Gov't subpoenas seek documents as fraud case continues

The legal problems dogging Elie Samaha and his Franchise Pictures have gotten worse.

The indie film producer has for months been under criminal investigation by the FBI, which is looking at broad-based fraud allegations involving the budgets of the films the company has produced.

Franchise confirmed Tuesday that it is aware of the investigation. The company is already involved in a civil suit with its erstwhile German partner Intertainment.

A federal grand jury has been impaneled in Los Angeles and subpoenas were issued late last year in connection with the FBI probe.

The subpoenas sought documents from the long-running civil suit brought against Franchise by its German distributor Intertainment headed by Barry Baeres.

In the Intertainment suit, the Teutonic distribber claims it was defrauded by Franchise, which allegedly submitted multiple and wildly inflated budgets on a slate of pictures it produced.

Samaha’s criminal attorney Brian Sun Tuesday told Daily Variety, “Both Franchise and Elie Samaha fully intend to cooperate with any inquiry looking into their dealings with Barry Baeres and Intertainment.”

One source familiar with the criminal probe said he believed it was linked to the allegations in the Intertainment case.

He added that the Hollywood studios and banks which had backed Franchise were already aware of the FBI investigation but continued to support Franchise.

Intertainment attorney Scott Edelman declined to comment.

Samaha was deposed last Friday and Monday in the Intertainment case in a sealed hearing. Both Sun and Samaha’s civil lawyer Larry Stein were present.

Sun said that Samaha did not assert his Fifth Amendment rights during the deposition.

Sun has representeddefendants ranging from Reed Slatkin, the Earthlink co-founderwho pleaded guilty earlier this year to masterminding a $600 million Ponzi scheme, to Wen Ho Lee, the Los Alamos scientist who was falsely accused of illegally downloading nuclear secrets.

Thom Mrozek, spokesman for the U.S. Attorney’s office, declined to comment on the grand jury investigation.

Late last year, the German tabloid Bild am Sontag revealed the FBI probe and indicated it was being spearheaded by special agent Kevin Horn.

The article did not specify the nature of the FBI investigation but detailed Samaha’s pre-producer career as an owner of the Roxbury Club, a celebrity nightspot. Samaha now co-owns another celebrity hangout, the Sunset Room.

Reached in Los Angeles, Horn declined to comment.

Samaha parlayed his partnership in the Roxbury into a producing career by offering stars the chance to get their pet projects made without studio involvement.

The list includes a few hits like “The Whole Nine Yards” with Bruce Willis, but more bombs such as Kevin Coster’s “3,000 Miles to Graceland,” Sylvester Stallone’s “Get Carter” and John Travolta’s “Battlefield Earth.”

In May 1999, Samaha hooked up with Baeres, whose Intertainment at the time was a hot stock on the German Neuer Markt.

Under a 60-pic deal, Intertainment was to put up 47% of the budget of a slate of films in exchange for foreign distribution rights. Warners distributes Franchise domestically.

In December 2000, the Franchise-Intertainment deal fell apart when Baeres alleged that Franchise had padded the budgets on at least 10 films by $100 million.

The civil suit, filed in federal court in Los Angeles, is wrapping up discovery phase.

At a hearing in April, Franchise attorney Larry Stein conceded that Imperial Bank, which financed Franchise’s pictures, was given the real budgets by Franchise, while higher budgets were reported to Intertainment.

Stein said the budgets were inflated with the full knowledge of Baeres as part of an oral agreement between Baeres and Samaha. The advantage to Baeres was that he got American movie stars at a below-studio price because of Samaha’s relationships with the talent.

As a result, the stock price of Baere’s company skyrocketed. It was not until Intertainment’s stock price plummeted on the Neuer Markt and Franchise turned out a string of failures that Baeres decided to complain about the budgets, Stein argued in court.

At the hearing, Intertainment attorney Edelman dismissed Stein’s explanation of the multiple budgets as preposterous.

Last month, the judge in the civil case allowed two of three RICO claims under the federal anti-racketeering statute against Franchise and Samaha to stand, despite a motion to dismiss.

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