Hollywood Shuffle: Protecting Film Investors published in the Vanderbilt Law Journal.

 
An author’s heirs has sued Paramount Pictures Corporation in federal court over the underlying rights to the  hit movie Top Gun: Maverick, which plaintiffs contend is  a  sequel to the original movie. Ehud Yonay wrote the original 1983 article in California magazine titled “Top Guns,” from which the 1986 motion picture “Top Gun” (the “1986 Film”) was based. According to the plaintiffs, the  recently released 2022 motion picture “Top Gun: Maverick” (the “Sequel”) is also  derived from the article. Yonay’s heirs availed themselves of their right to recover the copyright to the story under the Copyright Act (17 U.S.C. § 203(a)), by sending Paramount a statutory notice of termination and filing it with the Copyright Office as of January 24, 2020.

Under U.S. copyright law, authors (or their survivors), can “terminate” copyright assignments they have previously made in certain circumstances and regain rights to their work. Consequently, even if an author, musician, or filmmaker signed an agreement transferring all rights in their work in perpetuity, the Copyright Act provides that the author can end that grant and demand that the rights revert. Essentially, the author is getting a second chance to make money from his work which may have initially been sold at a time when it did not fetch much money.
 
However, works previously created before termination can continue to be distributed. The owner of a film produced based on a novel, for example, can continue to exploit the movie because that grant was prepared under authority of rights before termination. However, no new sequels or remakes could be made after termination.

The 1986 Film was  produced by Jerry Bruckheimer and its screenplay written by Jim Cash and Jack Epps, Jr., and was derived from the story according to the plaintiffs. They mention in the lawsuit that the 1986 Film specifically credits Ehud Yonay for his story.
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Under copyright law (17 U.S.C. § 203)  a  derivative work prepared under authority of the grant before its termination may continue to be used under the terms of the grant after its termination, but this privilege does not extend to the preparation after the termination of other derivative works based upon the copyrighted work covered by the terminated grant. The plaintiffs contend the movie wasn’t completed until May 8, 2021, more than a year after Paramount’s rights to the story expired. The release of the film was delayed because of theater closures forced by Covid-19.
 
Paramount can be expected to argue that the sequel movie is not derivative of the article and many of the facts are in the public domain. It may also argue that a mere story idea is not copyrightable, and the movie was produced before termination was effective, even if it was released later.

Should the plaintiffs prevail, they could stop distribution of the hit film causing Paramount to lose enormous amount of revenue. Moreover, they can seek damages for copyright infringement. In cases like this, the parties often reach a settlement. 

Read lawsuit

Recently artists like Neil Young and Joni Mitchell demanded that  Spotify take down their music from their service.  They objected to Spotify hosting Joe Rogan’s podcast, one of Spotify's most popular podcasts, because it spread  COVID-19 misinformation. Whether an artist has the right to take down their music is an interesting question. 

For sound recordings that are audio-only (meaning no video), Artists or their labels can take down their music from on-demand services like Spotify and Apple Music. However, if an artist’s music is on a non-interactive service radio streaming service like Pandora or iHeart, they cannot take their music in the USA but can do so internationally. That is because in  the United States,  there is a statutory right to broadcast  sound recordings provided the radio service pays the per-play rate set  by the Copyright Royalty Board. Attorney Elizabeth Moody explains in her recent article in  The Hollywood Reporter why this is so.  Article. 
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I am once again presenting  my Risky Business seminar for the New York Volunteer Lawyers for the Arts. However, this year the seminar will be in the form of an online webinar on Zoom. The seminar will be presented over two days, 3 hours each day. For those of you who have wanted to attend this seminar but could not come to New York, now is your chance to participate remotely.
 
This comprehensive seminar is for new attorneys, attorneys transitioning to entertainment law, and filmmakers. It explores how independent films are financed and produced.
 
Particular attention will be paid to how producers and filmmakers can protect themselves, including:
 
·       Criteria for selecting a distributor;
·       Investigating distributors;
·       Adding contract provisions and understanding terms;   
·       Dealing with investors, and more

Other topics will include compliance with state and federal laws regarding investors, retaining an attorney, producer's rep, and publicist, and confirming awards and enforcing judgments.

Participants will receive a 149-page detailed handout with a distribution contract, articles, forms and a self-defense checklist, as well as a 150 slide powerpoint of the presentation. 

This program is a two-day online seminar offering up to 7 Continuing Legal Education credits to attorneys.

Dates and Time:
Thursday, March 17, 2022   1 - 4:30 PM EST
Friday, March 18, 2022  1 - 4:30 PM EST


For more information and to register click here.

