By Eriq Gardner
(The Hollywood Reporter)
Larry Busacca/Getty Images
The famed filmmaker says he wasn't told that his money was being managed by troubled hedge fund manager Buddy Fletcher.
Roger Corman and his wife Julie Corman, together responsible for hundreds of films and the mentoring of some of Hollywood's biggest directors and actors, have filed a lawsuit that says they put money in an investment fund managed by George Soros before the money was moved and they ended up losing up to $60 million.
According to the complaint filed in Los Angeles Superior Court on Monday, the administrator of the Soros fund was the Citco Group. The Cormans' primary contact there was Ermanno Unternaehrer.
In 1996, Unternaehrer convinced the Cormans to put money in a fund managed by Citco, instead of with Soros, alleges the complaint. The Cormans say they were told that "the Citco fund was a safe, secure place to invest their moneys, and that Citco would administer and manage the fund to ensure continued high performance."
For the next six years, things seemed fine. In 2002, Unternaehrer is said to have recommended that a vehicle named "Pasig, Ltd" be set up in the British Virgin Islands for tax reasons. Corman says he initially was a director of the newly incorporated company, but a few months later, upon advice, Corman says he resigned, becoming only a signatory on the account. By 2008, the lawsuit says that there was $73 million under Citco's "complete control" and management fell to Alphonse "Buddy" Fletcher.
If the name rings a bell, it's because Fletcher's financial troubles have been well detailed by the financial press. A court-appointed bankruptcy trustee once said that Fletcher's failed hedge fund "had many of the characteristics of a Ponzi scheme." Fletcher is also married to Ellen Pao, the former junior partner at venture capital firm Kleiner Perkins who is currently suing the firm for gender discrimination. Pao is now the chief executive at Reddit. The judge in Pao's headline-making lawsuit wouldn't let Kleiner Perkins bring up Fletcher's financial troubles at trial.
The Cormans say they were not informed that the Pasig moneys were being transferred to Fletcher's management.
"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," they 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 a payout to itself of at least $28 million for the transfer of management, along with other benefits for Citco and its representatives."
The lawsuit further alleges that Citco was familiar with Fletcher's operations, that Unternaehrer obtained $6.6 million in cash from Fletcher in a side deal, and that "Citco knew or should have known at the time of the transfer that 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 their money got invested in the same Fletcher entity as the Louisiana Firefighters pension fund, which is currently subject to ongoing litigation over asset management. However, the Cormans imply they were even in a worse position. "Fletcher promised the Louisiana Firefighters pension fund that it would always obtain at least a 12% return on its investment," states the lawsuit. "Citco agreed to subordinate the rights of the Cormans' fund in the Fletcher entity to those of the Louisiana Firefighters Pension fund, even allowing Fletcher to reduce the value of the Cormans' funds in the entity in order to ensure that 12% return to the Firefighters."
The Cormans say that just four months after the money landed in Fletcher's hands, Citco removed the Cormans as signatories to the Pasig count, thus taking away their last remaining control over the money. By 2009, the Cormans say they were no longer receiving account statements. And when the "red flags" came, the Cormans say that Citco "intentionally concealed" material information.
Only $13 million of the $73 million was recovered, say the Cormans in a lawsuit that alleges 12 causes of action including breach of fiduciary duty, fraud, misrepresentation and unjust enrichment. The Cormans are represented by Don Howarth and Suzelle Smith at Howarth Smith. A rep for Citco wasn't immeidately available for comment.