Tuesday, December 9, 2008

Chapter 6- Meeting The Feebs

Michael Jordan’s restaurant has an indoor courtyard layout; it’s located on the same level as the Van Buren Street entrance to Grand Central, and overlooks the main concourse of the station. During the evening rush hour, when tens of thousands of commuters are jogging to catch their trains to Westchester or Connecticut, the bar is packed. Even though the restaurant and bar is open air, it can take a few minutes to locate someone that might be waiting to have a drink or have dinner with you.

At 11:15 am, the place is deserted; the concourse level has fewer than one hundred people milling about, along with a half dozen uniformed cops on regular patrol, and another dozen or so National Guardsmen carrying automatic rifles, part of the post 9/11 security procedures introduced in major NYC transportation hubs. When I walked in, I saw two guys by themselves sitting at the bar, and facing my entrance.

As I approached, they both stood up from their stools. They were wearing sport jackets and ties, not suits, which sort of surprised me. When I was a kid, I watched “The FBI” with Efrem Zimbalist Jr.. It was on TV every Sunday night, and the Feebs on the show always wore suits. I was somewhat relieved that I was in RTM dress down mode; khaki slacks, white button shirt, and Topsiders; a poster boy from The Gap, as opposed to waltzing in in a $1500 suit that I would wear when visiting clients, which would have sharpened the chips on their shoulders.

The short one, about 5’7” and stocky, was balding, but with close-cropped hair on the sides. I figured he was about the same age as me. He was wearing a brown tweed sport jacket that looked like it came straight from JC Penny, tan corduroy slacks, a blue button-down shirt that was slightly frayed at the color, and a striped tie. He had a small pin in the lapel of his jacket; it wasn’t an American flag, but something with an insignia. He was wearing a bulky high school or college ring on his right ring finger. If this was the guy I had talked to on the phone, I figured that it was his high school ring, because I didn’t think he had the brains to have completed college. The other Feeb towered over my 5’10 frame; he was over 6’2, and he was maybe a few years younger than me, and he had a crew cut. He either shopped at the same clothing store as his partner, or they called each other in the morning to see what the other might be wearing. Brown corduroy jacket, grey slacks, a checkered shirt, and a maroon tie. The two of them could have been from central casting, waiting to be called for a revised version from Dragnet. The Joe Friday character, the taller one, was the first to step forward.

“Hi Mr. Berman, I’m Don Edwards, thanks for coming” he said, as he reached to shake hands with me. I took his hand and returned the firm grip. He then reached inside his jacket, took out a leather billfold, and discretely opened it to display his badge. He allowed me three seconds to look at it, then he removed a business card from the leather case and handed it to me as he introduced the guy I had been playing phone tag with earlier, “And, this is my partner, John Trujillo.” I extended my hand before he could reach out, just to let everyone know that I wasn’t on the defensive, nor did I feel intimated. Even if I was.

We proceeded to sit down at the corner of the bar, the two of them on one side of the corner and me on the other. Trujillo than picked up the leather briefcase that was next to his bar stool, placed it on the bar, and removed a single piece of paper. He slid it across the mahogany bar top so that it sat right in front of me.

“Mr. Berman”, he said. “We’d like to confirm that you wrote this letter, and that this is your signature.”

No more than five seconds after I had picked it up, Trujillo interjected with “Mr. Berman, before you say something stupid, we know that you wrote this letter, we know that it’s your signature, and we know that you sent it from your fax machine. As far we can tell, you’ve committed multiple counts of felony bank fraud; tens of millions of dollars have been lost, and you’re looking at up to fifteen years in jail, if not more.”

I looked up at him briefly, and than I looked back at the letter, as if I had been impervious to his comments. The letter was only three paragraphs, so it’s not like I needed a lot of time to read it. That’s when the good cop, bad cop routine started.

“Listen, Josh”, said Edwards, the Joe Friday of the pair, as if I were a new friend of his family. “We want to work with you. If you can answer some questions, this won’t turn out as bad as it could.”

Then came the rope-a-dope, with Trujillo jumping back in. “Mr. Berman, the letter indicates that you signed this and represented that you were a Vice President of The Bank. Will you confirm that it’s your signature on the letter, or not?”

It was a copy of a fax; the letter’s date was from a Saturday in January, almost two years earlier. Jake had called me early in the morning that day, and asked if I had any letter head stationery from when I had worked at The Bank. It so happens that I did, only because soon after I had joined RTM, the Bank had retained me as a special consultant to help them market the electronic trading platform they had bought from my previous company. Since it would be a good way for Bobby to build yet another relationship on the Street, and because it didn’t conflict with my role at RTM, the consulting gig was approved by Bobby, and it was understood that I would be corresponding with prospects using Bank letterhead.

At the same time, Jake had been working on a particularly big project with one of his film producer “partners”, a guy named Danny Glassman. Jake had said he was a major player that had produced several big films, along with a variety of “indies’, and they had been doing lots of deals together. Jake told me that his “great pal Danny” was part of his inner circle of people that he trusted. Jake also said they had needed a letter attesting to Jake’s bonafides; one that said he was financially capable, and otherwise prepared to be a significant financing partner in what was expected to be a blockbuster film, and according to Jake, likely to be an Academy Award winner. It was an OPM deal for Jake, he had been lining up private investors in the background, people that would put up a small part of the financing, and the majority was coming from a Hollywood bank that specialized in film financing, but necessarily wanted to make sure their’s wasn’t the only skin in the game.

