Intertainment finally got its day in court and jurors got a crash course in indie financing when opening statements began Tuesday in Intertainment’s long-delayed fraud case against Franchise Pictures.
Intertainment attorney Scott Edelman told federal jurors in Santa Ana, Calif., that Franchise systematically gave Intertainment inflated budgets from before the inception of their multi-picture deal in 1999 until late in 2000 when the budget fraud was finally uncovered.
Intertainment, a German distributor, sued Franchise Pictures in 2000 claiming that film budgets were wildly padded. In exchange for foreign distribution rights, Intertainment was to pay 47% of the budgets of the films, but because of the alleged budget fraud, it ended up paying 90% of the budget in some cases.
Edelman said Intertainment tried to insure that it was paying based on the actual budget by requiring a budget approved by a completion bond company. But after Stephen Brown joined Intertainment as head of its U.S. operation in 2000, bits and pieces of suspicious information came to the company’s attention and ultimately it learned that it had paid millions in made-up costs.
The most amazing part of the case, said Edelman, is that Franchise doesn’t dispute that the budgets were inflated. Franchise principal Elie Samaha will testify, said Edelman, that the budgets were increased because of a secret oral agreement he made with Intertainment CEO Barry Baeres. Baeres agreed, Samaha will say, because he was so eager to get Franchise’s films and he knew Samaha had insufficient funding to make up the rest of the budget.
Samaha will maintain there was a secret deal beginning in April 1999, said Edelman, even though there isn’t any evidence. The evidence to be presented during the trial, Edelman said, will show that even though the two sides never completed a long-form agreement, there were many drafts and none of the drafts mentions the secret agreement.
Both Baeres and Samaha attended the opening arguments. Franchise attorney Bill Price is expected to give his opening arguments today. The trial, presided over by U.S. District Court Judge Alicemarie Stotler, is expected to run intermittently until early June.