Receiver Says Moviemaker Defrauded Bayou Hedge Fund

Litigation Reports

Kroll Inc., the court-appointed receiver for the defunct Bayou Hedge Fund, sued movie producer Steven Brown, claiming he used more than $3 million that should have gone to repay Bayou's investment in a new movie. Kroll also sued the attorney who helped Bayou invest in Brown's movies after the lawyer jumped over to Brown's side and allegedly stalled negotiations to help Brown avoid repayment.

Kroll has been in charge of recovering Bayou assets since 2006, after Samuel Israel III and former Bayou CFO Daniel Marino were convicted of stealing $450 million from investors. Israel led police on a goose chase in June after faking his suicide to try to avoid prison.

According to this Superior Court complaint, in 2005 Bayou created various companies to invest in three of Brown's movies. Bayou subsidiary Paid Movie I invested $2.7 million in "Yellow." In exchange for financing "Yellow," Brown promised to repay Bayou's investment within 6 months, plus a 15 percent fee. Bayou would also get half of "Yellow's" revenue. Though "Yellow" garnered good reviews at the New York International Latino Film Festival and the Los Angeles Latino International Film Festival, Brown never repaid Bayou's original investment and failed to make good on either the 15 percent fee or the additional 50 percent share of revenue, the complaint states.

Paid Movie II, another Bayou subsidiary, allegedly wired Brown $250,000 to finance the movie, "Just Play Dead." The Paid Movie II contract held that Brown would share revenue from "Just Play Dead" and send the company weekly accounting explanations - and repay the loan. Brown did none of that, according to the complaint.

Bayou allegedly loaned Brown $200,000 to finance a third movie, "Affairs of State." Again, Kroll says, Brown failed to repay the loan.

In 2006, when Kroll took over Bayou's attempts to get Brown to cough up the money, Kroll says, former Bayou attorney Barry Reiss hopped over to Brown's side. Reiss had represented Bayou and Paid Movie I, II and III during negotiations with Brown, but jumped ship when Kroll took over, according to the complaint.

Reiss kept Kroll from suing Brown by claiming that the movies would soon make enough money to repay the loans, Kroll says. Reiss represented Brown during negotiations of a new repayment schedule. Kroll says it would never have given Reiss permission to represent Brown and would not have excused Reiss' conflict of interest, had Reiss asked it to.  

Instead of complying with the new repayment agreement, Kroll says, Brown used the money he owed to make another movie, "Adrift in Manhattan," starring Heather Graham and William Baldwin.

Kroll wants Brown to repay the loans, plus the 15 and 50 percent fees it promised, and damages. Kroll is represented by Richard Fond with Simke, Chodos & Sasaki.

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