For anyone that thinks that Wall Street is the only place that’s populated by investment bankers who know how to brew toxic deals, they need only appreciate what takes place in the movie industry. Any private investor who has put up money for a movie can tell you that they never see a profit, no matter how many tickets get sold at the theatres. But, those investors usually have money to burn, and the thrill of having their name on the opening credits that display “produced by’ is a dividend they can cash during cocktail party chatter at their country clubs, or when trying to impress a hot babe in a bar.

The first money for a film project is the speculator money, the people that put up the funding to pay the writer to write the script. The script then gets shopped to studios and independent film companies, and feelers are also sent to potential distributors. If a studio says they like it, the next step is assembling the money for the production of the movie. The investment capital for an indie film typically comes from a consortium of parties, not just the studio that might end up distributing it. Investors include wealthy individuals, as well as international distributors who take an equity piece in the film in exchange for the rights to sell the movie to theatres in particular territories. The distributors and the studios will typically borrow their investment capital from a bank, and put up their equity stake to the lending back as collateral. It’s the bank that actually puts the bulk of the cash into the hands of the production company, which is a corporate entity formed specifically to oversee the making of the particular film.

Pretty similar to way real estate developers, like Donald Trump, finance their projects. Multiple players with various different economic interests, all backed by a bank, or several banks, and collateralized by the underlying asset. And, just like construction projects, or even just like purchasing a car, every lender agreement requires that the project secures insurance coverage. In this case, it’s called a film completion bond. This is to make sure that in the event of a catastrophe that might cause the construction project to shut down, there’s insurance that protects the loan written by the bank, as well as protecting other investors that have an insurable interest.

An insurable catastrophe in the movie making business can include everything from a star actor getting arrested on rape charges in the middle of shooting the film, and otherwise destroying its potential value, to a hurricane that wipes out a production set. Anything that might upend the final delivery of a film, even if it ends up going straight to DVD, can be insured.

That said, the few banks that specialize in the movie industry go to great lengths to cover their asses before opening up the cash drawers, and every loan agreement includes a thick stack of documents, including promissory notes from those that have committed to investing.

And, anyone who knows anything about the film industry also knows that production budgets are padded with more cushion than a Tempur-Pedic Deluxe Mattress. That’s to make sure that those involved in financing or producing the project can carve out a special compensation program for themselves, above and beyond fees or salaries that they pay themselves with. The budget is prepared and administered by the producers, and budgets are rarely audited. No different than appointing the wolf to guard the chicken coop.

In actuality, the deal to do this “Indie blockbuster” had already been announced to the media, and there had been a fair amount of buzz as pre-production planning was well underway. From Variety to The New York Post’s Page Six, and all stops in-between. This was going to be a major, $25 million budget remake of a classic film noire that came out in the 1940s; when movies were movies. The catalyst to the original film was a Pulitzer Prize winning novel that had preceded it. The “re-deux” had major-league stars lined up; and even though it was an indie, where actors typically work for scale and a bigger piece of the gross, the top name on the cast was being paid a $5 million salary, plus points, and several of the other actors were each receiving seven figure salaries for roles that would take less than a six weeks to shoot.

Unlike Wall Street, the producers are allowed to publicize the deal before the financing is actually finalized. News releases sent to industry rags announce the upcoming production, etc. etc. The pre-deal closing PR is intended to help mitigate any last minute hesitations on the part of investors who have already given a verbal commitment, but since it’s common for film investors to get cold feet at the last minute (for any number of reasons), the PR strategy is really designed to keep other potential investors close to the action. If investor A drops out, last minute calls are made by the producer to Investors B, C, and D; along with providing the latest news clips about “how great the deal is.”

On Wall Street, that kind of advance promotion is a major no-no. Once preliminary documents about a pending offering are submitted to the SEC, which is typically at least 90 days prior to an expected closing, the producers, in this case, the underwriting investment banks, and every single person associated with the deal, from company executives to bankers to lawyers, is strictly prohibited from any public comments until after the deal is brought public. It’s called the ‘quiet period”.

But, Hollywood is in the business of turning fiction into bottom line cash, if not necessarily for its investors. There are no rules when it comes to promoting as far as Hollywood producers and bankers are concerned; their “quiet period” ended back in the 1927 when the first talkie was shown in movie theatres. The irony that “The Jazz Singer”, starring Al Jolson, was released on October 7, exactly 75 years to the day that I was sitting having this chat with two FBI agents is something that hadn’t dawned on me at that moment. There were other, much more poignant ironies that were coming to mind.

The film Jake was proposing to invest in, and the one referenced in the letter that the Feds were showing me was being directed by, and also starring someone that I had coincidentally gone to college with, and we had gotten to know each other pretty well in college; the now-famous Alan Baldson.

