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Indie Law: Five Ways Shady Producers Bilk Investors

Indie Law: Five Ways Shady Producers Bilk Investors

Indie Law Shady Investors Shady Producers

Movie News

I’ve seen so many examples of producers bamboozling investors that I feel as if there must be a class somewhere teaching this behavior, which is unethical at best and unlawful at worst. Here is a list of five tactics employed by shady producers — and how to avoid them.

1. You are my friend and I make dreams come true for my friends

The producer meets the investor, and they become “friends.” After learning what most motivates the investor — a part in the film, the chance to mingle on-set, or the promise of riches — the producer finds a supposedly perfect project and promises to fulfill the investor’s dream. But the producer then reneges.

2. Act now — this is a limited-time offer

Producers are always in a rush to close deals. A shady producer will always say that if lawyers are brought into review a deal, it will greatly increase the expense of the small independent film, and anyway there’s just no time. When a savvy investor insists on a lawyer’s review, the producer will compromise by asking the investor for part of the money upfront with the current deal memo (or no deal memo), and the assurance that a long-form contract will follow after the attorney goes over the terms. A shady producer will also get the investor to agree that it’s a waste of money for a lawyer to make sure a deal complies with securities law.

You always, always need a lawyer.

3. The verbals words don’t match the written ones

The shady producer always provides assurances and explains information clearly when talking one-on-one, but those assurances and explanations always seem to be missing from the document that is actually signed. Moreover, what is explained in writing is often difficult to decipher, and different terms in the same document may even be contradictory.

A lack of consistency is a red flag.

4. If the investor insists on being a managing member of a company with approvals, there are ways to make that illusionary

If the investor is shrewd and demands certain approval rights during the production process, shady producers may assure the investor equal rights as a partner in the production. However, shady producers will conceal that they have contracted with a separate production services company to handle all meaningful responsibilities and decisions.

Investors need to know exactly what they’re getting.

5. Promises of priority returns can always be manipulated

Investors need to fully understand a film’s revenue waterfall. Investors also need to understand how items such as “deferred fix payments” can potentially lead to others being paid first.

Everyone needs clarity on how and when investors will be paid.

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In summary, don’t be a jerk

Film investors are a very rare commodity. The only moviemakers who are truly independent are the ones who are self-funded, and they are few in number. The vast majority of moviemakers are actually dependent moviemakers — they are dependent on investors who provide the funds for the films.

Every time another producer treats an investor with disrespect — whether due to intentional deceit or simply out of a unique hubris that producers can tend to fall victim to — a rare commodity is lost. Not just to the producer of the current project, but to the producers of future projects.

And of course, there are legal ramifications for shady behavior, both civil and criminal.

Be good to your cast and crew. And be safe out there.

David Albert Pierce is MovieMaker’s resident legal guru and the Managing Partner of Pierce Law Group LLP, an entertainment law firm that represents investors, producers and creative artists in the areas of film, television, music and new media.

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