Updated below: Ryan Kavanaugh is again embroiled in a legal battle, as the former CEO of an “entertainment stock exchange” has sued him for fraud and accused him of running a Ponzi scheme.
Elon Spar filed suit in Los Angeles Superior Court on Thursday, alleging that Kavanaugh persuaded him to go into business together under false pretenses. While working at Cantor Fitzgerald, Spar had developed an idea for a stock exchange in which buyers could take equity in film projects. In 2018, Kavanaugh — fresh from the second bankruptcy of Relativity Media — told Spar that he had a $6 million commitment to invest in the project.
According to the suit, Kavanaugh also claimed to have hundreds of millions of dollars in commitments to finance a slate of films under his new company, Proxima Media. Spar came to discover that that was not true, the suit alleges.
“It had virtually no capital,” the suit alleges. “It had no viable financial commitments — certainly nothing approaching the magnitude of what was represented… Over time, as Kavanaugh withdrew and replaced one funding proposal after another and each of his lies was exposed, it became apparent to Spar that Kavanaugh was operating Proxima and its related entities as essentially a Ponzi scheme, using meager new investment capital to satisfy old debts, diverting corporate funds for personal use (instead of paying his employees and contractors), and manipulating the corporate books and records to conceal his misrepresentations.”
Spar and Kavanaugh parted ways in May, and Spar alleges that Kavanaugh has tried to prevent him from pursuing the exchange concept independently.
Kavanaugh filed his own lawsuit against Spar on Friday, accusing him of breaching his contract. Kavanaugh claims that Proxima invested $2 million in the project, but that Spar wanted a bigger commitment of perhaps another $10 million. That conflict led to a falling out, and Spar became hard to find and rarely came to the office. Ultimately, Kavanaugh says Spar sent an “aggressive email” saying he no longer wanted to work with Kavanaugh on the project. Since then, Kavanaugh alleges that Spar has been trying to poach employees.
“We expect to be fully supported and look forward to our day in court,” Kavanaugh said in a statement.
Kavanaugh recently resurfaced with a plan to develop a studio, theme park and film slate in China. In that deal, Kavanaugh has partnered with National Arts Entertainment and Culture Group Ltd. in an effort to raise $100 million over the next nine months.
Update: Kavanaugh and Spar appear to have mended fences. Kavanaugh’s rep sent a statement Friday afternoon saying they have “satisfactorily resolved all of their issues.” The statement also accused Variety and the Hollywood Reporter of having “attempted to smear both Kavanaugh and Spar” by quoting from their lawsuits against each other, which they now say they submitted to the court by accident.
“Unfortunately, what was, in reality an employment dispute was blown way out of proportion by the press reports this morning. The fact that the private documents went public was a mistake. Neither was intended to be legally filed. Kavanaugh and Spar are on good terms.”
In a separate comment, Kavanaugh sought to take back some of the allegations from his lawsuit — which his rep emailed to Variety on Friday morning. The complaint, which is posted below, contends that Spar disparaged Howard Lutnick, the CEO of Cantor Fitzgerald, and tried to persuade Kavanaugh to exclude him from the stock exchange venture, saying that Lutnick would only try to “screw” them.
“I do need to add that reported statements from ESX’s complaint relating to Cantor Fitzgerald and Howard Lutnick are not accurate,” Kavanaugh said. “To my knowledge, Elon never spoke badly about them and did not try to shift business from them. The terms just could not be agreed.”
Spar apparently has some regrets as well, saying that Kavanaugh is not really running a Ponzi scheme, as he alleged in his suit, which is also posted below.
“Ryan has been funding the ESX operation himself,” Spar said. “To my knowledge based on information provided to me, Ryan has and is investing heavily in this business and any reference to ESX or any related business as a ‘Ponzi Scheme’ is not accurate. He is a visionary thinker and I wish him the best of luck in his future endeavors. He and I have no remaining disputes.”
Kavanaugh also faulted the press for not fact-checking the allegations that he and his former business partner leveled at each other over the last 24 hours, when he says the truth is that they have nothing but the highest regard for each other.
“We were figuring out how we were parting ways as our business interests diverged, and it’s unfortunate that the press spun this the way it did. We only want the best for each other,” Kavanaugh said. “Elon is a great banker, we just have different business interests. As usual the press spun a mountain out of a molehill. I wish him and his family nothing but the best and know he will be successful. This just shows the unfortunate state of the news as an industry today: they take things out of context, do little to no fact checking, and create headlines that fill their objective.”