LOS ANGELES (CN) - A Southern California scam that promised huge returns and a little Hollywood glamour was broken up last week by federal agents after old folks put $25 million into independent movie productions that earned next to nothing, but did result in some nice posters.
"The money is gone," said Assistant U.S. Attorney Stephen Cazares.
The individual investments ranged from around $3000 all the way up to six-figures. The targets of the deception tended to be elderly because, said the prosecutor, "They are at home and they pick up the phone."
In selling dreams to the elderly, the telephone operators even promised movie credits.
"The misrepresentations were enticing," he added. "Part of the attraction was the aura of movie-making and Hollywood. That's seductive to people."
"Some investors were invited to visit movie sets," he said, "and told they would possibly be mentioned in the credits."
Working with sucker lists sold by a now-defunct San Clemente company, telemarketers told their victims the money would go mainly toward the production and marketing of independent movies.
"The heart of the case was the failure to disclose commissions or the true use of the money," said Cazares who is prosecuting the case with AUSA Ellyn Lindsay, both from the major frauds section of the U.S. Attorney's office in Los Angeles.
The two underlying indictments resulted in 12 arrests this week. The investigation was conducted by the FBI and the IRS over three years and has already resulted in a guilty plea from a former CIA agent involved in the boiler room operations. Daryll Van Snowden is the only defendant named in the indictments who remains at large.
The prosecutor said the "shiny, glossy marketing materials" described product placements that had supposedly been arranged. Such placements are important sources of revenue for movie productions.
The telemarketers promised returns up to 1000 percent and worked out of what Cazares described as typical boiler-room set ups. "It is common. They lease out office space and hire telemarketers who call 100 to 200 people per day."
The boiler room telemarketers had two roles, fronters and closers, according to the indictments. Closers were more experienced and ran the boiler rooms, while fronters were less experienced and worked to screen potential investors who are interested and who have money.
The closers held themselves out as "executive producers" during staged conference calls with existing investors, using plants to get the existing investors to "reload," or add to their investments.
The closers also encouraged investors to liquidate individual retirement accounts (IRAs)and transfer the money to self-directed IRAs that would allow investments in the movies.
Some of the movies pitched by the alleged fraudsters were made, some never were.
Cinamour Entertainment LLC allegedly hustled investors out of roughly $15 million from about 450 investors for "From Mexico With Love." The movie cost about $5 million to produce and generated approximately $550,000 in box-office sales.
Cinamour raised another $2.7 million from about 100 investors for "Red Water:2012," but essentially none of the money was used to produce the film, which was never made.
One indictment says that Q Media Assets LLC raised about $5 million for "Eye of the Dolphin" and about $4 million for "Way of the Dolphin." "Eye of the Dolphin" made about $70,000 in ticket sales in its theatrical release, while "Way of the Dolphin" went straight to video.
The arrests are the result of two indictments returned on Wednesday by a federal grand jury. The defendants are charged with counts including conspiracy, mail fraud, wire fraud, money laundering, the sale of unregistered securities and tax evasion.
The former CIA agent who ran a Burbank movie company called Q Media Assets has already pleaded guilty to conspiracy, mail fraud and tax charges in relation to the fraudulent boiler rooms.
In relation to the arrests this week, one indictment concerns the activities of Cinamour Entertainment LLC, which allegedly bilked investors who put money into independent motion pictures called "From Mexico with Love" and "Red Water: 2012."
The charged defendants and other telemarketers cold-called investors from "lead lists" and solicited investments with false claims, such as that 93 percent of investor money would be used to produce and promote the films, and that investors would receive returns up to 1,000 percent.
According to the indictment, the telemarketers failed to disclose that they would receive commissions when, in fact, often more than one-third of the investments went into their pockets. Little more than one-third of investor funds were used to actually produce and promote "From Mexico With Love."
During the course of the Cinamour
The second indictment filed this week focuses on Q Media Assets LLC.
This indictment alleges that telemarketers for Q Media fraudulently raised funds for films called "Eye of the Dolphin" and its sequel, "Way of the Dolphin" (which was later called "Beneath the Blue"). Telemarkers associated with Q Media also bought "lead lists" from the same San Clemente company that sold lists to the Cinamour telemarketers.
The defendants in the Q Media case raised approximately $5 million for "Eye of the Dolphin" and about $4 million for "Way of the Dolphin" from about 250 investors. "Eye of the Dolphin" made about $70,000 in ticket sales in its theatrical release, while "Way of the Dolphin" went straight to video.
The indictments name the following defendants:
Daniel Toll, 56, of Encino, who was president of Cinamour, will make his initial appearance in two weeks; Joel Lee Craft Jr., 41, of San Clemente, who was the CEO of the San Clemente-based American Information Strategies, Inc., which sold investor lead lists to telemarketing operations that solicited investors through telephone cold calls, appeared in court yesterday.
James Lloyd, 47, of Lake Arrowhead, who was a closer for Cinamour and later operated his own boiler room that raised money for Cinamour and Q Media, will appear in court Thursday, June 23;
Paul Baker, 50, of Palm Springs, a closer for Cinamour, who later operated his own boiler room under the name Independent Essentials that raised funds for Cinamour, will appear in court today;
Bart Douglas Slanaker, 48, of Panorama City (who is already in custody after being charged earlier this year in another movie-related telemarketing case), was another closer who helped raise funds for Cinamour in several capacities;
Allen Bruce Agler, 54, of Canyon County, a closer who used the name Paul Kingman and raised funds for From Mexico With Love, appeared in court yesterday
;
Albert Greenhouse, 58, of Delrey Beach, Florida, who also raised funds for From Mexico With Love, will appear in court today;
DeLitha Jones-Floyd, 54, of Lancaster, another closer, will appear in court Thursday, June 23; Brian Emmanuel Ellis, 35, of Saugus, another closer,
appeared in court yesterday
; Daniel Morabito, 31, of Redondo Beach, a closer, appeared in court yesterday;
David Nelson, 40, of Eagle Rock, a closer, will appear in court Thursday
, June 23; and Daryll Van Snowden, 40, formerly of Chatsworth and now of West Hollywood, another closer, is still being sought by authorities.
All 12 defendants are charged in a conspiracy count, as well as in several of the 15 mail fraud counts, nine wire fraud counts and 13 sale of unregistered securities counts that are alleged in the indictment. Additionally, Craft, Toll and Floyd are each named in at least one of five money laundering counts. The indictment also charges Slanaker with two counts of tax evasion.
The 33-count Q Media indictment charges nine defendants, including Lloyd, Agler, Craft and Morabito. The indictment additionally charges:
Robert Keskemety, 56, of Hallandale Beach, Florida, a closer, appeared in court yesterday;
Jady Laurence Herrmann, 34, of Lake Arrowhead, a closer,
appeared in court yesterday;
Joseph McCarthy, 37, of Boynton Beach, Florida, a closer,
will appear in court today;Matthew Bryan Wellman-Mackin, 30, of Manhattan Beach.
