Paramount wins US appeal in movie financing fraud case

14 Dec, 2015 10:02 pm

NEW YORK – A US appeals court on Monday upheld the dismissal of a lawsuit accusing Paramount Pictures of hiding a risky business strategy when obtaining $40 million in financing for a slate of mid-2000s movies, including “Mission: Impossible III.”

The 2nd U.S. Circuit Court of Appeals in New York upheld the October 2014 ruling, which came after investors that provided the financing finished presenting evidence in a trial where they sought up to $24 million in damages.

Neither Paramount, which is owned by Viacom Inc, nor a lawyer for the investors responded to requests for comment. The investors include a unit of Munich Re, Marathon Structured Finance Fund LP and Newstar Financial Inc.

The lawsuit centered on about $40 million of the $231 million that Paramount raised through a private placement for a slate of 25 films that also included “Mean Girls” and “The Manchurian Candidate.”

Released from 2004 to 2006, the films as a group performed poorly at the box office, both sides agreed.

The plaintiffs were junior investors in Melrose Investors LLC, a special-purpose vehicle that in turn invested in the film slate. They sued in 2008, saying the studio misrepresented its planned use of certain risk-mitigation techniques.

The investors at trial said Paramount failed to disclose that it had reduced its plans to sell international distribution rights, favoring instead increased self-distribution.

The distribution decision meant less revenue to offset losses when the movies failed to deliver financially, the investors contended.

But the 2nd Circuit panel said U.S. District Judge Katherine Forrest’s conclusion that Paramount had not changed its strategy but was engaging in business as usual “was not clearly erroneous.”

The case is Marathon Structured Finance Fund LP, et al, v Paramount Pictures Corporation, 2nd U.S. Circuit Court of Appeals, No. 14-4455. –Reuters

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