Creditors sue Bergstein to stop sale of movies

By Alex Ben Block

A group of 13 creditors who together are owed millions of dollars by David Bergstein and some 75 corporate entities he controls worldwide, including Capitol Films and ThinkFilm, have filed lawsuits in federal court in Los Angeles to force an involuntary Chapter 11 bankruptcy and the immediate appointment of a trustee to take charge of whatever assets and businesses remain.

The creditors want an injunction to halt the planned auction of rights to more than 800 movies including "Crouching Tiger, Hidden Dragon," "The Air I Breathe" and Woody Allen's "Sweet and Lowdown" scheduled for Monday by a company apparently controlled by Ron Tutor, a construction executive who has been Bergstein's longtime "silent" partner in the movie business.

"Because Bergstein has demonstrated repeatedly that he is unfit and incompetent, it is imperative that the court immediately appoint a trustee," the creditors say in the suits filed Thursday in U.S. Bankruptcy Court.

The creditors who filed for involuntary bankruptcy and to stop that sale of movies are Screen Capital International, Dox Prods., Solar Filmworks, Allied Advertising Partnership, 10th & Wolf, Allied Irish Bank, Aramid Entertainment Fund, Studio Transportation Drivers Local (the Teamsters), Steven Altman, the WGA West, Teri Zimon, Jonathan Beal and David Tuckerman.

An attorney for Bergstein and Tutor did not return a call Thursday seeking comment on the suits, and Bergstein declined to be interviewed for this report.

The filings include a declaration of support for the creditors' motions by Henry Lan, one of the British accountants appointed in an insolvency case filed Feb. 2 in the U.K. involving Capitol. Lan in particular objects to the planned sale of movie rights Monday, saying, "English insolvency laws expressly prohibit secured creditors from taking any actions, including foreclosure auctions, while a debtor company is in administration."

The lawsuits and accompanying affidavits from a former CFO, COO and others provide a portrait of a company run amok, with scores of unpaid creditors, unpaid court judgments, failure to pay talent and guild participations on movies, failure to keep adequate books, failure to pay taxes, bounced checks, company funds used for personal gambling debts and a revolving door of frustrated employees who were not allowed to do their job or to follow normal and legal procedures.

Only one person had control over the money, records and accounts, according to the filings. Bergstein exercised "monolithic control over the affairs of the company" and "micromanaged virtually all aspects of daily operations," said CPA Jeffery Gaul in his declaration, describing the 22 months he spent working for Bergstein and his various entities.

"The accounting department was completely in the dark with respect to significant amounts of material financial information, and each day began in a similar state of crisis," Gaul said. "Not only were we unable to generate accurate and reliable financial reporting documents, we also couldn't carry out basic cash-management tasks."

Roger Gertz, who says in his declaration that he has known Bergstein for more than 20 years, relates that when he was hired in September as acting COO, "I was stunned by the fact that no one in the accounting department could provide me with anything resembling a balance sheet, general ledger or other financial documentation."

When Gertz complained, he was told Bergstein would get the information to him he needed. "In fact, however, I never received any financial documents from Bergstein," he said.

Hans Turner, a CPA for more than 30 years, worked for Bergstein from May 2004 until January, including holding the position of CFO. He says in his declaration that when he complained internally that he wasn't being given the information he needed, "I was cut off from any further involvement in the preparation of financial data."

Turner said that when money did come in -- from the distribution of a ThinkFilm movie, for example -- each day Bergstein or his assistant, acting on his orders, would "sweep the company's accounts and move cash." He adds that "basic operating expenses were not getting paid," and "we never knew where the money was going."

When employees were paid in recent months, according to the filings, state and federal withholding taxes were taken out but never paid as required, except in a handful of states where they were needed to get production rebates.

Monday's planned auction of 805 movies, being overseen by Ray Reyes, Bergstein's in-house lawyer, is "a scheme to obtain assets" for the benefit of Bergstein and Tutor, according to the filing, and along with the improper transfers of cash "create harsh conflicts of interests among Bergstein, Tutor and the entities themselves."

In a brief interview Tuesday before the suits were filed, Tutor described himself as "a passive investor" who is "not much involved in the day to day." He professed to have only a "vague knowledge" of recent transactions including a settlement agreement with New York hedge fund D.B. Zwirn, which had sued to get back $130 million in loans made to various entities controlled by Bergstein and/or Tutor.

Tutor, CEO of the Tutor-Perini construction company and reportedly one of the richest men in Los Angeles, confirmed that he recently had "funded" a settlement with Zwirn in the amount of $45 million, which was partial payment on a settlement that was for roughly $105 million.

That payment allowed TFC Library, a new entity created by Tutor, to take back control of the 805 movies that were to be auctioned off. Tutor said he did not pay the full amount of the settlement because "we had issues with Zwirn."

Tutor said he has only been in the offices of Bergstein's companies, including Pangea, once in the past three years and no longer is making investments in movies, though he did not rule out investing in the future.

Whether Bergstein or Tutor has a future in show business, for now at least, is in the hands of the federal courts.