LOS ANGELES (CN) – Hollywood mogul David Molner set up companies “purportedly … to make loans to entities in the entertainment business,” but “conspired with his cronies” to use them “as a personal piggy bank,” loaning more than $50 million “to insider entities that they never had any intention to collect upon,” investors claim in Superior Court. They also sued Molner’s company, Screen Capital International, and Aramid Capital Partners.
Lead plaintiff Wimbledon Financing Master Fund claims that Molner’s “looting” put Aramid Entertainment Fund “in such dire financial condition that it was delisted from the Cayman Islands Stock Exchange in March 2010 after redemptions were suspended in January 2010. Nonetheless, Molner refuses to relinquish control over AEF for fear of losing his personal piggy bank.”
Wimbledon sued for nonvoting investors in Aramid Entertainment Fund Ltd., a Cayman Islands mutual fund established in 2006, “to recover for the systematic looting and unreasonable self-dealing transactions entered into by its principals.”
AEF has five classes of stock, but only holders of class A stock are allowed to vote, Wimbledon says. Molner, through his company Screen Capital International, “is one of just three owners of class A stock. He has used that ownership to control AEF. AEF’s directors, whom Molner selected, have abdicated their fiduciary responsibilities and have allowed Molner to control everything,” according to the 25-page complaint.
Wimbledon claims the directors “conspired with Molner and abused their positions as AEF’s fiduciaries by paying millions of dollars in fees to themselves and to make over $50 million in loans to entities they control on terms that were advantageous to those entities and grossly unfavorable to AEF.”
Wimbledon claims that for more than 2 years Molner hid from auditors “that the insider loans were under- or non-performing or had been written off altogether. … (O)ver $60 million in cash and loans has been taken out by Molner and his associates, which represented 50 percent of AEF’s current value, though the full extent of Molner’s looting remains unclear because of his refusal to provide proper disclosure.”
The complaint continues: “When various investors, owed tens of millions of dollars, complained of the malfeasance and misfeasance that the directors were engaged in, Molner purported to arrange for the appointment of an independent director for AEF, but then denied that director access to AEF’s records after the director attempted to investigate the numerous, highly improper, insider transactions that Molner and the defendants had engaged in.”
Wimbledon claims that while Molner gave inside debtors a free pass, he “caused AEF to aggressively pursue collection of relatively small loans against non-insiders” as a “diversionary tactic, in that the cost of the litigation significantly outweighed any potential recovery to AEF.”
Wimbledon claims Molner misrepresented AEF’s finances to investors while “continuing to make further insider loans which directly resulted to (sic) further fees to Moler and his affiliates,” though he “reported to investors that there were no funds to repay them.”
Wimbledon, WFM Holdings, and Stillwater Market Neutral Fund III, all of the Cayman Islands, seek $50 million in restitution and punitive damages for fraud, breach of fiduciary duty and aiding and abetting. They are represented by D.M. Rawlings with Quinn Emanuel Urquhart & Sullivan.