Thursday, September 28, 2023
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Rolled for $55 Million, Roger Corman Says

LOS ANGELES (CN) - Until the mid-1990s, Hollywood legend Roger Corman - of "Little Shop of Horrors" and "Fall of the House of Usher" fame - and his producer wife Julie had their fortune parked in a fund managed by business magnate George Soros. By all accounts, it was a wildly successful relationship.

Hedge-fund giant Citco administered the Soros fund, and one of its directors, Ermanno Unternaeher, met with the Cormans in 1996 to persuade them to move their money from Soros to Citco's offshore funds. Since Citco already managed the Cormans' investments with Soros, they accepted Unternaeher's offer, the Cormans claim in their March 23 complaint in Superior Court.

In 2002, Unternaeher convinced the Cormans to set up a company known as Pasig Ltd. in the British Virgin Islands for tax reasons. Initially, Roger Corman acted as one of Pasig's directors, but Unternaeher advised him to leave the board for tax reasons - and the complete control of the company fell to Citco with the Cormans as signatories on its account, according to the 24-page lawsuit.

Things went badly after that, the Cormans say. They seek punitive damages for breach of contract, breach of fiduciary duty, fraud and negligence. The 14 defendants include Citco Group and a long list of Citco subsidiaries, TorTrust Corp., Securitas Management Services Corp., Unternaeher and Citco executive Christopher Smeets.

The Cormans claim that in 2008, Citco transferred management of their money held by Pasig - totaling $73 million - to one Alphonse "Buddy" Fletcher, without telling them that it had done so.

Fletcher is not a party to the Cormans' complaint.

"Citco did not make this transfer of management to Fletcher in good faith based on the business or financial interests of the Cormans, but rather to further its own interests," the Cormans say in the complaint. "Citco was facing criticism from other clients for its conflicting role as both a bank and the manager of investment funds, and the transfer to Fletcher allowed Citco to mitigate this criticism.

"In addition, Citco obtained for itself a payout of at least $28 million for the transfer of management, along with other benefits for Citco and its representatives," the Cormans continue. "Further, in connection with this transfer of management to Fletcher, Citco and its CEO Smeets and Unternaeher arranged a side deal whereby Unternaeher obtained $6.6 million in cash from Fletcher and received stock in a Fletcher entity, which he was able to redeem for cash."

Since Citco also administered Fletcher's funds, it should have known Fletcher "would be a poor manager of the fund, and that he was already engaged in fraud and mismanagement of other funds under his control," the Cormans say.

For one thing, Fletcher had not made a single profitable investment in the 10 months before taking control of Pasig, the Cormans claim. He also had trouble paying back money he'd borrowed from Citco, and when he did make payments he used pension fund money he was supposed to be investing to do it, the couple add.

After transferring Pasig to Fletcher, Citco removed the Cormans' signatory power, they say.

"This step took away the last remaining control the Cormans had over their money, removed any transparency from Citco's control of the Cormans' funds, and kept them ignorant of the risks to which their moneys were subjected by the transfer to Fletcher, and of the benefits Citco received for the transfer of the Cormans' moneys," the complaint states. "By 2009, the Cormans no longer received account statements for Pasig. Instead, account statements were sent from one Citco entity to another Citco entity."

Around this time, the Cormans say, Citco should have been fully aware that Fletcher had jeopardized their money. His credit lines had expired, and he began raiding the funds he managed to pay his expenses, the Cormans claim.

"Fletcher directed the fund in which the Pasig moneys were held to invest approximately $60 million into other of his own entities, while double-counting for the $60 million as an asset of each entity, and collecting a fee for each such transaction," the Cormans say in their complaint.

But instead of notifying the Cormans of Fletcher's troubles, the couple say, Citco pulled its own money out of the man's control - and left the Cormans' money behind until it was too late.

"When Citco did finally attempt to withdraw the Cormans' funds from Fletcher in or about May 2010, it was unable to do so given the state of Fletcher investments," the complaint states.

"By the summer of 2013, the Cormans were able to recover about $13 million from the total $73 million Pasig funds which Citco had transferred to Fletcher's management. Faced with this stunning loss, the Cormans investigated the activities of Citco and Fletcher and became aware of some of the facts alleged herein as to Fletcher's fraud and mismanagement and Citco's fraud, self-dealing, mismanagement and failures to act or inform the Cormans," according to the complaint.

So far, Citco has refused to make the Cormans whole, they claim. Meanwhile, the couple has gone after Fletcher - in bankruptcy court - but doubt they'll recover more than $5 million from him, they say.

They estimate they have lost $55 million to $60 million.

They seek restitution and compensatory and punitive damages. They are represented by Don Howarth and Suzelle Smith of Los Angeles.

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