Arrest made in German fund flap

Schmid held in connection with criminal investigation

The crisis at VIP, Germany’s leading film fund operator, deepened Wednesday with the arrest of CEO Andreas Schmid in connection with the ongoing criminal investigation on suspicion of fraud and tax evasion.

Munich’s public prosecutor’s office ordered the move to prevent Schmid from fleeing the country.

Earlier in the day, VIP announced Schmid had stepped down as chief exec and would relinquish his duties during the probe. VIP said it was cooperating with the investigation.

Prosecutors allege VIP defrauded investors who put millions in VIP funds believing they would get a tax break on their investment. VIP did not use their investments in its VIP 3 and 4 funds directly for film production, authorities charge, but rather placed the money in bank accounts in order to secure attractive credit guarantees — which in turn drew large numbers of risk-averse investors — and instead used credit lines for the film productions.

The tax office would not recognize a deferral for such a move, since the coin did not go to film production.

Schmid has declined to comment on the investigation. VIP continues to reject the charges as “unfounded.”

VIP last week withdrew its current VIP Funds 5 and 6 from the market and said it would refund the money to investors.

Those funds were to finance a number of films, including Roland Emmerich’s upcoming prehistoric adventure pic “10,000 B.C.” It’s not clear whether VIP will remain attached to that film, which was one of the projects to be produced by Emmerich and Schmid’s joint Munich-based production company Reelmachine.

The Emmerich-produced “The Girls Next Door” is among 26 films that were to be financed by last year’s VIP 3 and 4; others are Howard McCain’s sci-fi adventure “Outlander” and toon features “Space Chimps” and “The Grimply Brothers.”

Meanwhile, investors are targeting Commerzbank, which last year brokered about 75% of the $500 million raised by VIP, for possible legal action.

In August, Commerzbank discontinued the sale of VIP’s funds after press reports highlighted a severe profit shortfall by the VIP 3 fund, launched in 2002.

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