Bergstein fires back at hedge fundThu Apr 29, 2010 @ 04:34PM PST
David Bergstein and Ronald Tutor have filed a countersuit against D.B. Zwirn, blaming the bankrupt New York hedge fund for most of their financial problems in the movie business.
They allege that the Zwirn Special Opportunities Fund, its founder Daniel Zwirn and various affiliates promised them $250 million in financing to make and distribute movies but then lied, committed fraud, piled on excessive charges and failed to deliver the money needed to meet obligations to filmmakers, vendors and others.
Zwirn and its affiliates sued Bergstein, Tutor and their companies in November for repayment of more than $120 million.
The countersuit blames Zwirn's actions for damaging their businesses and slowing or halting production of six movies, including "Stopping Power" and "Black Water Transit," which "caused the value of the film collateral to be substantially impaired." They are seeking a reduction in the amount owed, damages and their costs.
Bergstein, CEO of Pangea Media Group, and Tutor -- his mostly silent partner who heads a large construction company -- filed the suit Wednesday in Los Angeles Superior Court on their own and on behalf of 16 related corporations, including ThinkFilm, Capitol Film Group and Stopping Power Prods.
Among those they are suing along with Zwirn is Fortress Investment Group, one of the financing entities involved with Bob and Harvey Weinstein's $625 million bid (backed by Ron Burkle) to regain control of Miramax. Bergstein is advising on a competing $650 million bid for Miramax, which is being backed at least in part by Tutor.
The suit says Bergstein and his companies entered the film business doing single-picture financing. That began to change in early 2006 after Zwirn loaned them $23.2 million to buy Capitol Films at a rate of 18% interest, plus various fees.
Zwirn then made five single-picture loans to them for $9.6 million. In October 2006, Zwirn and related entities loaned an additional $45 million so Bergstein and Tutor could buy ThinkFilm.
Then, beginning in November, the suit says, Zwirn execs pressured Bergstein and Tutor to invest $10 million in Sheridan Square Entertainment, a music distribution company, in return for a promise to do additional film financing and provide a revolving line of credit for $250 million-$300 million.
Zwirn insisted that to get the revolver, Bergstein's group had to stop borrowing from all others, which they say raised borrowing costs significantly. One of those loans, which also involved Aramid Entertainment, was for the troubled "Black Water Transit," directed by Tony Kaye, at a cost of 24% per year in interest and charges.
Zwirn also required personal guarantees from Bergstein and Tutor before they would process the revolver.
Another loan was for the movie "Stopping Power," directed by Jan de Bont, in November 2007 for $16.2 million, at what the suit calculates as a 43.5% annualized interest rate.
Zwirn loaned $51 million more in December 2007 as a prelude to the revolver, now set at $250 million. Some of that went to pay off prior loans or for more fees.
The revolver finally was approved in November 2007. The suit says Bergstein soon learned that the money wasn't there to fund it and that Zwirn's parent company was under investigation by the SEC. They also learned the Sheridan assets were not worth what Zwirn claimed.
By January 2008, Zwirn stopped doing most business and was on its way to bankruptcy. By then, Zwirn, and later the bankruptcy trustees, were demanding repayment of $75 million in loans -- now swelled to $180 million, including interest and fees; meanwhile, the suit charges, Zwirn refused to provide an accounting or let Bergstein and his companies turn to other sources for money.
When Bergstein complained to Daniel Zwirn, the suit says the response was, "Sue me, because I have bigger problems."
Zwirn's action left Bergstein's companies "substantially impaired" because they couldn't get other loans, and they suffered "a significant deterioration of the value of film assets."
After Zwirn was dissolved, the job of reclaiming money from any assets was assigned in 2009 to Fortress, which is why it is named in the countersuit.
An attorney for Zwirn declined comment. However, there was a hearing Tuesday before a judicial referee (a private judge) and the original case is going forward. The referee ordered Bergstein and Tutor to return May 17 with responses to allegations made in the original Zwirn suit.