Cough It Up, Investor Tells Paramount

LOS ANGELES (CN) - An investment company claims it "has still not seen a dollar of profit from its $375 million investment" in Paramount Pictures. Melrose Investors 2 claims its money helped fund the "Transformers" trilogy, "Jackass 2," and 25 other movies, from which Paramount has grossed nearly $7 billion.

In its Superior Court complaint, Melrose claims that Paramount and its former subsidiary DreamWorks Studios underreported revenues and over-reported costs of 29 films that Melrose co-financed.

"On Melrose Avenue, at the oldest existing film studio in Hollywood, Paramount Pictures Corporation routinely calculates 'net receipts' to rake in huge returns on one set of books while reporting losses to its profit participants on another," Melrose says.

Melrose says that in 2006 it agreed to fund up to 25 percent of the production costs for 29 films, and provided Paramount with $375 million to produce them.

The films included the "Transformers" series, "Charlotte's Web," and "World Trade Center," among others.

Melrose says the 29 films collectively "grossed close to $7 billion" but the company "has not seen a dollar of profit from its $375 million investment."

"This lopsided distribution of earnings comes about as a direct result of defendants' practice of understating gross receipts, delaying payments to Melrose 2, overstating production and distribution costs and hindering Melrose 2's ability to exercise its audit rights and verify the revenues and costs associated with the films it funded," according to the complaint.

"Defendants also had the audacity to charge Melrose 2 for nearly $3 million in charitable contributions, claiming that these charges were somehow costs of the films," Melrose adds.

"Indeed, while it is admirable that defendants donate to worthy charities some of the profits they have received, such contributions are simply not production or distribution costs, and should be borne by defendants, not passed on surreptitiously to Melrose 2."

Melrose seeks restitution, and compensatory and punitive damages for breach of contract, fraud, and unfair business.

It is represented by Mark Holscher with Kirkland & Ellis.

Named as defendants are Paramount Pictures and DW Studios.

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