A hedge fund investor who loaned $2 million to Relativity Media just before it went bankrupt now claims he was swindled out of the money.
Carey Metz, chief investment officer of Atorus Investment Management, filed suit on Thursday in Los Angeles Superior Court, accusing Relativity founder Ryan Kavanaugh of fraud. Metz alleges that Kavanaugh went to “unscrupulous lengths … to scrounge money to salvage his company.” Among other things, he says Kavanaugh reneged on a personal guarantee of the $2 million loan, which he says was consummated with a handshake.
Kavanaugh was struggling to avert bankruptcy in 2015. Metz had already put in $10 million, and Kavanaugh came to him seeking a bridge loan. According to the suit, Kavanaugh assured him him that several others were making major investments as well.
“Kavanaugh represented that he had raised $20 million to save Relativity. That was not true,” the suit alleges. “Kavanaugh represented that another wealthy individual, Ron Burkle, had invested $10 million in Relativity to help Relativity avoid bankruptcy, and that Burkle wanted to increase his investment exposure in Relativity. That was not true. Kavanaugh represented that an IPO was imminent. That was not true.”
Metz says he met with Kavanaugh at the Santa Monica Airport on June 1, 2015. Kavanaugh said he needed a short-term loan to address a “timing gap” until the next round of financing closed. According to Metz, Kavanaugh made an oral agreement to personally guarantee the loan — plus 8% interest — and represented that Metz would be repaid even in the event of Relativity’s bankruptcy.
About two months later, Relativity declared bankruptcy. The loan came due one year later, in 2016, and Metz says he has still not be repaid. The suit accuses Kavanaugh of misrepresenting the company’s true condition in an attempt “to keep the many and lavish perquisites of his lifestyle flowing.”
Metz, a resident of Puerto Rico, is represented by David A. Bovino of Bovino Carminati LLC, which is based in Aspen, Colo.