He and I didn’t like each other much back then; he was a major loudmouth and the biggest asshole on campus. I didn’t feel that way just because he had dated Lorna, shortly before she decided to hook up with me during our junior year. I’m pretty certain that he was an asshole the day that he was born. And I wasn’t the only person that felt this way.

We had gone to a big city university, but it was a very small world; lots of social ‘clicques’, and lots of kids with similar cultural backgrounds from Long Island, Cherry Hill, Shaker Heights, and East Coast hamlets, and all thought the same thing of him. The standing joke was that he entered the world via his mother’s rectum, as opposed to the traditional manner, which is why he was elected to be head of the Program Board; sort of like a Student Council, but focused on social events.

He was another Long Island boy, and his goal was to become a movie star, after which he’d go into politics and become President. This was a guy who thought his shit smelled like perfume, and truth be told, every girl on campus thought so too. Crazy as it sounds, he actually became a marquee idol, starting in TV soaps, and then going on to a short-string of indie and major studio films. But every project had him throwing one tantrum after another, and everyone in LA hated working with him. I remember reading that he had married a Hollywood starlet who was getting paid $5 million a movie, but Jake had told me that it was her talent on a producer’s couch, not the big screen that propelled her career. She dumped Baldson after a few years, when wife beating in Hollywood became particularly unpopular. The New York Post’s Page 6 even coined a nickname for him, which has since become a ubiquitous phrase for anyone that shoots hot air and diarrhea out of his mouth at the same time: “Bloviator.”

Chapter 7

I hadn’t been read my rights by the two government agents sitting in front of me now, but I knew that I had to be very careful about how I was going to answer them.

“First of all, I was a consultant to The Bank during the time this letter appears to have been written,” I replied. That was my way of explaining why my name appeared on the stationery.

“But you weren’t a Vice President, Mr. Berman, were you?” I was surprised that Trujillo didn’t reach into his briefcase and take out a bright light to shine into my eyes.

“I don’t know what’s going on, fellas,” I said, “But, given that this letter appears to have been written two years, ago, it looks like someone is taking something of context. What kind of fraud of has taken place here? And, how is it that you think that I’m responsible for tens of millions of dollars being lost?”

I knew that I had to stop talking, but I wanted to know how that letter appeared, seemingly from out of nowhere.

Edwards, the “good cop,” interjected before his side kick could keep his jabs coming and said, “We have every reason to believe that this letter was the trigger for a phony bank loan, and that not a dime was spent on any movie, but instead the cash was wired to South America.”

That’s when I knew that something was awry, and was quickly reminded about the many news stories where people were entrapped by law enforcement officers who blatantly lied about events in order to elicit a confession from suspects. I could never quite figure out how that type of questioning was legal, with or without Miranda rights, but it was apparent that they were using this strategy on me.

News stories about the progress of that particular movie, the majority of which was being filmed in New York City, had appeared in the entertainment rags for the past year, and some of the location shooting even took place in the East Side Manhattan penthouse that belonged to another friend of mine, one who had been paid $5000 a day for the use of his condo by the production company. No surprise that deal that was brokered by Jake. The film had an A-list group of actors, but the production, which was expected to take less than three months to shoot, was marred by ongoing delays because Baldson, directing for the first time, as well as playing the lead character, had fucked up just about every part of the process, including storming off the set in fits of rage on five different occasions, further delaying the production schedule and further blowing the project budget; each day’s overhead was close to $100,000.

When I had noticed one of those stories several months earlier, I had asked Jake what he knew was going on with the production, since it was his “great pal” Danny Glassman that was the lead producer. Jake had said much the same thing that the rags said; that Baldson had created a nightmare in the course of production, but the project had finished shooting and was now stuck in post production, a process that includes lots of editing, and insertion of music scores. Clips of pre, post production scenes, as well as the title theme song were even appearing on the Internet. So, the concept that the movie “hadn’t been made” (although perhaps not completed for purposes of commercial distribution), and, that “all of the money went to South America”, was bullshit.

At that point, I knew it was time to stop the banter with these two Feebs, but before I “lawyered up”, I wanted to let them know that I wasn’t about to be baited.

“I know the movie that you’re talking about,” I said. “I’ve seen plenty of news stories about it in the newspapers, and I’ve even seen clips of the film outtakes on the web, so I’m not sure you have your facts straight.”

That’s when Edmonds, the Jeckle of the Heckle and Jeckle combo said, “Don’t believe everything you read in the newspapers, Mr. Berman.” I wanted to answer that with “Actually, it seems common knowledge that people shouldn’t believe what federal agents say.” but I held myself back.

“We know this is your signature, Mr. Berman. We also know that it came from your home fax machine, and we have your phone records to support this fact,” retorted Edmonds. “What we want you tell us is who asked you to write the letter. Was it Jake Bronson? Or, were you threatened by anyone that forced you to write it?”

That’s about the time that my hands started to get a bit clammy. They had Jake in their cross hairs too, and I immediately regretted having dialed him up on the phone a mere few minutes earlier.

I made the strategic mistake of saying “So you have a letter with what looks like my signature. Anything else?”

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