Steve Mnuchin may be headed for U.S. Senate approval as America’s next treasury secretary, but he’s getting a big thumbs down from a film lending company that alleges in a lawsuit that the Wall Street and Hollywood financier helped cheat it out of more than $80 million.
In a legal filing late Thursday, RKA Film Financing accused Mnuchin and eight others of allowing money intended to release films from Relativity Media to be misspent for other purposes. Some $50 million of the misspent money went to a bank that the treasury secretary-designate founded, the lawsuit contends.
Mnuchin served as co-chairman of the financially-struggling, Beverly Hills-based Relativity at the same time he was chairman and CEO of Pasadena-based OneWest Bank. The lawsuit by RKA Film Financing alleges a suspicious chain of events in which Mnuchin and the other defendants purportedly allowed millions of dollars to be directed away from film promotion, before allowing the funds to be “swept” by OneWest, “in order to obtain and misappropriate the proceeds of the fraud.”
According to the lawsuit, the money began to flow to Mnuchin’s bank on May 30, just one day after he resigned from the board of Relativity Media. “To be sure, Mnuchin’s resignation from Relativity’s Board a single day before this misappropriation was intended to make the ‘sweeps’ look legitimate,” the lawsuit says. But the court action notes that OneWest Bank “did not lose money when Relativity declared bankruptcy,” two months later. Other creditors were out hundreds of millions of dollars.
The amended lawsuit comes several months after Charles Ramos, a Supreme Court judge in New York, rejected RKA Film Financing’s original complaint. The judge allowed the plaintiff to submit a revamped set of allegations.
“The claims against Steven Mnuchin are the same frivolous claims that were previously rejected by the court,” Mnuchin spokesman Barney Keller said in a statement Friday. “RKA never once spoke with, corresponded with or otherwise dealt with Mr. Mnuchin. RKA’s allegations are preposterous, don’t deserve coverage in Variety, and Mr. Mnuchin’s inclusion in this complaint is gratuitous and insulting.”
Mnuchin’s lawyer previously wrote Judge Ramos to say that he would seek sanctions against RKA Film Financing if the firm continued to make “baseless claims” against Mnuchin. “Mr. Mnuchin intends to follow through on that warning,” Keller said.
Variety first reported in 2015 on the dispute over the money loaned to Relativity for film distribution. Other creditors in the company’s bankruptcy said at that time they were disturbed that — while they got little or nothing — a bank Mnuchin founded was able to recover $50 million that it loaned the struggling movie company.
Also named in the lawsuit were Relativity founder Ryan Kavanaugh, several of his one-time executives and two other investors who also served on the company’s board of directors. The amended complaint says that Relativity drew down $73.6 million in funds, ostensibly to release and publicize four films — “Masterminds,” “Before I Wake,” “Solace” and “The Disappointments Room.” But only $1.7 million of the money went to P&A for the films. Three of the films flopped at the box office, while “Before I Wake” remains on the shelf, after several release dates came and went.
The rest of the $73 million money went to general overhead for the company, including paying salaries, and to other obligations, including repaying the loan to Mnuchin’s bank, the lawsuit contends. That violated the terms of the loan, RKA contends.
The lawsuit says that Kavanaugh put out a press statement, saying Relativity was free to use the money for other purposes. The Relativity statement read, in part: “When Steven Mnuchin joined as Co-Chairman of Relativity and made a sizable investment in the company, as part of his diligence he asked Relativity’s counsel, Jones Day, to provide an opinion on all of the company’s debt facilities, including the RKA facility. Jones Day provided the opinion that the facility may be used for working capital and was and had been used in accordance with all documentation.”
The lawsuit depicts Kavanaugh, 41, and Mnuchin, 54, as close friends who socialized regularly and even registered to co-own a three-engine Dassault Falcon jet. It says that Mnuchin’s bank eventually invested $160 million in Relativity.
Kavanaugh’s company emerged from Chapter 11 bankruptcy last April. But it has not been able to attract enough new capital to make and distribute movies. Most of the staff has been put on long-term furlough and those that remain now face possible eviction from their Beverly Hills office, because of unpaid rent.
Mnuchin passed a preliminary committee vote in the Senate to be confirmed as President Trump’s treasury secretary. His vote could come before the full Senate as soon as next week.
Most of the tough questioning of the nominee in the Senate has centered on OneWest Bank’s use of subprime mortgages and the resulting evictions of many home buyers. But there were also questions about Relativity Media and, before the hearings, Sen. Sherrod Brown (D-Ohio) asked FBI director James Comey for information on Relativity and Mnuchin’s relationship.
There is reason to believe questions about their interaction have been brought to federal investigators because a nonprofit watchdog group, MuckRock, previously filed a Freedom of Information Request on the topic. The FBI rejected the information request, citing concerns that the disclosure would “interfere with enforcement proceedings.” No more information has been revealed about the nature of those proceedings.