(CN) - A movie financier claims Paramount Pictures ran a shell game with "tens of millions" of dollars to cheat investors of movie profits. Content Partners SPV 1 claims Paramount used Hollywood accounting to underreport revenue and deduct fraudulent fees, and refused to make good on promises of profit-sharing, despite admitting that it had made enough money on the movies to trigger the profit-sharing agreement.
In its complaint in Los Angeles Superior Court, Content Partners claims that Paramount agreed to use a specific formula to calculate loan repayments, so that profit-sharing on movies that did well at the box office would balance out losses on less financially successful movies.
Content Partners says it funded five slates of movies for Paramount between 1996 and 1998. Each slate consisted of four to six movies.
For the first slate of movies, Paramount agreed to pay Content Partners all "net receipts" from "Truman Show," according to the complaint. For the other four slates, Content Partners claims Paramount promised 60 percent of net receipts from certain movies within the slate that were expected to perform well commercially.
Content Partners claims Paramount owes it more than $46 million in profits from the following movies: "Varsity Blues," "Kiss the Girls," "Payback," "Double Jeopardy," "Runaway Bride" and "Election."
Content Partners claims Paramount overstated its expenses in making the movies and wrongfully claimed it was allowed to deduct the expenses from the money it owed the plaintiff.
After years of frustrated efforts for an audit, Content Partners says, an independent auditor in 2007 confirmed Paramount's improper accounting practices in the fourth and fifth slates of movies Content Partners financed.
The audit found $30 million in unsubstantiated video costs, $13 million in improper theatrical costs, "improper allocation" of $12 million in indirect video costs, $8 million in frivolous overhead costs and about $10 million in underreported foreign TV revenue, according to the complaint.
Content Partners demands more than $202 million, plus punitive damages, alleging breach of contract and fraud. It is represented by Martin Singer and Paul Sorrell with Lavely & Singer.
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