Aramid Entertainment Fund Ltd., a hedge fund specializing in financing movies, sought bankruptcy court protection from creditors to deal with the costs of suing borrowers who failed to repay loans.
Aramid “has been embroiled in substantial and time-consuming litigation relating to some of its investments,” Geoffrey Varga, a consultant helping to liquidate the fund, said in court filings. “The prosecution and defense of these actions has consumed a substantial portion of AEF’s liquidity and exposes it to potential liability.”
The fund offers financing to film and television producers and distributors “secured against a variety of assets,” according to its website. Those assets include films and equipment.
The fund’s owners include Future Capital Partners Ltd., a London-based investment company, and Screen Capital International, a Beverly Hills, California-based company specializing in cross-border movie financing that provide tax advantages, according to court filings.
Aramid listed consolidated book-value assets of $237.3 million and consolidated debt of $11.5 million as of April 29 in Chapter 11 documents filed June 13 in U.S. Bankruptcy Court in Manhattan. The fund is based in the Cayman Islands.
The Aramid fund began experiencing financial problems after being forced to sue movie producers who defaulted on loans or violated film-financing agreements, Varga said in court filings.
Aramid sued Fortress Investment Group LLC and Relativity Media LLC in February 2012 over $44 million in losses from a film-financing agreement with Sony Corp.’s movie studio.
The fund accused Fortress executives of using confidential information obtained from Aramid to make a deal with Sony that destroyed Aramid’s investments. The suit was filed in state court in Los Angeles.
Aramid contended that it invested $22 million in Class B notes in a so-called film-slate financing deal negotiated between Relativity Media, an independent movie financier and producer, and Sony Pictures in 2008.
The agreement was designed to fund as many as 45 movies over five years and included a $525 million commitment from Citigroup Inc., according to court filings.
Fortress, a New York-based private-equity firm, reviewed Aramid’s portfolio in 2010 as part of a potential buyout, according to court filings.
It didn’t make an offer for any of Aramid’s assets and used information about the Sony investments to buy the outstanding balance of Citigroup’s stake, $226.7 million, for 50 cents on the dollar, according to the suit. A trial in the case is set for August, according to the Aramid fund’s bankruptcy filing.
Fortress, which became the majority owner of the Class A and Class B notes, then agreed with Sony to cap the amount of payments due to the investors at $216 million, which left nothing for Aramid, the only other investor in the Class B notes, according to the complaint.
Aramid also has faced long-running litigation with David Bergstein, a producer on films such as “The Whole Ten Yards,” starring Bruce Willis and Matthew Perry, and “Before the Devil Knows You’re Dead,” featuring the late Philip Seymour Hoffman, Ethan Hawke and Albert Finney, according to court filings.
The fund’s lawyers contend Bergstein and partner Ronald Tutor, chairman of a California-based construction company, failed to repay millions in loans, and Aramid officials were forced to seize the rights to movies such as “$5 a Day,” starring Christopher Walken and Sharon Stone, and “Love Ranch,” starring Helen Mirren and Joe Pesci as compensation, Varga said in bankruptcy filings.
The lender also sued Bergstein in federal court in Los Angeles a year later over $12 million used to finance films such as “Bad Meat,” a horror movie, according to the filings.
That suit later became part of an involuntary bankruptcy that proved to be “extraordinarily contentious and litigious,” Varga said in the filings.
The case is In re Aramid Entertainment Fund Ltd., 14-bk-11802, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Aramid Entertainment v. Fortress Investment, BC478589, Los Angeles County Superior Court.