There are different ways  to finance a film.   One path is to present a package of script, principal actors,    director, and budget  to a major studio like Warner Brothers  with a  request that they  finance the project.

If the studio  says yes, keeping  in mind that only a small percentage of the projects pitched are approved,  the studio  will  provide the entire  budget. The film is fully financed, and the  budget will include a production services fee of up to  10% to compensate the  producers for their services.   Producers may also be  able to negotiate bonus, deferment, and/or profit participation.  The studio  will own the movie and usually will have the right to make changes and control the final cut of the film. Nowadays major streamers also enter into similar deals.

In this  scenario, there is very little financial risk to the producer, because the studio   is providing all the funds needed.   Moreover, there is often  a completion bond and a contingency line of about 10% of the budget to cover any unanticipated expenses or  overages. If you are a producer with a track record, this is likely the quickest  way to fund your project.  But many aspiring  producers cannot  even get  in the door to pitch their projects to a major studio or streamer.

An alternative way to pay for a film could involve private equity and/or debt financing.  This is where the producer raises funding  from private investors and/or pre-sells distribution rights to  various territory buyers. For example,   a German distributor wanting to distribute  the film in its country might enter into a license agreement which could be  collateral for a production loan. This is a more difficult path to take because there are a lot of hurdles that have to be overcome before funding is secured. 

These deals require a  foreign distributor to sign  a contract to license a movie for distribution in their country even though the movie does not yet exist.  By pre-buying the movie, the buyer  knows that  when the movie is completed they will not have to compete with other buyers for the rights to distribute the film in their territory. Pre-sale buyers will usually require a completion bond before committing to license a movie. To read more about pre-sales go to: link  

Whether relying on private investors or bank loans based on pre-sales, a producer cannot commence production until they  have assembled a  package including the script, stars, director, and  budget. Writing a great script can take years of effort. Once the script is ready, the producer then assembles the  other elements, namely the lead actors, director, and  budget. However, investors, pre-sale buyers, and directors often  want to approve  the script, budget, and stars before making a commitment.
The script is the blueprint for making the movie.  By  analogy, when a builder wants to erect  a skyscraper, they hire an architect, draft  blueprints, obtain  whatever permits are needed, and if everything is approved and ready to go, they order materials and start construction.

The time for assembling these elements is called development. When these elements are secured,  you begin pre-production by renting  equipment, hiring  crew, and securing  locations. On the  first date of principal photography the cameras roll, you commence  production.

Investors who are willing to invest early in development take a lot of risk because if the script does not turn out well, or the producer  cannot attract the other elements needed, their investment can be a complete loss. If the project never goes into production,  there is no potential source of revenue to pay back investors. Therefore, development investors are often compensated generously because they are taking more  risk.
Those who invest  in production after completion of development  also take considerable risk. Their funds are often  held in escrow and only if certain conditions are met are they released to be used to produce the film.

Investors are often concerned about what happens if the producer runs out of money before production has been completed and the film delivered.  In order to provide  comfort, the producer will often secure  a completion bond. This is a special type of insurance that provides  completion funds  if a movie  goes over budget such as when the production encounters unforeseen circumstances such as bad weather  or a star gets sick. Or, perhaps the worst-case scenario, the star dies without completing his or her role.  In such a scenario, the completion bond company steps in to supply enough funds to finish the film. Or if the project cannot be completed, it will reimburse the investors their contributions.  Completion bonds are expensive  usually  costing  2-3% or more of the budget. Some companies may rebate part of this fee if no claims are made.

Completion bond companies are selective in which projects they are willing to insure. They want  their premium dollars but don’t want to take unnecessary risk. Therefore, they impose many  conditions before they will issue a completion bond. The bond company have staff experts in budgeting and production, and they will make sure the budget is a realistic estimate of what it will cost to make the movie. The “strike price,” or “production price” is the amount that the guarantor believes will be needed in order to complete and deliver the film. This includes above and below the line costs, fringes, insurance and financing costs, and the completion bond guarantor’s fee and the contingency allowance.

The contingency line in the budget is usually ten percent of direct costs to cover unanticipated costs. So, a $20 million film might allocate  up to $2 million dollars for these unforeseen  overages.  The  bond is usually  issued right before production commences  because a lot of documents and approvals need to be secured. The bond company wants to see signed contracts with the director and the stars firmly committing them to perform in the movie.  An actor expressing interest in the  film is not the same as one signing a  binding contract. If the production is funded in part by a bank loan, the bank will not disburse the funds until the completion bond company issues the bond.

The bond company will also insist that the producer buy  other insurance to cover equipment breakdowns, liability insurance for accidents, cast insurance, workers comp insurance, negative insurance to ensure the film negative or hard drive is not defective and so forth.

