After a long morning of legal wrangling, former Carolco co-chairman Andy Vajna took the stand Tuesday in Peter Hoffman’s criminal tax trial, where it was revealed that Vajna has loaned his former employee $400,000 to help pay for his defense.

Although the jury did not hear a word about Vajna’s own tax troubles, the arguments of the lawyers made it clear that while the government’s civil and criminal case against him and co-chairman Mario Kassar may appear dormant, it’s still highly active.

In relatively brief testimony on behalf of Hoffman, Vajna backed up the defense’s claim that more than $600,000 given to the defendant while he was at Carolco was a loan, and not income. Vajna said that Hoffman, as CEO of the now-bankrupt Carolco Pictures Inc., had asked him and his partner Mario Kassar if he could borrow money from the company from time to time.

Vajna said they agreed, and Hoffman had volunteered that he wouldn’t borrow more than the amount in his deferred compensation account.

The exec stated that he didn’t discuss any details or documentation such as a promissory note with Hoffman, but he understood it to be a real loan and expected it to be repaid. At one point he volunteered, “Peter was an important part of this exciting venture, so if he needed money, we were happy to lend it to him.”

On cross-examination, the government showed, as it has previously during the trial, that there is a lack of loan documentation in Hoffman’s case, even though there is documentation for other loans at the company; it also said that the company’s 10Ks listed other loans, but not Hoffman’s.

Vajna rebuffed the suggestion that other loans were handled with consistent documentation, and he minimized the importance of the questionnaires filled out for the SEC filings, saying he didn’t pay close attention to what he considered “unnecessary documentation.”

He also rejected inferences that if he wasn’t the detail man at the company, then Hoffman was. He did, however, concede that once they had agreed to lend money to Hoffman, he assumed the exec would take care of the paperwork.

Vajna was the first witness for the defense after the government Tuesday rested its case in the trial, which kicked off Sept. 9 in U.S. District Court in Los Angeles.

Government’s ‘surprise’

Creating the biggest flap of the morning, the government, outside the presence of the jury, said it would raise as a “surprise” the fact that Vajna has lent money to Hoffman for his defense. Vajna’s lawyer Brad Brian protested its inclusion, because an agreement apparently had been worked out on the scope of cross-examination, and Brian is unhappy with any line of questioning that might require Vajna to plead the Fifth Amendment.

Judge John Davies ruled that the information would be allowed on the government’s cross-examination, but the defense brought up the fact itself, minimizing its impact.

During the morning’s hearing, the government also sought to get in front of the jury the fact that there is a pending civil tax case against Vajna and Kassar involving approximately $100 million, as well as a criminal investigation.

The judge denied the government’s request to inquire about the criminal investigation and the amount of the tax liability on the ground that it is “prejudicial.”

The judge said he would allow reference to the fact that Vajna is involved in a tax dispute with the government; however, it was not raised on prosecution’s cross-examination of Vajna.

The government made a $100 million tax assessment against Vajna and Kassar based on earnings by the partners’ offshore companies that were set up in tax-haven countries such as the Netherlands Antilles. That two-year-old criminal investigation has appeared to be stalled, but Tuesday’s motion suggests that the government is still pursuing its case against Vajna and Kassar, and that it considers Hoffman’s role in setting up the tax structures to be crucial.

Hoffman was indicted in December 1996 for tax evasion and filing a false income tax return. The government claims he treated income of more than $400,000 he received from Carolco as loans. In two counts added this year, the government claims Hoffman misreported personal income of $225,000 as income of his new company CineVisions.

Vajna recently placed a floor bid of $7.5 million for the film and TV sequel rights to “The Terminator” and “Terminator 2: Judgment Day,” which are being sold off by Carolco (Daily Variety, Sept. 17). If Vajna wins the bid, “Terminator” projects could be high on the list of new business for the partnership that Vajna is said to be forming with Kassar.

Vajna’s testimony concluded Tuesday. Hoffman is expected to testify this week.

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