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.