The bond company will review the credentials and background of all the key people making the movie, such as the department heads, director, producer, and principal cast. If your star has a history of drug use, or being unreliable, that person may not be bondable, and the bond company might  refuse to insure the production. Stars may also have to submit to  a medical exam.

In the event the bond company agrees  to bond the film, it is given extraordinary powers. The bond company can  fire the director if he or she goes over budget. The bond company is liable for overages, so if a director is taking more time than expected, he can be replaced.

This process can be  stressful for the producer because so many deals need to be finalized quickly. What  happens if the producer signs  a deal with a star and  guarantees  a one million-dollar fee  with a start date of July 1, and then is  unable to secure a  co-star, director, or other essential element of the package? The producer could lose the star, have to pay her fee, then start the process over.

Movie  stars usually will not agree to perform in  a film without the producer committing to pay them. That is because if you are a star like George Clooney, you are offered hundreds of projects every year. Even an actor who is a workaholic only has time to  perform in a few movies each year because each one takes several months to shoot, plus rehearsal time and  post-production for looping after the shoot. 

So, if you offer Barbara Streisand a role in your movie, and she wants to do it, she will not firmly commit to it until you give her a start date and guarantee that she will be paid her fee, regardless of whether or not you actually commence production. Because Barbara Streisand knows once she signs a contract with you, if the next day she is offered the role of a lifetime, in a movie about something she cares deeply about, she will have to turn that job  down. So, she is not going to firmly commit to be in your movie until you have secured the entire production budget or at least  commit to pay her regardless of whether you can assemble all other elements needed to go into production. Moreover,  if you are an independent producer, you will have to make a substantial deposit in an escrow account for her to sign a contract.  If she is contracting with a major studio, she might not require this, but for an independent producer, her agents will insist on  a deposit.  And stars may also require approval over the selection of the director, co-star, and any script changes.

Arranging financing for film projects is often difficult even for experienced producers. Unlike some products, no one can really predict the potential success of a film so there is always a lot of financial risk that has be taken when producing a film.
 

The United States District Court has dismissed a claim by Plaintiff Firooz Zahedi, a photographer who took several iconic photographs of Uma Thurman in her role in the Quentin Tarantino film Pulp Fiction. At the time of the photo shoot, Miramax paid Zahedi $10,000, although it is unclear what rights Miramax obtained as neither party was able to produce a signed agreement showing the terms of their deal.
 
Miramax claimed it created the concept for the shoot including her pose and hired Zahedi to execute its vision and purchased all the rights to the photo. The photographer disagreed, claiming he was working for less than his customary fee and there was no work for hire agreement that would vest complete ownership in Miramax. Zahedi alleged he orally licensed the right to use the photograph for a poster to promote the movie but did not otherwise grant Miramax rights to use the photo. In 1994, the poster won a “Key Art” award from the Hollywood Reporter and Zahedi was credited as the photographer. He used the photo he took for the back cover of his book of photographs and has sold prints of the photo at galleries. A 1994 script for the film published by Miramax Books, identifies the photograph as Copyright Firooz Zahedi. The image has also appeared on T-shirts, socks, and other merchandise.
 
Miramax moved for summary judgment, arguing that Zahedi’s claims are barred by the statute of limitations or, in the alternative, by the equitable doctrines of estoppel and laches, and that in any event Miramax owns the photograph as a work for hire.
Under the statute of limitations for copyright claims, an action for infringement must be brought “within three years after the claim accrued.” This means that a plaintiff cannot recover for damages that occurred more than three years before suit was filed.
 
However, there is an exception when a plaintiff reasonably lacks knowledge of the infringement prior to the three-year period. Here, the court found that Zahedi actually knew for some time that Miramax was exploiting a photograph of which he claimed ownership without giving him credit or royalties, and therefore his failure to bring suit to assert his ownership rights was fatal to his case. “Zahedi’s receipt in 2015 of an action figure prominently featuring the iconic photo bearing Miramax’s copyright notice,  and failing to credit Zahedi is uncontroverted evidence of his actual knowledge of Miramax’s plain and express repudiation of his ownership.” Consequently, the plaintiff’s claim was barred by the statute of limitations and dismissed on a motion for summary judgment.

This case illustrates the importance of having written agreements and being diligent in pursuing claims before they are barred by the statute of limitations. Miramax was negligent in not having or preserving a signed work for hire agreement with the photographer. U.S. law recognizes the work-for-hire doctrine under which the "author" of a work can be the employer of an artist, not the artist himself. However, here, even if the photographer owned the photo because no such agreement existed, his failure to prosecute his claim in a timely manner barred his recovery.
 
Read the decision. 
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